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www.pjm.com Locational Marginal Pricing (LMP) Overview PJM Member Training Dept. Generation 101 1 PJM©2009

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Locational Marginal Pricing (LMP) Overview

www.pjm.com Locational Marginal Pricing (LMP) Overview PJM Member Training Dept. Generation 101 1 PJM©2009
PJM Member Training Dept. Generation 101
PJM Member Training Dept.
Generation 101

1

PJM©2009

Objectives

Student will identify the components and

uses of the pricing mechanism used by the

PJM energy market.

Student will illustrate the associations between market sellers, market buyers and Locational Marginal Pricing.

Student will explain the calculation of LMP through the use of a 5 bus model diagram.

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2

PJM©2009

Agenda

Locational Marginal Pricing - LMP

Agenda  Locational Marginal Pricing - LMP  5-bus Example  LMP Verification & Posting process

5-bus Example

LMP Verification & Posting process

LMP Statistics

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3

PJM©2009

Pricing method PJM uses to:

price energy purchases and sales in PJM Market

price transmission congestion costs to move energy within PJM RTO

Physical, flow-based pricing system:

What is LMP?

RTO  Physical, flow-based pricing system: What is LMP?  how energy actually flows, NOT contract

how energy actually flows, NOT contract paths

LMP Analogy

LMP is analogous to a taxi ride for MWs!

Light traffic = Consistent, predictable fare

LMP Analogy LMP is analogous to a taxi ride for MWs! Light traffic = Consistent, predictable
LMP Analogy LMP is analogous to a taxi ride for MWs! Light traffic = Consistent, predictable
LMP Analogy LMP is analogous to a taxi ride for MWs! Light traffic = Consistent, predictable
5
5
LMP Analogy LMP is analogous to a taxi ride for MWs! Light traffic = Consistent, predictable
LMP Analogy LMP is analogous to a taxi ride for MWs! Light traffic = Consistent, predictable

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10/22/2009

LMP Analogy

LMP is analogous to a taxi ride for MWs!

Heavy traffic = Higher fare

LMP Analogy LMP is analogous to a taxi ride for MWs! Heavy traffic = Higher fare
LMP Analogy LMP is analogous to a taxi ride for MWs! Heavy traffic = Higher fare
LMP Analogy LMP is analogous to a taxi ride for MWs! Heavy traffic = Higher fare
LMP Analogy LMP is analogous to a taxi ride for MWs! Heavy traffic = Higher fare
LMP Analogy LMP is analogous to a taxi ride for MWs! Heavy traffic = Higher fare
LMP Analogy LMP is analogous to a taxi ride for MWs! Heavy traffic = Higher fare
LMP Analogy LMP is analogous to a taxi ride for MWs! Heavy traffic = Higher fare
6
6
LMP Analogy LMP is analogous to a taxi ride for MWs! Heavy traffic = Higher fare
LMP Analogy LMP is analogous to a taxi ride for MWs! Heavy traffic = Higher fare

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10/22/2009

How is LMP Used?

Generators get paid at generation bus LMP

Loads pay at load bus LMP

Typically at zone LMP

Option exists for nodal LMP

Transactions pay differential in source and sink LMP

Congestion

Losses

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LMP  Transactions pay differential in source and sink LMP  Congestion  Losses www.pjm.com 7

10/22/2009

Locational Marginal Price System   Transmission   Cost of Energy Congestion Marginal Price

Locational Marginal Price

System

 

Transmission

 

Cost of

Energy

Energy Congestion Marginal

Congestion

Energy Congestion Marginal

Marginal

Price

Cost

Losses

Cost to serve the next MW of load at a specific location, using the lowest production cost of all available generation, while observing all transmission limits

Locational Marginal Price

Locational Marginal Price System   Transmission   Cost of Energy Congestion Marginal Price

System

 

Transmission

 

Cost of

Energy

Energy Congestion Marginal

Congestion

Energy Congestion Marginal

Marginal

Price

Cost

Losses

System Energy Price

Represents optimal dispatch ignoring congestion and losses

Same price for every bus in PJM

Used to price Spot Market Interchange

Spot Market buyer pays system energy price

Spot Market seller is paid system energy price

Calculated both in day ahead and real time

 Congestion Price Locational Marginal Price System   Transmission   Cost of Energy Congestion

Congestion Price

Locational Marginal Price

System

 

Transmission

 

Cost of

Energy

Energy Congestion Marginal

Congestion

Energy Congestion Marginal

Marginal

Price

Cost

Losses

Represents price of congestion for binding constraints

Calculated using cost of marginal units controlling constraints and sensitivity factors on each bus

No change in this calculation

Will be zero if no constraints

Will vary by location if system is constrained

Used to price explicit and implicit congestion (Locational Net Congestion Bill)

Load pays Congestion Price

Generation is paid Congestion Price

Congestion revenues allocated as hourly credits to FTR holders

Calculated both in day ahead and real time

Locational Marginal Price

Locational Marginal Price System   Transmission   Cost of Energy Congestion Marginal Price

System

 

Transmission

 

Cost of

Energy

Energy Congestion Marginal

Congestion

Energy Congestion Marginal

Marginal

Price

Cost

Losses

Loss Price

Represents price of marginal losses

Calculated using penalty factors as previously described

Will vary by location

Used to price explicit and implicit losses (Locational Net Loss Bill)

Load pays the Loss Price

Generation is paid the Loss Price

Loss revenues are allocated based on load + exports ratio share

Calculated both in day-ahead and real-time

Real Power (MW) Losses

Transmission Losses

Power flow converted to heat in transmission equipment

Heat produced by current (I) flowing through resistance (R)

Losses equal to I 2 R

Heat loss sets the “thermal rating” of equipment

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10/22/2009

Dispatch Rate

Definition: The Dispatch Rate is expressed in dollars per MWh, calculated and transmitted to each generator to direct the output level of all generation resources dispatched by PJM based on the incremental offer data which was

previously received from the Generators.

PJM based on the incremental offer data which was previously received from the Generators. www.pjm.com 13

Dispatch Rate

The Dispatch Rate is determined by the PJM economic dispatch solution as calculated by PJM’s Unit Dispatch System (UDS)

Offer Price
Offer Price

$35

$30

$25

$20

Dispatch Rate = $25 0 50 100 150 200 MW Economic Basepoint
Dispatch Rate = $25
0
50
100
150
200
MW
Economic Basepoint

The Economic Basepoint is the MW value sent to the generating unit that indicates to what level the unit should be loaded based on the economic dispatch solution and the units incremental price curve

Penalty Factors Effect on Dispatch

The Incremental Loss for bus i is used to calculate a factor that can be used to include the effect of losses in the dispatch

This factor is called the Loss Penalty Factor, or Penalty Factor

Pf

i

1

   1

P

P

L

i

 

Change in Losses

Change in Unit’s MW Output

The Penalty Factors adjust the incremental cost of each generator so as to include the effects of losses

Penalty factors applied to each and every location

Including generation, load, virtual transaction

Penalty Factors Effect on Dispatch

If an increase in generation results in an increase in system losses then:

Penalty factor is greater than 1

Units offer curve is adjusted higher

0

P

L

1

 

P

i

Unit offer curve is multiplied by penalty factor

Unit looks less attractive to dispatch

Pf

i

1 1.0

P

  1

P

L

i

Penalty Factors Effect on Dispatch

If an increase in generation results in a decrease in system losses then:

Penalty factor is less than 1

Units offer curve is adjusted lower

Unit offer curve is multiplied by penalty factor

Unit looks more attractive to dispatch

Total LMP would still at least equal unit’s original offer

0

P

L

P

i

1

Pf

i

1 1.0

P

  1

P

L

i

Penalty Factors Effect on Dispatch - Example # 1

Penalty Factors Effect on Dispatch - Example # 1 Generating Unit # 1 Generating Unit #

Generating Unit # 1

Generating Unit # 2

Offer Price = $ 10.00 ----- 200 MW

Offer Price = $ 10.00 ----- 200 MW

$ 20.00 ----- 300 MW

$ 20.00 ----- 300 MW

$ 30.00 ----- 400 MW

$ 30.00 ----- 400 MW

$ 40.00 ----- 500 MW

$ 40.00 ----- 500 MW

Generating 300 MW

Generating 300 MW

Penalty Factor = 1.00 $20 * 1.00 = $20.00 offer price stays the same)

(Unit

Penalty Factor = .97 $20 * 0.97 = $19.60 (Unit offer price adjusted lower )

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Penalty Factors Effect on Dispatch - Example # 2

Penalty Factors Effect on Dispatch - Example # 2 Generating Unit # 1 Generating Unit #

Generating Unit # 1

Generating Unit # 2

Offer Price = $ 10.00 ----- 200 MW

Offer Price = $ 10.00 ----- 200 MW

$ 20.00 ----- 300 MW

$ 20.00 ----- 300 MW

$ 30.00 ----- 400 MW

$ 30.00 ----- 400 MW

$ 40.00 ----- 500 MW

$ 40.00 ----- 500 MW

$ 50.00 ----- 600 MW

$ 50.00 ----- 600 MW

Generating 500 MW

Generating 500 MW

Penalty Factor = 1.05 $40 * 1.05 = $42.00 (Unit offer price adjusted higher )

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Penalty Factor = 1.00 $40 * 1.00 = $40.00 (Unit offer price stays the same)

LMP & Economic Dispatch

Dispatch Rate

Directive
Directive

Where PJM wants The units to be loaded economically

LMP

Result
Result

Based on actual loading of each unit

economically LMP Result Based on actual loading of each unit If unit’s don’t move to follow

If unit’s don’t move to follow dispatch rate, LMP will not change!

LMP Model

LPA Preprocessor
LPA
Preprocessor
LMP Model LPA Preprocessor Generator Offers Dispatch Rates Dispatchable Transactions * Energy Demand Generator MW System

Generator Offers Dispatch Rates Dispatchable Transactions

*

Generator Offers Dispatch Rates Dispatchable Transactions * Energy Demand Generator MW System Topology Flexible
Generator Offers Dispatch Rates Dispatchable Transactions * Energy Demand Generator MW System Topology Flexible
Generator Offers Dispatch Rates Dispatchable Transactions * Energy Demand Generator MW System Topology Flexible
Generator Offers Dispatch Rates Dispatchable Transactions * Energy Demand Generator MW System Topology Flexible
Generator Offers Dispatch Rates Dispatchable Transactions * Energy Demand Generator MW System Topology Flexible
Generator Offers Dispatch Rates Dispatchable Transactions * Energy Demand Generator MW System Topology Flexible

Energy Demand Generator MW System Topology

Flexible Generating

Units & Offers

Siemens State Estimator
Siemens
State
Estimator

Real-Time

Data

(EMS)

LPA
LPA
Offers Siemens State Estimator Real-Time Data (EMS) LPA LMP’s for all locations Binding Transmission Constraints
LMP’s for all locations
LMP’s for
all locations
Real-Time Data (EMS) LPA LMP’s for all locations Binding Transmission Constraints Unit Dispatch System
Real-Time Data (EMS) LPA LMP’s for all locations Binding Transmission Constraints Unit Dispatch System
Real-Time Data (EMS) LPA LMP’s for all locations Binding Transmission Constraints Unit Dispatch System

Binding Transmission Constraints

Unit Dispatch System (UDS)
Unit
Dispatch
System (UDS)

Dispatcher

Input

*

Constraints Unit Dispatch System (UDS) Dispatcher Input * www.pjm.com * Manual Dispatcher Input LPA = Locational

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*

Manual Dispatcher Input

LPA = Locational Pricing Algorithm

LMP Execution Steps

Determine current system conditions

energy demand

generator MW values

system topology

Process generator offers & dispatch rates

to determine flexible generators

offers & dispatch rates to determine flexible generators  Collect current system constraint data  Execute

Collect current system constraint data

Execute Locational Price Algorithm

High & Low LMPs

High & Low LMPs Thermal Limit Sending End Receiving End  Highest LMP at immediate receiving
Thermal Limit
Thermal Limit
High & Low LMPs Thermal Limit Sending End Receiving End  Highest LMP at immediate receiving
High & Low LMPs Thermal Limit Sending End Receiving End  Highest LMP at immediate receiving
High & Low LMPs Thermal Limit Sending End Receiving End  Highest LMP at immediate receiving
Sending End
Sending End

Receiving End

Highest LMP at immediate receiving end of constraint

Lowest LMP at immediate sending end of constraint

Two marginal units control one constraint; three marginal units two constraints, etc

Agenda

Locational Marginal Pricing - LMP

Definition of LMP

Locational Marginal Pricing - LMP  Definition of LMP  LMP Verification and Posting process 

LMP Verification and Posting process

LMP Statistics

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24

PJM©2009

System Overview
System
Overview
System Overview Example # 1 - 5 Bus Transmission Grid X E D = 2.97% E

Example # 1 - 5 Bus Transmission Grid

X ED = 2.97%

E

230 MW Thermal Limit

D

X AD = 3.04% X BC = 1.08% X EA = 0.64% A Alta Park
X AD = 3.04%
X BC = 1.08%
X EA = 0.64%
A
Alta
Park City
X AD = 3.04% X BC = 1.08% X EA = 0.64% A Alta Park City
X AD = 3.04% X BC = 1.08% X EA = 0.64% A Alta Park City

Sundance

Brighton

X CD = 2.97%

B C
B
C

Solitude

Bus

Transmission

Line

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Legend

Load

Load

Generators

Generators

X AB = 2.81%

25

25

Impedances as shown R = 0 for all lines

10/22/2009

Example # 1 - 5 Bus Transmission Grid

Example # 1 - 5 Bus Transmission Grid Unconstrained System Loads = 669 D Sundance E

Unconstrained System Loads = 669

D Sundance E 230 MW Thermal Limit Brighton Load = 223 MW A Solitude Alta
D Sundance
E
230 MW
Thermal Limit
Brighton
Load =
223 MW
A
Solitude
Alta
B
C
Park City
Loads = 223 MW each

Example # 1 - 5 Bus Transmission Grid

Generator Offers

Sundance

600 MW 200 MW $10/MWh E 230 MW Thermal Limit D $40/MWh Brighton 223 MW
600 MW
200 MW
$10/MWh
E
230 MW
Thermal Limit
D
$40/MWh
Brighton
223 MW
A
Solitude
Alta
223 MW
223 MW
B
C
520 MW
110 MW
$14/MWh
Park City
100 MW
$30/MWh
$15/MWh
Example # 1 - 5 Bus Transmission Grid Dispatch & Energy Flow D Sundance E

Example # 1 - 5 Bus Transmission Grid

Dispatch & Energy Flow
Dispatch & Energy Flow
# 1 - 5 Bus Transmission Grid Dispatch & Energy Flow D Sundance E 230 MW
D Sundance E 230 MW Thermal Limit Brighton 200 MW 229 $40/MWh 600 MW 147
D Sundance
E
230 MW
Thermal Limit
Brighton
200 MW
229
$40/MWh
600 MW
147
223 MW
600 MW
293
70
A
$10/MWh
69 MW
Alta
Solitude
520 MW
223 MW
223 MW
Park City
$30/MWh
B
C
371
153

110 MW

$14/MWh

100 MW

$15/MWh

Total Load 669

LMPs - No Loss Component Included $14 $14
LMPs - No Loss Component Included
$14
$14

E

230 MW Thermal Limit

D

Brighton

229 147 293 70 A 223 MW 223 MW 69 MW 371 153
229
147
293
70
A
223 MW
223 MW
69 MW
371
153
229 147 293 70 A 223 MW 223 MW 69 MW 371 153 600 MW $10/MWh

600 MW

$10/MWh

600 MW

$14
$14

Alta

MW 223 MW 69 MW 371 153 600 MW $10/MWh 600 MW $14 Alta 110 MW

110 MW

$14/MWh

Example # 1 - 5 Bus Transmission Grid

Sundance

200 MW

$40/MWh

# 1 - 5 Bus Transmission Grid Sundance 200 MW $40/MWh 223 MW B C $14
# 1 - 5 Bus Transmission Grid Sundance 200 MW $40/MWh 223 MW B C $14

223 MW

# 1 - 5 Bus Transmission Grid Sundance 200 MW $40/MWh 223 MW B C $14
# 1 - 5 Bus Transmission Grid Sundance 200 MW $40/MWh 223 MW B C $14

B

C

$14 $14
$14
$14

Solitude

520 MW

$30/MWh

Park City

100 MW

$15/MWh

Alta - Marginal Unit

Example # 1 - 5 Bus Transmission Grid LMPs - Loss Component Included Area Load

Example # 1 - 5 Bus Transmission Grid

LMPs - Loss Component Included
LMPs - Loss Component Included

Area Load = 669 Area Losses = 17 MW Area Generation = 686 Brighton - 600 MW Alta - 86 MW

230 MW Thermal Limit

LMP = $14.33 PF = 1.0247
LMP = $14.33
PF = 1.0247

Sundance

D

200 MW

$40/MWh

LMP = $13.83 PF = 1.0624
LMP = $13.83
PF = 1.0624

E

Brighton

D 200 MW $40/MWh LMP = $13.83 PF = 1.0624 E Brighton 600 MW 229 147

600 MW

229 147 293 70 A Alta 223 MW 223 MW B C Park City 86
229
147
293
70
A
Alta
223 MW
223 MW
B
C
Park City
86 MW
371
153

110 MW

$14/MWh

LMP = $14.61 PF = 1.0053
LMP = $14.61
PF = 1.0053

100 MW

$15/MWh

223 MW

600 MW

$10/MWh

LMP = $14.00 PF = 1.0492
LMP = $14.00
PF = 1.0492
Solitude LMP = $14.69 520 MW PF = 1.00 $30/MWh
Solitude
LMP = $14.69
520 MW
PF = 1.00
$30/MWh
Marginal Unit

Marginal Unit

Reference Bus

Reference Bus

Example # 1 - 5 Bus Transmission Grid

 

Unit

Penalty Factor (PF)

Total

 

LMP

 

Solitude

 

1.00

14.69

Park City

 

1.0053

$14.61

Sundance

 

1.0247

$14.33

 

Alta

 

1.0492

$14.00

 

Brighton

 

1.0624

$13.83

 

Marginal Unit

 
Reference Bus

Reference Bus

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31

A higher PF results in a

lower LMP (LMP gets lower

“Disincentive” to generation since increased generation contributes to losses

lower LMP (LMP gets lower “Disincentive” to generation since increased generation contributes to losses 10/22/2009
lower LMP (LMP gets lower “Disincentive” to generation since increased generation contributes to losses 10/22/2009

10/22/2009

Example # 1 - 5 Bus Transmission Grid Unit Offer Price Adjusted Offer Total LMP

Example # 1 - 5 Bus Transmission Grid

Unit Offer Price Adjusted Offer Total LMP Alta $14.00 $14.689 $14.00 Brighton $10.00 $10.624 $13.83
Unit
Offer Price
Adjusted Offer
Total LMP
Alta
$14.00
$14.689
$14.00
Brighton
$10.00
$10.624
$13.83
Park City
$15.00
$15.738
$14.61
*Unit Not Running
Solitude
$30.00
$30.00
$14.69
*Unit Not Running
Sundance
$40.00
$40.988
$14.33
*Unit Not Running
Marginal Unit

Marginal Unit

Reference Bus

Reference Bus

Adjusted Offer = Offer X Penalty Factor Higher PF = Offer

32

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10/22/2009

Constrained System Loads = 900 Example # 2 - 5 Bus Transmission Grid D Sundance

Constrained System Loads = 900

Example # 2 - 5 Bus Transmission Grid

D Sundance

E

230 MW Thermal Limit

200 MW
200 MW

Brighton

600 MW $10/MWh
600 MW
$10/MWh
A
A

Park City

100 MW $15/MWh
100 MW
$15/MWh
200 MW Brighton 600 MW $10/MWh A Park City 100 MW $15/MWh $40/MWh Load = 300
200 MW Brighton 600 MW $10/MWh A Park City 100 MW $15/MWh $40/MWh Load = 300

$40/MWh

Load = 300 MW
Load = 300 MW
B C
B
C
Loads = 300 MW
Loads = 300 MW

Solitude

520 MW $30/MWh
520 MW
$30/MWh

Alta

110 MW $14/MWh
110 MW
$14/MWh

Example # 2 - 5 Bus Transmission Grid

Dispatch Solution Ignoring Thermal Limit
Dispatch Solution Ignoring Thermal Limit
Dispatched at 600 MW
Dispatched
at 600 MW

Brighton

Ignoring Thermal Limit Dispatched at 600 MW Brighton 600 MW $10/MWh E 230 MW Thermal Limit

600 MW

$10/MWh

E

230 MW Thermal Limit

D

253 174 300 MW 384 84 A 300 MW 300 MW 348 216
253
174
300 MW
384
84
A
300 MW
300 MW
348
216

Park City

B

C

200 MW

$40/MWh

Sundance

Dispatched 90 MW
Dispatched
90 MW

Solitude

520 MW

$30/MWh

Alta

110 MW

$14/MWh

Dispatched at 110 MW
Dispatched
at 110 MW

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100 MW

$15/MWh

Dispatched 100 MW 34
Dispatched
100 MW
34

Total Dispatched 900 MW

10/22/2009

Example # 2 - 5 Bus Transmission Grid

Actual Dispatched Generation
Actual Dispatched Generation

D Sundance

Dispatched at 510 MW
Dispatched
at 510 MW

Brighton

Generation D Sundance Dispatched at 510 MW Brighton 600 MW $10/MWh E 230 MW Thermal Limit

600 MW

$10/MWh

E

230 MW Thermal Limit

300 MW
300 MW
A 300 MW 300 MW
A
300 MW
300 MW

Park City

B

C

Dispatched at 180 MW
Dispatched
at 180 MW

100 MW

$15/MWh

Dispatched at 100 MW 35
Dispatched
at 100 MW
35

200 MW

$40/MWh

Solitude

Alta

110 MW

$14/MWh

Dispatched at 110 MW
Dispatched
at 110 MW

520 MW

$30/MWh

Total Dispatched 900 MW

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10/22/2009

Example # 2 - 5 Bus Transmission Grid

Energy Flow
Energy Flow

200 MW

$40/MWh

Sundance E 230 MW Thermal Limit D 230 225 Brighton 510 MW 178 280 300
Sundance
E
230 MW
Thermal Limit
D
230
225
Brighton
510 MW
178
280
300 MW
600 MW
A
309
4
$10/MWh
101
195 MW
Solitude
Alta
520
MW
300 MW
300 MW
110 MW
$30/MWh
Park City
B
C
$14/MWh
110 MW
279
100 MW
180
102

100 MW

$15/MWh

Example # 2 - 5 Bus Transmission Grid

LMPs - No Loss Component Included $10.00
LMPs - No Loss Component Included
$10.00

E

230 MW Thermal Limit

Brighton

Component Included $10.00 E 230 MW Thermal Limit Brighton 200 MW $40/MWh Sundance 300 MW $40.00

200 MW

$40/MWh

Sundance

E 230 MW Thermal Limit Brighton 200 MW $40/MWh Sundance 300 MW $40.00 D 230 225

300 MW

$40.00
$40.00

D

230 225 280 178 309 304 A 101 195 MW 300 MW 300 MW 110
230
225
280
178
309
304
A
101
195 MW
300 MW
300 MW
110 MW
279
100 MW
180
102

Park City

100 MW

$15/MWh

B

$26.40
$26.40

C

$30.00
$30.00

510 MW

$17.00
$17.00

600 MW

$10/MWh

Solitude

520 MW

$30/MWh

Alta

110 MW

$14/MWh

Brighton & Solitude - Marginal Generators

Brighton & Solitude - Marginal Generators

Example # 2 - 5 Bus Transmission Grid

LMPs - Loss Component Included
LMPs - Loss Component Included

Area Load = 900 Area Losses = 15 MW Area Generation = 915 Brighton - 510 MW Alta - 110 MW Park City - 100 MW Solitude - 195

LMP = $39.35
LMP = $39.35

PF = 1.0162 Sundance

LMP = $10.00 PF = 1.0555
LMP = $10.00
PF = 1.0555

Brighton

E

PF = 1.0162 Sundance LMP = $10.00 PF = 1.0555 Brighton E 510 MW 600 MW

510 MW

600 MW

$10/MWh

Alta

D

230 225 280 178 300 MW 309 304 A Solitude 195 MW 520 MW 300
230
225
280
178
300 MW
309
304
A
Solitude
195 MW
520 MW
300 MW
300 MW
B
C
Park City
$30/MWh
110 MW
100 MW
180
102

110 MW

$14/MWh

LMP = $26.61 PF = 1.0024
LMP = $26.61
PF = 1.0024

100 MW

$15/MWh

200 MW

$40/MWh

LMP = $30.00 PF = 1.00
LMP = $30.00
PF = 1.00
Marginal Unit

Marginal Unit

Reference Bus

Reference Bus

LMP = $16.76 PF = 1.0450
LMP = $16.76
PF = 1.0450

LMP & Sensitivity Factors

Solitude & Brighton supply the next increment of load on the system

(Marginal generators)

Attempt to serve an additional increment of load (1 MW)

Resulting Sensitivity Factors determine LMP

Least Cost Security Constrained Dispatch Algorithm

Calculates least expensive way to serve load while respecting

transmission limit

Power flow analysis calculates Sensitivity Factors

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39

load while respecting transmission limit  Power flow analysis calculates Sensitivity Factors www.pjm.com 39 10/22/2009

10/22/2009

Sensitivity Factors

Sensitivity Factors calculate the price to deliver power to every location in PJM in the least expensive way

Based on System impedance

“Big pipe” = lower impedance = more power flow

 “Big pipe” = lower impedance = more power flow  “Garden hose” = high impedance

“Garden hose” = high impedance = less power flow

 “Garden hose” = high impedance = less power flow  Based on impact of marginal

Based on impact of marginal generators on transmission constraint and generator price

Example # 2 - LMP Calculations

LMP Calculations - No Loss Component
LMP Calculations - No Loss Component

How would 1 MW of energy be supplied to each bus from the two “marginal” units without violating the transmission constraint?

   
   
 
   
   
 
   
 

Sensitivity Factors (for 1 MWh of Load Supplied from)

Sensitivity Factors (for 1 MWh of Load Supplied from)
Sensitivity Factors (for 1 MWh of Load Supplied from)
  Sensitivity Factors (for 1 MWh of Load Supplied from)      
     
Calculation  

Calculation

Calculation
 
Calculation  

Bus

Brighton @ $10/MWh

 

Solitude

(MWh) (Brighton Unit Price) + (MWh) (Solitude Unit Price) +

LMP

 

@

$30/MWh

A 0.65 MWh 0.35 MWh 0.65 ($10) + 0.35 ($30) $17.00
A 0.65 MWh
0.35 MWh
0.65 ($10) + 0.35 ($30)
$17.00
B 0.18 MWh 0.82 MWh 0.18 ($10) + 0.82 ($30) $26.40

B

B

0.18

MWh

MWh

0.82

MWh

MWh

0.18 ($10) + 0.82 ($30)

0.18 ($10) + 0.82 ($30)

$26.40

B 0.18 MWh 0.82 MWh 0.18 ($10) + 0.82 ($30) $26.40
C 0.00 MWh 1.00 MWh 0.00 ($10) + .1.00 ($30) $30.00

C

C

0.00

MWh

MWh

1.00

MWh

MWh

0.00 ($10) + .1.00 ($30)

0.00 ($10) + .1.00 ($30)

$30.00

C 0.00 MWh 1.00 MWh 0.00 ($10) + .1.00 ($30) $30.00
D -0.50 MWh 1.50 MWh -0.50 ($10) + 1.50 ($30) $40.00

D

D

-0.50 MWh

-0.50 MWh

1.50

MWh

MWh

-0.50 ($10) + 1.50 ($30)

-0.50 ($10) + 1.50 ($30)

$40.00

D -0.50 MWh 1.50 MWh -0.50 ($10) + 1.50 ($30) $40.00
 

E

1.00

MWh

-0.00 MWh

1.00 ($10) + 0.00 ($30)

$10.00

 
 
 
 
 
 

The sensitivity factors reflect the amount of cost effective generation required to supply 1 MW of load at each bus, without increasing the flow on the contingency

System Energy Price = LMP at the Reference Bus (where Congestion & Losses = 0)

Reference or “Slack” Bus is the “electrical load center” of the system

Losses are calculated using the System Energy Price & the Penalty Factor (Pf)

using the System Energy Price & the Penalty Factor ( Pf) Example # 2 - LMP

Example # 2 - LMP Calculations

the Penalty Factor ( Pf) Example # 2 - LMP Calculations Solitude 520 MW $30/MWh Energy
the Penalty Factor ( Pf) Example # 2 - LMP Calculations Solitude 520 MW $30/MWh Energy

Solitude

Solitude 520 MW $30/MWh Energy LMP = $ 30.00 Congestion LMP = $0.00 Losses LMP =

520 MW

$30/MWh

Energy LMP = $ 30.00 Congestion LMP = $0.00 Losses LMP = $ 0.00 Total
Energy LMP = $ 30.00
Congestion LMP = $0.00
Losses LMP = $ 0.00
Total LMP = $30.00
PF = 1.00

System

Energy

Price

*

1 Pf
1
Pf
LMP = $0.00 Losses LMP = $ 0.00 Total LMP = $30.00 PF = 1.00 System

System

Energy

Price

*

1 Pf
1
Pf
System Energy Price * 1 Pf Example # 2 - Losses Calculation Bus Penalty   Calculation
System Energy Price * 1 Pf Example # 2 - Losses Calculation Bus Penalty   Calculation

Example # 2 - Losses Calculation

Bus

Penalty

 

Calculation

 

Total Losses

Factor

 

A

1.0450

30.00

*

1
1

-

1.0450

1

$-1.29

   

B

1.0024

30.00

*

1
1

-

1.0024

1

$-0.07

 

C

1.00

30.00

*

1 1.00
1
1.00

-

1

$0.00

D

1.0162

 

*

1
1

-

1.0162

1

$-0.48

 

30.00

E

1.0555

30.00

*

1
1

-

1

$-1.58

   

1.0555

Example # 2 - LMP Calculations

Example # 2 - LMP Calculations LMP Calculations - Loss Component Included How would 1 MW

LMP Calculations - Loss Component Included

How would 1 MW of energy be supplied to each bus from the two “marginal” units without violating the transmission constraint?

3 LMP Components Calculation Bus Congestion (Using Sensitivity Factors for 1 MW of Load LMP
3 LMP Components
Calculation
Bus
Congestion
(Using Sensitivity Factors for 1 MW of Load
LMP
System Energy
Price
Losses
Supplied From Marginal Generators:
Brighton & Solitude)
A $30.00
$
-11.95
$ -1.29
0.65 ($10) + 0.342 ($30)
$16.76
B $30.00
$ -3.32
$ -0.07
0.171 ($10) + 0.83 ($30)
$26.61
C $30.00
$ 0.00
$ 0.00
0.00 ($10) + 1.00 ($30)
$30.00
D $30.00
$ 9.82
$ -0.48
-0.535 ($10) + 1.45 ($30)
$39.35
E $30.00
$
-18.42
$ -1.58
1.00 ($10) + -0.00 ($30)
$10.00

www.pjm.com

Agenda

Locational Marginal Pricing - LMP

Definition of LMP

5-bus Example

Locational Marginal Pricing - LMP  Definition of LMP  5-bus Example  LMP Statistics www.pjm.com

LMP Statistics

www.pjm.com

45

PJM©2009

Real-Time LMPs  Calculated & posted on PJM website at 5-minute intervals  Based on

Real-Time LMPs

Calculated & posted on PJM website at 5-minute intervals

Based on actual operating conditions, as described by

State Estimator

Integrated at end of each hour (five-minute real-time LMPs) & posted on PJM website

Market settlements performed based on hourly integrated LMPs (after LMP Verification Process!!!)

settlements performed based on hourly integrated LMPs ( after LMP Verification Process!!!) www.pjm.com 46 10/22/2009

Operational Data Page

http://www.pjm.com/pub/account/lmpgen/lmppost.html

Operational Data Page http://www.pjm.com/pub/account/lmpgen/lmppost.html www.pjm.com 47 10/22/2009

Zonal LMPs are Load-weighted LMPs

Correspond to PJM Transmission zones

Operational Data Page

Hub LMPs use equal weighting at each bus included in the Hub

Western Hub most popular

Interface LMPs are dynamically weighted based on flow on each tie-line of the interface

More accurately reflects physical flow

Aggregate LMPs can be generation or load weighted

Can be requested by LSE or Generation owner

weighted  Can be requested by LSE or Generation owner  Detailed definitions of Zones, Hubs,

Detailed definitions of Zones, Hubs, Interfaces, and Aggregates can be

found at pjm.com by accessing > Markets > Energy > LMP Model

Daily LMP Verification Process

Reviews following logs:

Dispatcher logs

Program error logs

LMP results for each interval

Recalculates or replaces LMPs, as required

Notifies Market Settlements LMPs are verified & ready to use in accounting

Posts verified hourly LMPs for previous operating day on PJM website

www.pjm.com

49

to use in accounting  Posts verified hourly LMPs for previous operating day on PJM website

10/22/2009

LMP Summary

LMP is the pricing mechanism for wholesale power in the PJM energy market

LMPs components include System Energy Price, Congestion (if it exists) and Losses (when applicable)

Only units following PJM dispatch instructions can set LMP

Although all units get paid LMP for their MW output

Real-time LMPs are posted on the PJM home page and on internet tools such as eDATA

Verified hourly integrated LMPs are used for Market Settlements

Questions?

Questions? www.pjm.com 51 PJM©2009

www.pjm.com

51

PJM©2009

Contact Information

PJM Customer Relations Telephone: (610) 666-8980 Toll Free Telephone: 866-400-8980 Fax: (610) 666-4379 World wide web: www.pjm.com

email: http://www.pjm.com/about-pjm/who-we-are/contact-us.aspx

Subscribe to PJM e-mail lists at:

http://www.pjm.com/about-pjm/newsroom/newsletter-notices.aspx

www.pjm.com

52

PJM©2009

Agenda

Locational Marginal Pricing - LMP

Definition of LMP

5-bus Example

LMP Verification & Posting process

- LMP  Definition of LMP  5-bus Example  LMP Verification & Posting process www.pjm.com

www.pjm.com

53

PJM©2009

Real -time LMP ($/MWh)

Demand (MW)

Summer Peak Load Comparison

PJM summer peak-load comparison: Monday, June 9, 2008, and Wednesday, August 8, 2007
PJM summer peak-load comparison:
Monday, June 9, 2008, and Wednesday, August 8, 2007

08- Aug- 07 1600 EPT - PJM 139,428 MW

09- Jun- 08 1700 EPT - PJM 130,100 MW

$1,000

$900

$800

$700

$600

$500

$400

$300

$200

$100

$0

0 8 -Aug -07 PJM load
0 8 -Aug -07 PJM load
0 9 -Jun -08 PJM load 0 0 9 -Jun 8 -Aug -07 PJM average
0 9 -Jun -08 PJM load 0 0 9 -Jun 8 -Aug -07 PJM average
0 9 -Jun -08 PJM load 0 0 9 -Jun 8 -Aug -07 PJM average
0 9 -Jun -08 PJM load 0 0 9 -Jun 8 -Aug -07 PJM average
0 9 -Jun -08 PJM load 0 0 9 -Jun 8 -Aug -07 PJM average
0 9 -Jun -08 PJM load 0 0 9 -Jun 8 -Aug -07 PJM average

0

9 -Jun

-08 PJM load

0

0

9 -Jun

0 9 -Jun -08 PJM load 0 0 9 -Jun 8 -Aug -07 PJM average real-time
0 9 -Jun -08 PJM load 0 0 9 -Jun 8 -Aug -07 PJM average real-time
0 9 -Jun -08 PJM load 0 0 9 -Jun 8 -Aug -07 PJM average real-time

8 -Aug -07 PJM average real-time

-08 PJM average real-time LMP

8 -Aug -07 PJM average real-time -08 PJM average real-time LMP
8 -Aug -07 PJM average real-time -08 PJM average real-time LMP
LMP

LMP

LMP
LMP
LMP
LMP
LMP
LMP
LMP
LMP
LMP
LMP
LMP
0 9 -Jun -08 PJM load 0 0 9 -Jun 8 -Aug -07 PJM average real-time
0 9 -Jun -08 PJM load 0 0 9 -Jun 8 -Aug -07 PJM average real-time

150,000

140,000

130,000

120,000

110,000

100,000

90,000

80,000

70,000

60,000

50,000

40,000

30,000

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

Hour ending (EPT)

2008 LMP Update (Dollars MWH)

Day-Ahead Real-Time

Day-Ahead

Real-Time

Simple Average LMP

$66.12

$66.40

Load-Weighted

Average LMP

$70.25

$71.13

www.pjm.com

2006-2008 Real-time Simple Average LMP Components

PJM real-time, simple average LMP components (Dollars per MWh): Calendar years 2006 to 2008
PJM real-time, simple average LMP components (Dollars per MWh):
Calendar years 2006 to 2008
 

Energy

Congestion

Loss

 

Real-Time LMP

Component

Component

Component

2006

$49.27

$47.19

$2.08

$0.00

2007

$57.58

$56.56

$1.00

$0.02

2008 $66.40 $66.29 $0.06 $0.04
2008
$66.40
$66.29
$0.06
$0.04
$0.00 2007 $57.58 $56.56 $1.00 $0.02 2008 $66.40 $66.29 $0.06 $0.04 www.pjm.com 56 10/22/2009

LMP ($/MWh)

2004-2008 Real-time Monthly Load-Weighted Average LMP

PJM real-time, monthly, load-weighted, average LMP: Calendar years 2004 to 2008
PJM real-time, monthly, load-weighted, average LMP: Calendar years 2004 to 2008

$120

$100

$80

$60

$40

$20

$0

2004 2005 2006 2007 2008
2004 2005 2006 2007 2008
2004 2005 2006 2007 2008

2004

2005

2006

2007

2008

2004 2005 2006 2007 2008
2004 2005 2006 2007 2008
2004 2005 2006 2007 2008

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Fuel-Cost Adjusted LMP

Fuel-Cost Adjusted LMP www.pjm.com 58 10/22/2009

1998-2008 PJM Real-time Simple Average LMP

PJM real-time, simple average LMP (Dollars per MWh): Calendar years 1998 to 2008
PJM real-time, simple average LMP
(Dollars per MWh): Calendar years 1998 to 2008
Real-Time LMP Year-to-Year Change Standard Standard Average Median Deviation Average Median Deviation 1998
Real-Time LMP
Year-to-Year Change
Standard
Standard
Average
Median
Deviation
Average
Median
Deviation
1998
$21.72
$16.60
$31.45
NA
NA
NA
1999
$28.32
$17.88
$72.42
30.4%
7.7%
130.3%
2000
$28.14
$19.11
$25.69
(0.6%)
6.9%
(64.5%)
2001
$32.38
$22.98
$45.03
15.1%
20.3%
75.3%
2002
$28.30
$21.08
$22.41
(12.6%)
(8.3%)
(50.2%)
2003
$38.28
$30.79
$24.71
35.3%
46.1%
10.3%
2004
$42.40
$38.30
$21.12
10.8%
24.4%
(14.5%)
2005
$58.08
$47.18
$35.91
37.0%
23.2%
70.0%
2006
$49.27
$41.45
$32.71
(15.2%)
(12.1%)
(8.9%)
2007
$57.58
$49.92
$34.60
16.9%
20.4%
5.8%
2008
$66.40
$55.53
$38.62
15.3%
11.2%
11.6%

1998-2008 PJM Real-time Load Weighted Average LMP

PJM real-time, annual, load-weighted, average LMP (Dollars per MWh): Calendar years 1998 to 2008
PJM real-time, annual, load-weighted, average LMP (Dollars per MWh):
Calendar years 1998 to 2008
Real-Time, Load-Weighted, Average LMP Year-to-Year Change Standard Standard Average Median Deviation Average
Real-Time, Load-Weighted, Average LMP
Year-to-Year Change
Standard
Standard
Average
Median
Deviation
Average
Median
Deviation
1998
$24.16
$17.60
$39.29
NA
NA
NA
1999
$34.07
$19.02
$91.49
41.0%
8.1%
132.9%
2000
$30.72
$20.51
$28.38
(9.8%)
7.8%
(69.0%)
2001
$36.65
$25.08
$57.26
19.3%
22.3%
101.8%
2002
$31.60
$23.40
$26.75
(13.8%)
(6.7%)
(53.3%)
2003
$41.23
$34.96
$25.40
30.5%
49.4%
(5.0%)
2004
$44.34
$40.16
$21.25
7.5%
14.9%
(16.3%)
2005
$63.46
$52.93
$38.10
43.1%
31.8%
79.3%
2006
$53.35
$44.40
$37.81
(15.9%)
(16.1%)
(0.8%)
2007
$61.66
$54.66
$36.94
15.6%
23.1%
(2.3%)
2008
$71.13
$59.54
$40.97
15.4%
8.9%
10.9%

2004-2008 PJM Day-ahead Simple Average LMP

PJM day-ahead, simple average LMP (Dollars per MWh): Calendar years 2004 to 2008
PJM day-ahead, simple average LMP (Dollars per MWh): Calendar years
2004 to 2008
Day-Ahead LMP Year-to-Year Change Standard Standard Average Median Deviation Average Median Deviation 2004
Day-Ahead LMP
Year-to-Year Change
Standard
Standard
Average
Median
Deviation
Average
Median
Deviation
2004
$41.43
$40.36
$16.60
NA
NA
NA
2005
$57.89
$50.08
$30.04
39.7%
24.1%
81.0%
2006
$48.10
$44.21
$23.42
(16.9%)
(11.7%)
(22.0%)
2007
$54.67
$52.34
$23.99
13.7%
18.4%
2.4%
2008
$66.12
$58.93
$30.87
20.9%
12.6%
28.7%

2004-2008 PJM Day-ahead Load-Weighted Average LMP

PJM day-ahead, load-weighted, average LMP (Dollars per MWh): Calendar years 2004 to 2008
PJM day-ahead, load-weighted, average LMP (Dollars per MWh): Calendar
years 2004 to 2008
Day-Ahead, Load-Weighted, Average LMP Year-to-Year Change Standard Standard Average Median Deviation Average
Day-Ahead, Load-Weighted, Average LMP
Year-to-Year Change
Standard
Standard
Average
Median
Deviation
Average
Median
Deviation
2004
$42.87
$41.96
$16.32
NA
NA
NA
2005
$62.50
$54.74
$31.72
45.8%
30.5%
94.4%
2006
$51.33
$46.72
$26.45
(17.9%)
(14.7%)
(16.6%)
2007
$57.88
$55.91
$25.02
12.8%
19.7%
(5.4%)
2008
$70.25
$62.91
$33.14
21.4%
12.5%
32.5%