Gen 101 LMP Overview

Locational Marginal Pricing
(LMP) Overview
PJM Member Training Dept.

Generation 101
www.pjm.com 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.
Agenda
 Locational Marginal Pricing - LMP

 Definition of LMP
 5-bus Example
 LMP Verification & Posting process
 LMP Statistics
What is LMP?
 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:

 how energy actually flows, NOT contract
paths
www.pjm.com 4 10/22/2009
LMP Analogy
LMP is analogous to a taxi ride for MWs!

Light traffic = Consistent, predictable fare
www.pjm.com 5 10/22/2009
LMP Analogy
LMP is analogous to a taxi ride for MWs!

Heavy traffic = Higher fare
www.pjm.com 6 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
www.pjm.com 7 10/22/2009
Locational Marginal Price
System Transmission Cost of

Energy Congestion 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
www.pjm.com 8 10/22/2009

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
www.pjm.com 9 10/22/2009

Price Cost Losses
 Congestion Price
 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
www.pjm.com 10 10/22/2009

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
www.pjm.com 11 10/22/2009
Transmission Losses
 Real Power (MW) Losses
– Power flow converted to heat in transmission equipment

– Heat produced by current (I) flowing through resistance (R)
– Losses equal to I2R
– Heat loss sets the “thermal rating” of equipment
www.pjm.com 12 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.
www.pjm.com 13 10/22/2009
Dispatch Rate
The Dispatch Rate is determined by the PJM economic

dispatch solution as calculated by PJM’s Unit Dispatch
System (UDS)
$35
$30 Dispatch Rate = $25
Offer Price $25
$20
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
www.pjm.com 14 10/22/2009
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
1
Pfi 
 PL  Change in Losses
1  
 Pi  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
www.pjm.com 15 10/22/2009
 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
 Unit offer curve is multiplied by penalty factor
 Unit looks less attractive to dispatch
1
PL Pfi   1.0
0 1  PL 
Pi 1  
 Pi 
www.pjm.com 16 10/22/2009
 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
1
PL Pfi   1.0
0  1  PL 
Pi 1  
 Pi 
www.pjm.com 17 10/22/2009
Penalty Factors Effect on Dispatch - Example # 1
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 Penalty Factor = .97
$20 * 1.00 = $20.00 (Unit $20 * 0.97 = $19.60
offer price stays the same) (Unit offer price adjusted lower)
www.pjm.com
Penalty Factors Effect on Dispatch - Example # 2
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 Penalty Factor = 1.00

$40 * 1.05 = $42.00 $40 * 1.00 = $40.00
(Unit offer price adjusted higher) (Unit offer price stays the same)
www.pjm.com
LMP & Economic Dispatch
Where PJM wants

Dispatch Rate Directive The units to be
loaded economically
LMP Result Based on actual

loading of each unit
If unit’s don’t move to follow dispatch rate, LMP will not change!
www.pjm.com 20 10/22/2009
LMP Model
Generator Offers
Dispatch Rates * LPA
Dispatchable Transactions Preprocessor
Flexible Generating
Units & Offers
Real-Time Siemens
Data State LMP’s for
(EMS) Estimator Energy Demand LPA
Generator MW all locations
System Topology
Unit
Dispatcher Dispatch
Input
* System (UDS)
Binding Transmission
Constraints
www.pjm.com
* 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
 Collect current system constraint data
 Execute Locational Price Algorithm
www.pjm.com 22 10/22/2009
High & Low LMPs
Thermal Limit
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...
www.pjm.com 23 10/22/2009
Agenda

 5-bus Example
 LMP Verification and Posting process
 LMP Statistics
Example # 1 - 5 Bus Transmission Grid
System
Overview
XED = 2.97%
E 230 MW D
Thermal Limit
Sundance
Brighton
XAD = 3.04%
XEA = 0.64% XBC = 1.08% XCD = 2.97%

A
Alta Solitude
B C
Park City
XAB = 2.81%
Legend Impedances as shown –
Bus R = 0 for all lines
Load
Transmission
Line Generators
www.pjm.com 25 10/22/2009
25
Unconstrained System
Loads = 669
230 MW Sundance
E Thermal Limit D
Brighton
Load =
A 223 MW
Solitude
Alta B C
Park City
Loads = 223 MW each

www.pjm.com 26 10/22/2009
Generator Offers
Sundance
600 MW 200 MW
$10/MWh E 230 MW D
Thermal Limit $40/MWh
Brighton
223 MW
Solitude
Alta 223 MW
110 MW
B 223 MW C 520 MW
Park City $30/MWh
$14/MWh
100 MW
$15/MWh
www.pjm.com 27 10/22/2009
Dispatch & Energy Flow
230 MW Sundance
E Thermal Limit D
Brighton 200 MW
229 $40/MWh
600 MW 147
371
223 MW
153
600 MW 293 70
$10/MWh A
69 MW
Alta Solitude
223 MW 223 MW 520 MW
Park City B C $30/MWh
110 MW
100 MW
$14/MWh
$15/MWh
Total Load 669
www.pjm.com 28 10/22/2009
LMPs - No Loss Component Included
$14 $14
230 MW Sundance
E Thermal Limit D
Brighton 200 MW
229 $40/MWh
600 MW 147
371
223 MW
153
600 MW 293 70
$10/MWh $14 A
69 MW
Alta
Alta Solitude
223 MW 223 MW 520 MW
B C $30/MWh
Park City
110 MW
100 MW
$14 $14
$14/MWh
$15/MWh
Alta - Marginal Unit
www.pjm.com 29 10/22/2009
LMPs - Loss Component Included
Area Load = 669
Area Losses = 17 MW
Area Generation = 686
Brighton - 600 MW
Alta - 86 MW
LMP = $14.33
PF = 1.0247
LMP = $13.83
PF = 1.0624 230 MW Sundance
E Thermal Limit D
Brighton 200 MW
229 $40/MWh
600 MW 147
371
223 MW
153
293 70
600 MW A Solitude
86 MW
$10/MWh
Alta
LMP = $14.69
LMP = $14.00 223 MW
B 223 MW
C
520 MW
PF = 1.00
PF = 1.0492 Park City $30/MWh
110 MW 100 MW LMP = $14.61 Marginal Unit
$14/MWh $15/MWh
PF = 1.0053
Reference Bus
www.pjm.com 30 10/22/2009
Unit Penalty Factor Total

(PF) LMP
Solitude 1.00 14.69
A higher PF results in a
lower LMP (LMP gets
Park City 1.0053 $14.61 lower
“Disincentive” to
generation since
Sundance 1.0247 $14.33 increased generation
contributes to losses
Alta 1.0492 $14.00
Brighton 1.0624 $13.83

Marginal Unit
Reference Bus
www.pjm.com 31 10/22/2009
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
Adjusted Offer =
Marginal Unit
Offer X Penalty Factor
Reference Bus Higher PF = Offer
www.pjm.com 32 10/22/2009
Constrained System
Loads = 900
E 230 MW
Thermal Limit D Sundance
Brighton 200 MW
$40/MWh
Load = 300 MW
600 MW
$10/MWh A
Solitude
Alta
B C 520 MW
110 MW Park City $30/MWh
$14/MWh Loads = 300 MW
100 MW
$15/MWh
www.pjm.com 33 10/22/2009
Dispatch Solution Ignoring Thermal Limit
E 230 MW D
Dispatched Thermal Limit
at 600 MW 200 MW
253 $40/MWh
Brighton
174 Sundance
348
300 MW
216
600 MW 384 84
$10/MWh A Dispatched
90 MW
Solitude
Alta
300 MW 300 MW 520 MW
$14/MWh B C
100 MW
Dispatched $15/MWh Total Dispatched
at 110 MW Dispatched 900 MW
www.pjm.com 100 MW 34 10/22/2009
Actual Dispatched Generation

230 MW Sundance
Dispatched E Thermal Limit D
at 510 MW 200 MW
Brighton $40/MWh
300 MW
600 MW
$10/MWh A
Solitude
Alta
300 MW 300 MW Dispatched 520 MW
110 MW Park City B C at 180 MW $30/MWh
$14/MWh
100 MW
Dispatched $15/MWh
at 110 MW Total Dispatched
Dispatched
900 MW
www.pjm.com at 100 MW 35 10/22/2009
Energy Flow 200 MW

$40/MWh
230 MW Sundance
E Thermal Limit D
230 225
Brighton
510 MW 280 178
279
180
300 MW
102
600 MW
$10/MWh A 309 4
110 MW
101
100 MW
195 MW
Solitude
Alta
300 MW 300 MW 520 MW
$14/MWh B C
100 MW
$15/MWh
www.pjm.com 36 10/22/2009
LMPs - No Loss Component Included 200 MW
$40/MWh
$10.00 $40.00 Sundance
E 230 MW D
Thermal Limit
230 225
Brighton
510 MW 280 178
180
279
300 MW
102
600 MW
$10/MWh
$17.00 A 309 304
110 MW
101
100 MW
195 MW
Solitude
Alta 300 MW 300 MW 520 MW
110 MW B C $30/MWh
Park City
$14/MWh
100 MW
$26.40 $30.00
$15/MWh
Brighton & Solitude - Marginal Generators
www.pjm.com 37 10/22/2009
LMPs - Loss Component Included
Area Load = 900
Area Losses = 15 MW
Area Generation = 915
Brighton - 510 MW
Alta - 110 MW
LMP = $39.35
PF = 1.0162
LMP = $10.00 Park City - 100 MW
Solitude - 195
PF = 1.0555 Sundance
E D
Brighton 230 225 200 MW
$40/MWh
510 MW 280 279 178
180
300 MW
102
309 304
600 MW A Solitude
100 MW
110 MW
$10/MWh 195 MW
Alta LMP = $30.00
300 MW 520 MW
LMP = $16.76 Park City B 300 MW C $30/MWh
PF = 1.00
PF = 1.0450 110 MW 100 MW LMP = $26.61
$15/MWh
Marginal Unit
$14/MWh PF = 1.0024
Reference Bus
www.pjm.com 38 10/22/2009
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
www.pjm.com 39 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
 “Garden hose” = high impedance = less power flow
 Based on impact of marginal generators on transmission

constraint and generator price
www.pjm.com 40 10/22/2009
Example # 2 - LMP Calculations
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) Calculation
Bus Brighton Solitude (MWh) (Brighton Unit Price) + LMP
(MWh) (Solitude Unit Price) +
@ $10/MWh @ $30/MWh
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
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
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
www.pjm.com 41 10/22/2009
 System Energy Price = LMP

at the Reference Bus Solitude Energy LMP = $ 30.00
(where Congestion & Congestion LMP = $0.00
Losses = 0) Losses LMP = $ 0.00
520 MW
$30/MWh Total LMP = $30.00
PF = 1.00
 Reference or “Slack” Bus is
the “electrical load center”
of the system
 Losses are calculated using

the System Energy Price & System 1
the Penalty Factor (Pf) Energy * 1
Price Pf
www.pjm.com 42 10/22/2009
System
Example # 2 - Losses Calculation
1
Energy * 1
Price Pf
Bus Penalty Calculation Total Losses

Factor
A 1.0450 1 - 1 $-1.29
30.00 *
1.0450
B 1.0024 $-0.07
1
30.00 * 1.0024- 1
C 1.00 $0.00
1
30.00 * - 1
1.00
D 1.0162 1 - 1 $-0.48
30.00 * 1.0162
E 1.0555 $-1.58
1 - 1
30.00 *
1.0555
www.pjm.com 43 10/22/2009
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 System Energy Congestion Losses (Using Sensitivity Factors for 1 MW of Load LMP
Supplied From Marginal Generators:
Price
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

 5-bus Example
 LMP Statistics
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!!!)
www.pjm.com 46 10/22/2009
Operational Data Page
http://www.pjm.com/pub/account/lmpgen/lmppost.html
www.pjm.com 47 10/22/2009
Operational Data Page
 Zonal LMPs are Load-weighted LMPs

 Correspond to PJM Transmission zones
 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
 Detailed definitions of Zones, Hubs, Interfaces, and Aggregates can be
found at pjm.com by accessing > Markets > Energy > LMP Model
www.pjm.com 48 10/22/2009
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 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
www.pjm.com 50 10/22/2009
Questions?
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
Agenda

 5-bus Example
 LMP Statistics
Summer Peak Load Comparison
PJM summer peak-load comparison:
Monday, June 9, 2008, and Wednesday, August 8, 2007
08-Aug-07 1600 EPT - PJM 139,428 MW
08-Aug-07 PJM load 09-Jun-08 1700 EPT - PJM 130,100 MW

150,000 09-Jun-08 PJM load $1,000
140,000 08-Aug-07 PJM average real-time LMP

$900
130,000 09-Jun-08 PJM average real-time LMP
$800
120,000
$700
110,000
Real-time LMP ($/MWh)

100,000 $600
Demand (MW)
90,000 $500
80,000 $400
70,000
$300
60,000
$200
50,000
40,000 $100
30,000 $0
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)

www.pjm.com 54 10/22/2009
2008 LMP Update
(Dollars MWH)
Day-Ahead Real-Time
Simple Average $66.12 $66.40

LMP
Load-Weighted $70.25 $71.13

Average LMP
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
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
www.pjm.com 56 10/22/2009
2004-2008 Real-time Monthly Load-Weighted Average LMP
PJM real-time, monthly, load-weighted, average LMP: Calendar years 2004 to 2008
$120
2004
2005
2006
2007
$100
2008
$80
LMP ($/MWh)
$60
$40
$20
$0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
www.pjm.com 57 10/22/2009
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
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%
www.pjm.com 59 10/22/2009
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
Real-Time, Load-Weighted, Average LMP Year-to-Year Change
Standard Standard
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%
www.pjm.com 60 10/22/2009
2004-2008 PJM Day-ahead Simple Average LMP
PJM day-ahead, simple average LMP (Dollars per MWh): Calendar years
2004 to 2008
Day-Ahead LMP Year-to-Year Change
Standard Standard
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%
www.pjm.com 61 10/22/2009
2004-2008 PJM Day-ahead Load-Weighted Average LMP
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
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%
www.pjm.com 62 10/22/2009

Gen 101 LMP Overview

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Gen 101 LMP Overview

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Locational Marginal Pricing

PJM Member Training Dept.

 Student will identify the components and

 Student will illustrate the associations

 Student will explain the calculation of LMP

 Locational Marginal Pricing - LMP

 Pricing method PJM uses to:

 Physical, flow-based pricing system:

LMP is analogous to a taxi ride for MWs!

LMP is analogous to a taxi ride for MWs!

 Generators get paid at generation bus LMP

 Transactions pay differential in source and

System Transmission Cost of

Cost to serve the next MW of load at a specific location,

System Transmission Cost of

 System Energy Price

System Transmission Cost of

System Transmission Cost of

 Real Power (MW) Losses

– Power flow converted to heat in transmission equipment

Definition: The Dispatch Rate is expressed in dollars per

The Dispatch Rate is determined by the PJM economic

The Economic Basepoint is the MW value sent to the generating unit

 The Penalty Factors adjust the incremental cost of each generator

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

 Penalty factor is greater than 1

 If an increase in generation results in a decrease in system

Generating Unit # 1 Generating Unit # 2

Generating Unit # 1 Generating Unit # 2

Penalty Factor = 1.05 Penalty Factor = 1.00

Where PJM wants

LMP Result Based on actual

* Manual Dispatcher Input LPA = Locational Pricing Algorithm

 Determine current system conditions

 Process generator offers & dispatch rates

 Collect current system constraint data

 Execute Locational Price Algorithm

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

 Locational Marginal Pricing - LMP

XEA = 0.64% XBC = 1.08% XCD = 2.97%

Loads = 223 MW each

Unit Penalty Factor Total

Brighton 1.0624 $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

Solitude $30.00 $30.00 $14.69

Sundance $40.00 $40.988 $14.33

Actual Dispatched Generation

Energy Flow 200 MW

 Sensitivity Factors calculate the price to deliver power to

 “Garden hose” = high impedance = less power flow

 Based on impact of marginal generators on transmission

How would 1 MW of energy be supplied to each bus from the two

 System Energy Price = LMP

 Losses are calculated using

Bus Penalty Calculation Total Losses

3 LMP Components Calculation