Risk-Based Locational Marginal Pricing and Congestion Management

This paper develops a new electricity market clearing mechanism, called risk-based locational marginal pricing (RLMP). The RLMP is derived from the risk-based security-constrained economic dispatch model, where risk is modeled to capture the system's overall security level. Compared to the traditional locational marginal pricing (LMP) which is composed of three components: energy, congestion, and loss, the RLMP consists of an additional risk component. The risk component is a price signal to reflect the system's overall security level. This paper discusses the features of RLMP, and analyzes its benefits over traditional LMPs. The proposed concept and method are illustrated on a six-bus system and the WECC 240-bus system.