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Published in IET Generation, Transmission & Distribution

Received on 18th January 2009
Revised on 3rd August 2009
doi: 10.1049/iet-gtd.2009.0026

Special Issue selected papers on Electricity Markets:

Analysis & Operations

ISSN 1751-8687

Optimal distributed generation location using

mixed integer non-linear programming in
hybrid electricity markets
A. Kumar1 W. Gao2
1
Department of Electrical Engineering, National Institute of Technology, Kurukshetra, India
2
Department of Electrical and Computer Engineering, Centre for Energy Systems Research, Tennessee Tech University, USA
E-mail: wgao@tntech.edu

Abstract: This study presents mixed integer non-linear programming (MINLP) approach for determining optimal
location and number of distributed generators in hybrid electricity market. For optimal location of distributed
generation (DG), rst the most appropriate zone has been identied based on real power nodal price and real
power loss sensitivity index as an economic and operational criterion. After identifying the suitable zone,
mixed integer non-linear programming approach has been applied to locate optimal place and number of
distributed generators in the obtained zone. The non-linear optimisation approach consists of minimisation of
total fuel cost of conventional and DG sources as well as minimisation of line losses in the network. The
pattern of nodal real and reactive power prices, line loss reduction and fuel cost saving has been obtained.
The results have also been obtained for pool electricity market model for comparison. The impact of demand
variation on the results has also been obtained for both the market models. The proposed MINLP-based
optimisation approach has been applied for IEEE 24 bus reliability test system.

Nomenclature Nl number of lines in the system

Ng set of generators Pmin max
gi , Pgi minimum and maximum real power
generation limits
Pg active power pool generator-i
Qmin max
gi , Qgi minimum and maximum reactive power
Ci fuel cost of pool generator-i
generation limits
agi , bgi , cgi cost coefcients in $/h, $/MWh, $/MWh2
Vimin, Vimax upper and lower voltage magnitude limits
Pi real power injection at bus-i
dmin
i , dmax
i upper and lower voltage angle limits
Qi reactive power injection at bus-i
Sij , Sij  Sijmax line ow limit
Pgi , Qgi real and reactive power generation at bus-i
lpi, lqi , qpl, qql , corresponding Lagrange multipliers of
Pdi , Qdi real and reactive power demand at bus-i mmax
i , mmin
i , hi
max
, the respective equality and inequality
PGT, QGT total real and reactive power generation hi , gi , gmin
min max
i , constraints
PDT, QDT total real and reactive power demand zmax
i , zmin
i , cl

PLT, QLT total real and reactive power loss Pgp and Pgb vector of pool and bilateral generation
with sufx gp and gb for pool and
Vi voltage magnitude at bus-i;
bilateral generation
di voltage angle at bus-i
Pdp and Pdb vector of pool and bilateral demand with
Yij Gij Bij (i j)th element of Y-bus matrix sufx dp and db for pool and bilateral
Nb number of buses in the system demand

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Pfp and Pfb vector of line ows because of the pool environment policies inuencing fuel choices for power
and bilateral transactions with sufx fp generation have developed the growing interest in the
and fb for real power ows for pool and distributed generation (DG) as an important option of
bilateral transactions energy production in the near future. With electricity
ACDF ac distribution factors market undergoing tremendous transformation, more price
volatility in the market, ageing infrastructure and changing
Tij and Tij0 secure and proposed bilateral transactions
regulatory environments are demanding users and electric
Tmax
ij maximum transaction amount utilities to harness benets of DG [1, 2]. DG is expected to
bij weight factor indicating the importance of a play key role in future competitive markets because of their
a particular transaction economic viability and based on the study of Electric Power
aij , bij , gij , jij loss coefcients Research Institute (EPRI) and Natural Gas Foundation,
30% of power generation share will be of DG [3, 4]. Many
Rij and Xij real and imaginary parts of ijth element of
denitions of DG have appeared in the literature based on
the bus impedance matrix [Zbus]
their size, technologies, location, power delivery area and
x state vector of variables V, d operational constraints with their economical and
u control parameters, Pgi , Qgi , PDGi , QDGi , operational benets [5 7]. The DG technologies may
Pgb , Pgp comprise small gas turbines, micro-turbines, fuel cells, wind
p xed parameters Pdi , Pdb , Pdp , Qd, Tij and solar energy. DG can be connected in an isolated or an
int integrated way in the power system network and issues
j an integer variable with values f0,1g
relating to policy of integrating DGs into power system
r is the demand variation factor planning and their impacts on steady-state power system
NDG set of distributed generators operation, contingency analysis, protection coordination as
Nl total number of lines in the network well as dynamic behaviour were discussed in [7, 8].
PDGi active power of distributed generator
With increasing share of DG, the planning of the system
connected at bus-i
in the presence of DGs will require the assessment of
ai , bi , ci cost coefcients for conventional several factors such as the number and the capacity of units,
generators [24] best possible location in the network and impact of DG on
aDGi , bDGi , cDGi cost coefcients for distributed generators the system operation characteristics such as system losses,
[22] voltage prole, stability and reliability issues [9].
l0pil, l0pjl base case nodal price for real power at
bus-i and bus-j for line l connected The optimal placement and sizing of DGs in the
between bus-i and bus-j distribution network based on different objectives have been
PLl (Pijl Pjil) real power loss in the line l connected reported in the literature. A Lagrangian-based approach was
between bus-i and bus-j is the sum of proposed to determine optimal location of DGs considering
line ows from bus-i to bus-j and bus-j economic as well as stability limits in [10]. Application of
to bus-i tabu search for optimal placement of distributed generators
with an objective of minimising losses was proposed in [11].
(Pijl , Pjil ) line ows from bus-i to bus-j and bus-j A genetic algorithm (GA)-based approach for DG
to bus-i allocation minimising power losses in a network was
PDGi and QDGi real and reactive generation for distributed proposed in [12]. Optimal sizing and siting decisions for
generators DG capacity planning using heuristic approach was
Pmin max
DGi, PDGi minimum and maximum generation proposed in [13]. A new integrated model for distributed
limits on distributed generators system planning with an objective of minimising investment
Qmin max costs, operating costs and payments for compensation of
DGi, QDGi minimum and maximum generation
limits on distributed generators losses was proposed in [14]. Optimal allocation of
embedded generation in distribution network using linear
Nmax
DG maximum number of distributed programming approach including short-circuit constraints of
generator to be located in the network network was proposed in [15]. A multi-objective
optimisation approach using evolutionary algorithm with
an objective of minimising cost of energy losses, network
upgrading and service interruptions for sizing and siting
1 Introduction of DG in distribution systems has been presented in [16].
A GA-based methodology for optimal DG allocation and
With liberalisation of electricity markets leading to stronger sizing in distribution systems, in order to minimise network
competition, technological developments in the eld of losses and to guarantee high level of reliability and voltage
generation, increasing importance of security of power prole was proposed in [17]. An analytical expression based
supply and diversication of energy sources, and recent on real power loss sensitivity to calculate optimal DG size

282 IET Gener. Transm. Distrib., 2010, Vol. 4, Iss. 2, pp. 281 298
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and optimal location of DG minimising power losses in a
distribution network was proposed in [18]. A hybrid GA-
OPF approach was proposed for nding optimal location for
connecting a predened numbers of DGs in a distribution
network in [19]. A fuzzy multi-objective optimisation
considering voltage drop, system losses, short-circuit
capacity and system operation cost for DG allocation was
proposed for a small distribution system in [20].
A theoretical insight to a competitive market integration
mechanism for DG in a pool-based system was proposed
in [21]. The mechanism encompasses both energy and
capacity payment procedures in the wholesale market with
DG units located in distribution level. Authors introduced
a framework for implementing optimal DG capacity
investment as an attractive option in distribution system
planning in deregulated electricity market [22]. A social
welfare maximisation and prot maximisation-based
optimal power ow methodologies were proposed for
optimal location of DGs in pool-based electricity markets
[23]. A multi-objective optimisation approach considering
losses reduction and voltage prole improvement for DG
allocation using GA was proposed in [24].
Based on the literature review, the proposed approaches
for DG location has been studied for radial network and
are applicable to pool-based market models. Several market
structures and transactions exist to achieve a competitive
electricity environment. Three basic models based on the
types of transactions are: pool model, bilateral contract
model and hybrid market model [25]. A pool is dened as
a centralised market place that clears the market for the
buyers and sellers. Electric power sellers/buyers submit bids
to the pool for the amount of power that they are willing to
trade in the market. In a deregulated electricity market
structure, under competition and open access, the different
transactions may take place directly between buyers and
sellers. These transactions may be bilateral, multilateral and
ancillary services transactions [26]. The hybrid model
combines various features of the previous two models.
In hybrid electricity market model, large number of
transactions is expected between buyers and sellers for more
exible and economic market operation. These transactions
need to be evaluated ahead of their scheduling time to
check their feasibility with respect to system operating
conditions. Infeasible transactions can alter the economic
schedule, cause congestion and threaten system security and
stability of the network. Therefore the issue of DG optimal
location in hybrid electricity market model needs to be
addressed. The power system has grown to a very vast
network and for better planning studies of DG penetration,
the identication of most suitable area and optimal location
of DG in that area is required.
The main contribution of the present work is: (i) to nd
suitable zone for DG placement based on economic and
operational criteria, (ii) to determine optimal location and
IET Gener. Transm. Distrib., 2010, Vol. 4, Iss. 2, pp. 281 298
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number of distributed generators in the identied zone
based on mixed integer non-linear programming-based
approach and (iii) to nd the impact of demand variation.
The cost of distributed generators has also been considered
along with fuel costs of conventional power plants with
their cost coefcients [23]. Nodal price at each bus and real
power loss sensitivity factors have been determined and
utilised to nd an appropriate zone for optimal placement
of distributed generators. Subsequently, to nd optimal
number and location of DG in the obtained zone, mixed
integer non-linear programming-based approach has been
applied. Pattern of nodal prices, fuel cost and line loss
reduction have been determined. The results have been
obtained for a pool as well as hybrid electricity market
model. The impact of the demand variation on nodal price,
fuel costs and real power loss has also been studied for both
the market models. The proposed methodology has been
applied for IEEE 24 bus reliability test system [27].
2 Selection of zone for optimal
placement of DG
Optimal location of DG penetration in the network has
become a crucial issue because of the expectation of more
DG utilisation in the coming future. DG optimal
placement can provide both economical and operational
advantages. In a wide area power system network, the
identication of most suitable area for DG penetration is
very important. Thus, both economic and operational
aspects should be considered for nding most appropriate
zone. Nodal price is an important indicator of price of unit
MW injection at each node and congestion in the
transmission network. Line loss sensitivity provides
information about pattern of losses in the transmission
network with the unit power injection at each node. To
obtain the most appropriate zone, nodal price variation at
each bus and line loss sensitivity has been utilised as
economical and operational criteria.
Once the most appropriate zone has been identied based
on nodal price and line loss sensitivity, mixed integer non-
linear programming approach can be utilised to nd the
optimal location and the number for DG in that
appropriate zone.
2.1 A real power nodal price
determination (pool market model)
The price for real and reactive powers at bus-i is the
Lagrangian multiplier value of equality constraints, that is,
the real and reactive power ow equations of bus-i. The
Lagrangian multipler values are calculated by solving the
rst-order necessary condition of Lagrangian, partial
derivatives of the Lagrangian with respect to every variable
concerned.
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Mathematically, the normal dispatch problem with a fuel (b) Reactive power generation limit: This includes the upper
cost minimisation can be written as and lower reactive power generation limits of generators and
other reactive sources at bus-i
X X
Min Ci (Pgi ) (agi bgi Pgi cgi Pgi2 ) (1)
i[Ng i[Ng Qmin max
gi  Qgi  Qgi , i 1, 2, . . . , Nq (13)

1. Equality constraints (c) Voltage limit: This includes the upper and lower voltage
magnitude limits at bus-i
(a) Power ow equations corresponding to both real and
reactive power balance equations as load ow constraints Vimin  Vi  Vimax , i 1, 2, . . . , Nb (14)
can be written for all the buses as
XNb
(d) Phase angle limit: This includes the upper and lower
Pi Pgi  Pdi Vi Vj [Gij cos(di  dj )
angle limits at bus-i
j1

Bij sin(di  dj )] 8i 1, 2, . . . , Nb (2) dmin

i  di  dmax
i , i 1, 2, . . . , Nb (15)
Nb
X
Qi Qgi  Qdi Vi Vj [Gij sin(di  dj ) (e) Line ow limits: These constraints represent maximum
j1 power ow in a transmission line and are based on thermal
and stability considerations. Sl is MVA line ows from bus-
Bij cos(di  dj )] 8 i 1, 2, . . . , Nb (3)
i to bus-j. The line ow limit can be written as
(b) System real and reactive power balance equations: dene
total power generation real and reactive (PGT, QGT), total Sl  Slmax (16)
power demand real and reactive (PDT, QDT) and total real
and reactive power loss (PLT, QLT), the system real and The Langrangian function for the nodal price determination
reactive power balance equations can be written as can be written as a function of Pi and Qi as

PGT  P LT  PDT 0 (4) "

X X Nb
X
QGT  QLT  QDT 0 (5) L(Pi , Qi ) Ci (Pi ) (lpi ) Pi  Vi Vj
i[Ng i[Nb j1
" ##
Using general loss formula, total real and reactive power loss Nb
X
can be expressed as [28]  Gij cos(di  dj ) Bij sin(di  dj ) (lqi )
i1
" #
Nb X
X Nb Nb
X h i
PLT [aij (Pi Pj Qi Qj ) bij (Qi Pj  Qj Pi )] (6)  Qi  Vi Vj Gij sin(di  dj )  Bij cos(di  dj )
i1 j1 j1

Nb X
X Nb
qpl (PGT  PDT  PLT ) qql (QGT  QDT  QLT )
QLT [gij (Pi Pj Qi Qj ) jij (Qi Pj  Qj Pi )] (7)
Ng Ng
i1 j1 X X
Rij mmax max
i (Pi  Pi ) mmin min
i (Pi  Pi )
aij cos(di  dj ) (8) i1 i1
jVi Vj j
Nq Nq
X X
Rij hmax max
i (Qi  Qi ) hmin min
i (Qi  Qi )
bij sin(di  dj ) (9) i1 i1
jVi Vj j
Nb Ng
Xij X X
gij cos(di  dj ) (10) gmax
i (Vi
max
 Vi ) gmin
i (Vi  Vi
min
)
jVi Vj j i1 i1

Xij Nb
X XNg
jij sin(di  dj ) (11) zmax max
zmin min
jVi Vj j i (di  di ) i (di  di )
i1 i1

2. Inequality constraints X
Nl
cl (Slmax  Sl ) (17)
l 1
(a) Real power generation limit: This includes the upper and
lower real power generation limits of generators at bus-i
Knowing Lagrangian function, real and reactive power nodal
price at any bus-i can be determined as the partial derivative
Pgimin  Pgi  Pgimax , i 1, 2, . . . , Ng (12) of the Lagrangian function with respect to injected real

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and reactive power equated to zero as @L=@Pi 0 and and non-rm [26]. These bilateral transactions can affect the
@L=@Qi 0. loading pattern of transmission facilities that may require
system operators (SO) to reschedule the system generating
The marginal price of real and reactive power at each units in order to accommodate them. A bilateral transaction
generator node can be obtained as must be accommodated without any violation of system
P  operating constraints such as transmission interface limits,
equipments ratings and system economic dispatch. These
@ i[Nb Ci (Pi )
lpi mmax
i  mmin
i
negotiated transactions have to be within available transfer
@Pi (18) capability of the transmission system to avoid occurrence of
   
@P @QLT any congestion in the transmission network. There are some
qpl 1  LT  qql intrinsic properties associated with the transactions such as
@Pi @Pi
column rule, row rule, range rule and ow rule that have
    been well dened in [31].
@PLT @Q
lqi hmax
i  hmin
i  qpl qql 1  LT (19)
@Qi @Qi For the determination of nodal price for hybrid electricity
market model, the additional power ow equations can be
The general form of Lagrange equation (17) can be written as added to modify the power ow injections at any bus-i.
These equations are
X
m X
n
X X
L(X , l, m) F (X ) lk hk (X ) mj gj (X ) (20) P db Tij , P gb Tij (22)
k1 j1
i j

At the optimal point, the following conditions must be P g P gb P gp (23)

satised as

@L 
0, m  0 if gj (x ) 0 and
@mi x,l,m
mi 0 if gj (x ) , 0
Inequality constraints will be active only if the gradient of
the function and constraints are opposite as (rF )T rg 
0 ) mi  0, where X are the variables, li are the Lagrange
multipliers corresponding to all equality constraints and mi
are the Lagrange multipliers corresponding to inequality
constraints. In (17), these Lagrange multipliers have been
represented with different symbols for each equality and
inequality constraints for distinction.
Derivatives of the total real and reactive power losses w.r.t.
real and reactive power injection are called loss sensitivity
factors.
The optimisation problem has been formulated in general
algebraic modeling system (GAMS) using SNOPT solver
[29]. MATLAB and GAMS interfacing has been used to
solve load ow at base case to obtain load ow data and
other parameters required for modelling algebraic equation
in GAMS [30].
2.1.1 Real power nodal price determination
(hybrid market): In a hybrid electricity markets, in
addition to pool demand, there can be transactions
between generation companies (GENCOs) and distribution
companies (DISCOs) acting as seller and buyers to sell and
purchase power. A transaction is a bilateral exchange of
power between GENCOs and DISCOs and can be rm
P d P db P dp (24)
P fb ACDF(P gb  P db ) (25)
P fp ACDF(P gp  P dp ) (26)
(21)
P f P fb P fp (27)
Distribution factors have been determined for calculating
power ows because of bilateral transactions [32]. The
bilateral transaction matrix (Tij ) and elements of the matrix
are the secure bilateral transactions between seller bus-i and
buyer bus-j that have been determined solving a non-linear
optimisation problem minimising the deviations of
transactions from the proposed transactions. Equations
(22) (27) are real power demand for bilateral transactions,
real power generation to meet bilateral transactions, total
generation, total demand, real power ow for bilateral and
pool demand and total real power ow considering both
pool and bilateral demands.
For obtaining nodal price for hybrid electricity market,
an optimisation problem discussed in Section 3.1,
minimising fuel cost subject to all equality and inequality
constraints along with the additional equality constraints
from (22) to (27) have been formulated and solved using
NLP. The new Lagrange equation can be formulated and
the respective derivatives can be obtained with these
additional equality constraints for hybrid electricity market
model.
2.1.2 Optimal secure transactions determination:
In the hybrid market model, secure bilateral transactions have
been utilised in addition to pool demand. An objective

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function for determining secure bilateral transactions is 3 General OPF formulation in

to minimise the deviations of the transactions to be
determined from the proposed transactions as the presence of DG considering
XX demand variation
Min bij (Tij  Tij0 )2 (28) A general multi-objective mixed integer non-linear
i j
programming approach for hybrid electricity markets
considering the cost characteristics of distributed
Tij and T0ij are the secure and proposed bilateral transactions,
generators together with the fuel cost of other conventional
respectively, between GENCO bus-i and DISCO bus-j.
generators and the line loss minimisation has been
bij is a weighting factor indicating the importance of a
formulated to nd optimal location and number of
particular transaction which is taken as unity in the present
distributed generators
work, however, it can be any value for planning and
operational studies [31].
Min F (x, u, p, jint ) (37)
Operating constraints

1. Equality constraints: Real and reactive power injections at

subject to equality and inequality constraints dened as
bus-i are

Nb
X
Pi Pgi  r  Pdi Vi Vj [Gij cos(di  dj ) h(x, u, p, jint ) 0 (38)
j1

Bij sin(di  dj )] 8i 1, 2, . . . , Nb (29)

Nb
g(x, u, p, jint )  0 (39)
X
Qi Qgi  Qdi Vi Vj [Gij sin(di  dj )
j1
where x is state vector of variables V, d; u are the control
 Bij cos(di  dj )] 8i 1, 2, . . . , Nb (30) parameters, Pgi , Qgi , PDGi , QDGi, Pgb , Pgp, r; p are the
xed parameters Pdi, Pdb , Pdp , Qd, Tij; and jint is an integer
In addition to these equality constraints, the other equality variable with values f0,1g. The zero value represents
constraints to determine secure bilateral transactions are the absence and one value represents presence of the
same as (22) (27). distributed generator in the network.

2. Inequality constraints: These are the constraints on

Objective function F is
power generation limits of real and reactive power, real
power ow limit, transaction amount limit, voltage and
angle limits
Min F (x, u, p, jint )
8X 9
P min
g  P g  P max
g (31) >
> (a bgi Pgi cgi Pgi2 ) >
>
< i[N gi =
g
Qmin  Qg  Qmax (32) X
g g >
> int 2
(aDGi bDGi PDGi cDGi PDGi )>
>
: ji  ;
i[NDG
jP f j  P max
f (33) (N " ! #)
XL X X
0  Tij  Tijmax (34) l0pil  l0pjl  PLl (40)
l 1 i[sb j[eb
Vimin  Vi  Vimax (35)

dmin
i  di  dmax
i (36)
Equation (34) is the limit on transactions with as Tijmax
maximum transaction amount. The problem of
secure bilateral transactions determination has been
modelled in GAMS using (22) (36). The problem for
secure bilateral transactions have been modelled in GAMS
and solved using SNOPT solver based on sequential
quadratic programming (SQP) algorithm for large-
scale constrained optimisation to determine transactions,
Tij [29].
The rst part of the objective function is the total
fuel cost with conventional and distributed generators.
The second part of the objective function is the line loss in
line l. The multiplying factor for the line losses is the
wheeling cost which is the difference of marginal cost for a
line l between bus-i and bus-j of real power associated
with line l at base case [33]. Sets sb and nb are the start
bus and end bus in the second part of an objective
function. The bid curve coefcient data have been given in
Appendix 1.

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The line ows from bus-i to bus-j and bus-j to bus-i are generation limits. The data for upper and lower reactive
given as power limits have been given in Appendix 2.

Pijl Vi2 Gij  Vi Vj (Gij cos(di  dj ) Bij sin(di  dj )) (c) Optimal number of distributed generators: This includes
the limit on number of maximum distributed generators in
(41)
the network
Pjil Vj2 Gij  Vi Vj (Gij cos(di  dj )  Bij sin(di  dj ))
N
X DG
(42) NDG jint max
 NDG (47)
i
i1
3.1 Equality constraints
Power ow equations corresponding to both real and reactive The results have been obtained by solving the mixed integer
power balance equations are equality constraints that can be non-linear programming problem in GAMS using a discrete
modied in the presence of distributed generation for all continuous optimisation package (DICOPT) solver [29].
the buses as The ow diagram for solving the formulated optimisation
problem has been shown in Fig. 1a and interfacing of
Pi Pgi jint
i  PDGi  r  Pdi MATLAB and GAMS environment to obtain the solution
has been shown in Fig. 1b.
Nb
X
Vi Vj [Gij cos(di  dj ) Bij sin(di  dj )]
j1
4 Results and discussions
8i 1, 2, . . . , Nb (43) The proposed approach for an optimal distribution
generation location has been applied to IEEE 24-bus
Qi Qgi jint
i  QDGi  Qdi
reliability test system [27]. This network contains 32
Nb
X generators distributed among ten buses, and 38 branches
Vi Vj [Gij sin(di  dj )  Bij cos(di  dj )] (line plus transformers). The data for the system are on
j1 100 MVA base. Appropriate zones have been identied for
8i 1, 2, . . . , Nb (44) an optimal location of DG. These zones are based on
nodal price and real power loss variation at each bus. The
buses lying in the zones with higher variation of nodal
All other equality constraints (4), (5) and (22) (27) remain
price and loss sensitivity have been considered as most
same as dened in Section 2. r is the demand variation
suitable place for DG placement. These zones based on
factor for both pool and bilateral demand. It represents the
higher to lower variation have been termed as Zone 1,
change in the operating point of the system.
Zone 2 and so on.

3.2 Inequality constraints

4.1 Zones based on nodal price
In addition to the inequality constraints (31) (36) dened in
Section 2, two new inequality constraints have to be added in Based on the problem formulation as described in Section 2,
an OPF model with DG. the nodal prices of real power have been determined for both
pool as well as hybrid electricity market model. The real
Power generation limit: This includes the upper and lower power nodal prices for a pool model are given in Table 1.
real power generation limits of generators at bus-i
The price zones have been formed based on the nodal price
(a) Real power generation limit variation. The zone with higher price variation has been
termed as Zone 1 and the zone based on low price and less
min
PDGi max
 PDGi  PDGi , i 1, 2, . . . , NDG (45) variation of nodal price has been termed as Zone 2. In
Zone 2, the magnitude or prices at some buses may be
where PDGimin max
, PDGi are the minimum and maximum relatively higher compared to Zone 1; however, if their
generation limits. variation is lower compared to the prices in zone, they have
been placed in Zone 2. The variation of nodal real power
(b) Reactive power generation limit: This includes the upper price is shown in Fig. 2. The price zones are shown in Fig. 3.
and lower reactive power generation limits of distributed
generators at bus-i
4.2 Zones based on real power loss
Qmin max sensitivity factors
DGi  QDGi  QDGi , i 1, 2, . . . , NDG (46)
Based on exact loss formula, the real power loss in a system is
where, Qmin max
DGi , QDGi are the minimum and maximum given as dened in (6). The real power loss sensitivity can be

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Figure 1 Flow diagram for optimal location of distributed generation using MATLAB and GAMS environment
a Flow diagram for solving optimisation problem
b Interfacing of MATLAB and GAMS environment

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Table 1 Real power nodal price in $/MWh at each bus for

Zone 1 and Zone 2

Bus no. Zone 1 Bus no. Zone 2

1 35.753 13 28.741
2 35.483 14 28.761
3 31.107 15 27.327
4 33.530 16 27.361
5 33.798 17 26.355
6 31.354 18 26.219
7 19.373 19 27.603
8 30.774 20 27.571
9 30.437 21 26.187
10 30.900 22 23.300
11 29.720 23 27.460
12 29.803
24 29.000 Figure 3 Zones based on real power nodal price

Table 2 Loss sensitivity factors for Zone 1, Zone 2 and

Zone 3

Bus Zone 1 Bus Zone 2 Bus Zone 3

no. no. no.
1 20.0056 11 20.0211 17 0.0669
2 20.0088 12 20.0189 18 0.0741
3 0.0028 13 0.0058 21 0.0782
4 20.0418 14 0.0012
5 20.0394 15 0.0466
Figure 2 Nodal price variation at each bus 6 20.0681 16 0.0430
7 20.2120 19 0.0378
obtained as
8 20.1699 20 0.0433

@PLT X BN 9 20.0249 22 0.0110

2 (aij Pj  bij Qj ) (48)
@Pi j1
Real power loss sensitivity factors are calculated at each bus
and the zones are formed based on their variation at each
bus in the network. The values of the loss sensitivity factors
obtained at each bus are shown in Table 2 and their
variation at each bus is shown in Fig. 4. The zones
obtained with loss sensitivity factors are shown in Fig. 5.
With loss sensitivities obtained at each bus, three zones
have been formed named as Zone 1, Zone 2 and Zone
3. Zone 1 is the most sensitive zone from loss sensitivity
point of view because of their higher variation and Zone 2
and Zone 3 are termed as low sensitive zones compared to
Zone 1 because of their low variations of loss sensitivity
10 20.0390 23 0.0501
24 0.0134
factors at the respective buses. The magnitude of sensitivity
factors at some of the buses may be higher than the
sensitivity factors in the Zone 1, however, if their variation
is comparatively lower, these buses have been placed in the
Zone 2 and Zone 3. Zone 1 with higher variation of loss
sensitivity factors has been considered a candidate zone
for the placement of distributed generators. In Zone 3,
however, magnitude of loss sensitivity is higher; however,
their variation is comparatively lower than the variation of
loss sensitivity for the buses lying in Zone 2.

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Figure 4 Real power loss sensitivity variation at each bus
Figure 5 Zones based on real power loss sensitivity factors
Based on the most sensitive zones obtained using nodal
price and line loss sensitivity factors, a common zone for
placement of DG can be obtained considering both
economic and operational advantage. Load buses 3, 4, 5, 6,
8 and 10 lying in the common Zone 1 have been
considered for obtaining an optimal location of DG at
these respective buses. DG location has not been
considered at generator buses. The DG buses have been
modelled as PV buses in the network.
4.3 Results for IEEE 24 bus test system
The results have been obtained for nodal real and reactive price
variations at each bus, loss reduction in the network and overall
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fuel cost without and with the presence of DGs. Reductions in
average marginal price of real power and real power loss
reduction for both pool and hybrid market model have also
been determined. Based on number of DGs optimally located
at each selected load buses in the candidate zone, ve different
cases have been considered for both the pool as well as hybrid
market model. The results have also been obtained without
the presence of DGs for comparison. There can be more than
one distributed generator with different possibilities to place in
the selected zone at the load buses. The optimal location of
distributed generators among these buses has been obtained
using the mixed integer-based approach. Results have been
obtained considering different cases with different number of
distributed generators. The different cases without and with
optimally located DGs at the selected buses lying in the most
appropriate zone have been categorised as:
Case 0: Without distributed generator.
Case 1: With one distributed generator.
Case 2: With two distributed generator.
Case 3: With three distributed generator.
Case 4: With four distributed generator.
Case 5: With ve distributed generator.
4.3.1 Results for pool electricity market model:
The nodal price variations for both real and reactive power
at each bus have been obtained without and with the
presence of DG for the different cases. The price variations
are shown in Figs. 6 and 7. It is observed from Fig. 6 that
in the presence of DGs, the nodal prices have been
considerably reduced and the variation of real power prices
has also become uniform at all the buses. With the
presence of DGs, it is observed that two price zones can be
represented by a single price zone. Thus, the consumers in
both the zones will pay similar price. The best results have
been obtained with four numbers of DGs. However,
locating more than four DGs, it is observed that only small
reduction in real power nodal prices is found. With
penetration of more DGs in the network, the improvement
in the result is found to be marginal.
Fig. 7 shows the reactive power price variation without and
with DGs. It is observed from Fig. 7 that the reactive power
price is high at nodes 6 and 10 when compared to other buses
since at these nodes the reactive power absorption is quite
high because of the presence of reactor and transformers.
The Lagrangian multiplier for reactive power can be both
positive and negative. The reactive power price negative
sign indicates the negative sign associated with Lagrange
multiplier corresponding to reactive power balance
equation, however, the price has to be paid for reactive
power absorption as well as for injecting reactive power in
the network. For Case 3, the reactive power price at these
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Figure 6 Nodal real power price variation without and with DGs (pool model)

Figure 7 Nodal reactive power price variation without and with DGs (pool model)

nodes reduces considerably because of the reduction of

reactive line ows as real power is available locally due to
DGs. Thus, DGs can be help to reduce reactive losses in
a system because of power available locally to loads and
maintaining better voltage prole. The average nodal price
variation at each bus is shown in Fig. 8. It is observed that
the nodal price reduces considerably in the presence of
DGs and becomes almost uniform. With DGs, the price of
real power is almost uniform in both the zones and
customers pay similar price in both the zones. After Case
3, there is no signicant reduction obtained in average
marginal price. Figure 8 Average nodal price for real power (pool model)

The real power loss reduction in the presence of DGs

is shown in Fig. 9. With DGs real power loss reduction is
found to be quite considerable in the network because of
the local real power supply and reducing line losses. The
fuel cost reduction in the presence of DGs is shown in
Fig. 10. The fuel cost reduces for all the cases. Minimum
fuel cost is found to be with DGs for Case 4 with four
numbers of DGs. For Case 5, the reduction is found to be
marginal. With more penetration of DGs, it is observed
that there is no considerable reduction of overall fuel cost.
The optimal size of distributed generators obtained for
different cases has been shown in Fig. 11. The number in Figure 9 Real power loss reduction (pool model)

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Figure 10 Fuel cost saving (pool model)
Figure 11 DG size in p.u. (pool model)
small parentheses with Cases 1 5 (. . .) in Fig. 11 represents
the optimal bus location of DG.
The penetration level of DGs has been determined as the
ratio of DG size to the total demand in the system. The DG
share for different cases has been shown in Fig. 12. Optimal
number of DGs required obtaining best results of fuel cost
savings and loss reduction is found to be four. The voltage
prole without and with DG is shown in Fig. 13.
4.3.2 Results for hybrid electricity market model:
For the simulation of hybrid market model, optimal secure
bilateral transactions have been determined by solving the
Figure 13 Voltage prole without and with DG for pool model
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Figure 12 Penetration level of DG (pool model)
non-linear optimisation problem as explained in Section 2
[31]. The bilateral transactions are given in Table 3.
The nodal price variations for both real and reactive power
at each bus have been obtained without and with the presence
of DG. The nodal price variations are shown in
Figs. 14 and 15. It is observed from Fig. 14 that the nodal
prices were having higher variations in both the zones
without DGs.
With DGs, the price variations and their magnitude were
reduced in both the zones and variation of price is found to
be minimal because of the local supply of real power and
reducing line losses. The optimal number of DGs is found
to be three for hybrid model to obtain minimum value of
the objective function. With more penetration of DGs, it is
found that there is no considerable reduction in the real
power nodal prices. The average nodal price variation with
DGs is shown in Fig. 16. It is observed that the average
nodal price at each node decreases with the presence of
DG and customers in both the zones will have almost the
same price to pay for energy and are beneted to utilise the
cheaper energy.
The reactive power nodal price variations without and
with DGs are shown in Fig. 15. It is observed that at buses
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Table 3 Secure bilateral transaction matrix

Value of transaction between generator and load bus (p.u.)

T(1,1) 0.493 T (1,2) 0.299 T(1,3) 0.199 T(1,15) 0.077 T(2,8) 0.463 T(2,10) 0.331
T(2,13) 0.307 T(2,15) 0.400 T (2,18) 0.199 T(7,1) 0.046 T(7,2) 0.154 T(7,4) 0.139
T(7,5) 0.153 T (7,6) 0.298 T(7,7) 0.361 T(7,9) 0.256 T(7,10) 0.223 T(7,13) 0.435
T(7,15) 0.892 T(13,3) 0.025 T (13,4) 0.125 T (13,13) 0.422 T (13,14) 0.420 T(13,16) 0.491
T(13,18) 1.466 T(13,19) 0.339 T(13,20) 0.628 T (15,13) 0.120 T (15,14) 0.527 T(15,19) 0.339
T(15,20) 0.628 T(16,7) 0.616 T (16,9) 0.598 T (16,13) 0.026 T(18,3) 0.624 T(18,6) 0.379
T(18,8) 0.015 T(18,18) 0.146 T(18,15) 0.192 T(21,3) 0.025 T(21,4) 0.107 T(21,5) 0.107
T(21,9) 0.053 T(21,10) 0.246 T(21,13) 0.063 T (21,14) 0.103 T (21,15) 0.080 T(21,10) 0.256
T(22,3) 0.025 T(22,5) 0.171

Figure 14 Nodal price for real power without and with DGs (hybrid market model)

Figure 15 Nodal price for reactive power (hybrid market model)

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Figure 16 Average nodal price variation for hybrid market

model
Figure 19 DG size in p.u. (hybrid model)

Figure 17 Real power loss reduction for hybrid market

model
Figure 20 Penetration level of DG (hybrid model)

3, 6, 10 and 24, the reactive power price is comparatively high

compared to other buses in the system because of higher
reactive power absorption at these nodes due to the
presence of reactor and transformers. The reactive power
prices reduce considerably with DGs because of supply of
local real power. Local real power supply from DGs can
help to reduce reactive losses in the lines and maintaining
better voltage prole.

The real power loss reduction in the presence of DGs is

Figure 18 Overall fuel cost saving for hybrid market model shown in Fig. 17. The real power loss reduction is found to

Figure 21 Voltage prole without and with DGs for hybrid market model

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Figure 22 Nodal price for real power ($/h) with demand variation (r 1.05 to rmax 1.25) with Case 0 and Case 3 (pool
model)

Figure 23 Nodal price for reactive power ($/MVARh) with demand variation (r 1.05 to rmax 1.25) with Case 0 and
Case 3 (pool model)

Figure 24 Fuel Cost ($/h) with demand variation (r 1.05 to rmax 1.25) with Case 0 and Case 3 (pool model)

be considerable with the presence of DGs in the network
because of the local power supply to the loads and reduced
real and reactive power losses in the lines. The fuel cost
reduction in the presence of DGs is shown in Fig. 18.
The minimum fuel cost is obtained for Case 3, although
compared to Case 1, there was marginal reduction
obtained in the fuel cost. The fuel cost reduction for
bilateral model was found to be comparatively less than the
fuel cost reduction for a pool-based market model. It is
found that with more penetration of DGs, there is no
considerable reduction of the overall fuel cost and losses in
the network.
The optimal DG size in p.u. obtained for different cases is
shown in Fig. 19. The number in small parentheses with
Cases 1 5 (. . .) in Fig. 19 represents the optimal bus
location for distributed generators in the network. The
penetration level of DG for different cases is shown in

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Figure 25 Real and reactive power loss with demand
variation (r 1.05 to rmax 1.25) with Case 0 and Case
3 (pool model)
Figure 26 Reactive power loss with demand variation
(r 1.05 to rmax 1.25) with Case 0 and Case 3 (pool
model)
Figure 27 Real power loss with demand variation (r 1.01
to rmax 1.02) with Case 0 and Case 3 (hybrid model)
Figure 28 Fuel cost ($/h) with demand variation (r 1.01
to rmax 1.02) with Case 0 and Case 3 (hybrid model)
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Fig. 20. For hybrid market model, optimal number of DGs
to obtain best results for fuel cost savings and loss
reduction is three. The voltage prole without and with
DGs are shown in Fig. 21.
4.3.3 Results with demand variation for pool and
hybrid market model: The impact of real power demand
variation (r) on nodal price variation, fuel cost as well as real
power loss has also been determined for both pool as well as
hybrid market model. The demand variation impact on nodal
price without DG (Case 0) and with DGs (Case 3) for pool
market model has been shown in Figs. 22 and 23. It has been
observed that with the demand variation, the nodal prices
tend to increase at each bus. However with DGs, the nodal
prices reduce at each bus at different loading point (Case 3).
The impact of demand variation on fuel costs, real power and
reactive power loss has been shown in Figs. 2426. The fuel
cost increases with different loadability factor and with DGs,
the fuel cost reduces at different operating points. It has been
observed that real power and reactive power loss increases
with increase in real power demand. With DGs (Case 3),
there is considerable reduction in real and reactive power loss
at a different operating point of the system.
Similar observations have been observed for hybrid market
model and real power loss variation and fuel cost saving for
Case 0 and Case 3 have been shown in Figs. 27 and 28 for
different operating point of the system considering demand
variation.
5 Conclusions
In this paper, zones based on nodal price and line loss sensitivity
as economic and operational criteria have been obtained for
optimal location of DG. The zone with highest variation in
the nodal price and line losses has been considered for optimal
placement. Then, mixed integer non-linear programming
approach has been presented for optimal location and optimal
number of distributed generators in the suitable zone. The
pattern of real and reactive power nodal price, real power loss
and fuel cost saving have been determined for pool as well as
hybrid electricity market. The nodal price variations are
reduced drastically in both electricity market models. It is
observed that with DGs, the real power losses reduce
considerably for both market models and thus there can be
additional saving of energy and fuel cost. Optimal number of
DGs were found to be four for pool model and three for
hybrid model to obtain maximum fuel cost saving and losses
reduction in the network. The impact of different operating
point with demand variation has also been studied for nodal
price variation, fuel cost and real power loss without and with
DGs for both electricity markets. It is observed that with
increase in demand, the nodal price increases and at maximum
demand the nodal prices become very high, however, with
optimal DG location; there is considerable reduction in the
nodal prices at different operating points in the system for
both market models. Similarly, fuel cost and losses tend to
increase with increase in demand and DG plays an important
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role in saving fuel cost and reduces losses in the network. With
more penetration of DGs, no considerable improvement has
been obtained. With optimally located DGs, the consumers
will benet by paying lower cost of energy and there will be
overall improvement in terms of technical and economical
benets in the energy market operation.
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7 Appendix 1
Bid curve data for distributed generators and conventional
generators [23, 27]

Bus Distributed Bus Conventional

no. generators no. generators
aDG bDG cDG agi bgi cgi
3 0.003 20.0 0.0 1 0.2917 35.07 3591.39
4 0.004 19.0 0.0 2 0.0 64.96 306.7
5 0.010 20.0 0.0 7 0.0322 19.18 1940.98
6 0.005 18.0 0.0 13 0.0322 19.18 649.99
8 0.002 15.0 0.0 15 0.0628 27.22 1829.71
10 0.003 20.0 0.0 16 0.0191 14.86 552.8
18 0.0191 14.86 1105.6
21 0.0086 30.0 1992.36
22 0.0112 14.17 927.15
23 0.0017 17.55 1160.23

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