2004 IEEE International Conference on Elecmc Utility Deregulation, Restructuring and Power Technologies (DRPT2004) April 2004 Hong
Kong
Reactive Power Market Based on Consolidated
Compensation
Piao-hong Kong, Jun-yong Liu, Lei-lei Pan and Yuan Huang
Abslract-A deregulated electricity market demands
competitive reactive power auxiliary service, so it is
necessary to determine the values of reactive power supports
from different reactive power sources, according to these
values the reactive power auxiliary services can be priced.
Here, the concept of effective reactive power capacity is first
put forward, and the model of reactive power market in
established on the basis of global optimal compensation, thus,
the reactive power market is divided into two markets, i.e.,
the reactive power capacity market and the electricity
quantity market of reactive power. It is emphasized that the
values of reactive power supports should be determined
according to their contributions to the stability and security
of power system respectively. The correctness of the
presented method is proved by the results of sensitivity
analysis. Taking the IEEE-30 bus system and Sichuan power
grid for examples, the simulation and the calculation for the
presented method are conducted, the results of the
calculated prices of reactive power show that the presented
method is feasible aud reasonable.
Index Terms-equivalent reactive power capability;
reactive power capacity market; electricity quantity market;
reactive power pricing
I. INTRODUCTTON
R eactive power support plays an important role in
..
maintenance system security and stability. It is
realized that establishing accurate prices of reactive power
support can not only recover the cost of reactive power
production, but also provide useful information related to
the urgency of reactive power supply and system voltage
support [I]-[2]. First, correct price signals will facilitate
transmission access and improve economic efficiency.
With the proper costing and pricing of reactive power,
transmission users will have the ability to make intelligent
decisions about economic activities such as energy
transactions, investments, and asset utilization. Second,
the efficiency and reliability of system operation will be
improved when well-balanced reactive power resources
are available to support the transmission network since
active power losses in the transmission system will be
reduced by properly distributing reactive power
generators. Last, voltage profiles will be improved which,
in turn, will reduce the incidents caused by high and low
voltage problems. Therefore analyzing the cost of
providing reactive power services and establishing an
appropriate price structure are important both financially
and operationally for the deregulated electric industry.
0-7803-8237-4/04/$17.00020041EEE
540
However due to the characteristics of reactive power, its
cost computing is difficult.
Unfortunately, the pricing of reactive power has
received very little attention. A reason for this negligence
is the inherent difficulty in understanding the concept,
especially by economists. Berg, et. al. [3] point out the
inconsistency and inadequacy of the present pricing
policies based on power factor penalties. They suggest
that, given the present high cost of additional investments
by electric utilities, price should be derived from
economic principles, which support a pricing approach
that has price equal marginal cost, and would also reflect
today’s technological constraints.
In the present papers the most significant works dealing
with reactive power pricing can be grouped into three
categories:
0 Proposals for the determination of the Marginal
Price (MP) of reactive power services neglecting the
production cost [2],[4]-[5];
0 Proposals for the determination of the cost and the
MP of reactive power services [6]-[9];
0 Proposals that are not based on the marginal cost
theory [1],[10].
So far the papers of group one and two have dealt with
studies based on the marginal cost theory, that is based on
the supposition that marginal cost more or less can
recover all cost involved in producing, transporting and
delivering reactive power. These papers have not
considered yet an unbundled electric market but they have
only proposed a fairer method for calculating the reactive
power price (MP) alternative to the traditional one, based
on power factor penalties, which does not give signals on
how the reactive power cost are varying depending on
customers’ consumptions. In fact the marginal cost,
regarded as the sensitivity of the generation production
cost to the reactive power demand, represents a small
portion of the true cost, as only the fuel cost of the
generators is included.
This paper proposes a new concept of equivalent
reactive power capability (ERC) and a reactive power
market structure based on consolidated compensation,
Such a reactive power market is divided into two markets,
i.e., the reactive power capacity market and the electricity
quantity market of reactive power market [7]-[SI. The
SCROPF method is used to solve problem of optimal
reactive power capacity and quantity purchasing.
The rest of the paper is organized as follows: a
description and formulation of the consolidated
2004 EEE International Conference on Electric Utility Deregulation, Restructuring and Power Technologies (DRF'T2004) April 2004 Hong Kong
compensation based reactive power market is given in the
next section. The case studies in section 111, performed on
the 30-bus IEEE standard system and the power system of
Sichuan province. Finally, a discussion with concluding
remarks is given in section IV, while section V lists the
relevant references.
11. CONSOLIDATED
COMPENSATION
BASEDREACTIVE
POWER MARKET
In this paper, reactive power market based on
consolidated compensation is considered, where there is a
need for procedures to incentive the participants in the
market to provide reactive power services and ensure an
adequate payment that guarantees the economic feasibility
of this business. Cost of providing reactive power support
has two components:
0 capital cost associated with the provision of reactive
capacity;
0 quantity and maintenance cost related to the reactive
power output within this capacity.
Therefore, the reactive power market is decomposed to
two sub-markets: a capacity based and a quantity
based[7]-[8],[ IO]. In capacity based market, the reactive
power sources are reasonably distributed, thus not only
the distribution and capability of reactive power sources
but also their investment cost are taken into account. In
quantity based market, the implicit cost of reactive power
sources is analyzed and their outputs are rearranged
according to system reactive power requirement. As a
result, the total fault-enduring ability of system is
improved.
A . The Reactive Power Capacity Market
It is necessary for system to have sufficient reactive
power reserve, ensuring that voltages throughout the
system are maintained under both normal and emergency
conditions to prevent loss of loads and keep system
reliability at acceptable levels. The market would be
based on long-term capacity bids provided by generators
and other control elements to the System Operators to
ensure system voltage security. For selected bids there is a
long-term obligation for voltage regulation in their
connection buses. The control elements will receive a
capacity payment for this service. The total equipment
remuneration should be proportional to the impact of the
equipment on the expected non-supplied energy, and it
should take into account the amount of the reactive power
capacity provided and its type of control (time constant of
the AVR response, integration in a secondary voltage
control loop, etc.). So their investment cost can be
compensated and more investors have incentives to
anticipate the construction of reactive power market.
Reactive power capacity cost is valued based on their
contribution to system security and voltage reliability.
First of all, the equivalent reactive power capability
should be determined. For valuation of source's reactive
54 1
power to system security and voltage reliability, many
methods are available. The most promising ones are
followings: Voltage Sensitivity (VS), PV curves, Back-up
generation and Equivalent Reactive Compensation
methods [ I l l . Voltage Sensitivity method can not only
rank the system sources according to reactive power
supply capabilities, but also solve the problem: What does
1 MVar from one or other source do to system losses? PV
curves method is performed to answer what does 1 MVar
mean lo transfer capacity? To evaluate generator's
reactive power support capabilities, Back-up generation
method can be tried. The main idea of Equivalent
Reactive Compensation method is as follows: if a reactive
power source changes its output, the network voltage
profile and stability levels will change. To maintain the
same degree of network security, reactive power
compensations can be added (at all load buses). The total
amount of fictitious compensation added is a direct
measure of the value of the missing reactive power output
from the source. In this paper, we use Voltage Sensitivity
method. Voltage Sensitivity show the effect an additional
injection of real or reactive power at a bus on real,
reactive, or complex power flow on a particular line or
interface. Power losses sensitivities to active and active
power can been calculated by the means of voltage
sensitivities. Mathematically it is:
dpL - apL a6 apL av
+-- (2)
de a6 aQ av a~
where PL is the loss of the whole system; P and Q are
active and reactive power of the loads; V and 6 are nodal
voltage and nodal angle. which can be expressed by
matrix:
(3)
In this paper, we only concern about the reactive power
losses sensitivity, so the first term in the matrix is
neglected.
Vi =S.Q
I Cl
.
V.
' I
Mi=M
total -
where N, is the set of nodes with reactive power sources;
QLSi is reactive power losses sensitivity of reactive power
source i; PLSi is active power losses sensitivity of reactive
power source i; 6 i is the relative contribution factor of
2004 IEEE lntemational Conference on Electric Utility Deregulation, Restructuring and Power Technologies (DRF'T2004) April 2004 Hong Kong

reactive power source i; MtOol is the total capacity
payment; Mi is the capacity payment of reactive power
source i. Fig. 1 represents the flow chart for computing
reactive power capacity payment.
CqEi() is the reactive power production cost of generator i.
There is an opportunity cost no matter it generation or
ahsorption.
As for the equivalent production cost for capital
investment return of capacitors, which is expressed as
depreciate rate (the life-span of capacitors is 15 years ):

r
Calculating var sources'
dative contributio
contnbutian to system
factor computation
stability
Equivalent reactive Acquiring the percentage of
vac sources output
$1 1600Qci / W a r
icci(Qcj)r=
(15 *365 * 24* h)h
= $13.24Qci /(lOOMVarh)
where h represents the average usage rate of capacitors
taken as 213. Qciis in per unit on 100 MVA base.
2) Mathematical Model
Reactive power has quantity cost curve similar to active
power, the curve is non-linear and can he linearized. As
seen from the previous section, there is cost for providing

U
the reactive support from various sources. This cost
Reactive capacity
should be covered by the users of the power system. The
payment
minimization of total cost, thus, was chosen to he the
Fig. 1. Flow chart of reactive power billing objective function. Its mathematical form is:
B. The Electriciy Quaniiy Market Of Reactive Power XgCgAQg Cosrfromgenerotors

The reactive quantity market would he also based on + X c CcAQc Cos~fromcompenmtors

long-term bids provided by generators and other control (9)
elements to the System Operators. The hid format Min + E t CtATapr Costfrom transformers
includes the margin of the reactive power variation
(generation and absorption ) and the loss-curve., which +c~M~ cost Of losses

relates the intemal equipment losses to the reactive power, The objective function is subject to the following set of
produced or absorbed by the control element. Both constraints:
generator injections and reactive power demands shall be Qgmin Qgo +AQg Qgmax (10)
remunerated or charged through multiplying the reactive
power quantity by the corresponding losses minimization
spot price.
1) Reactive Power Ouantifv Cost

absorbing reactive power when under-excited. The utput under contingen Power flow Simulation

-
reactive power output of a generator will reduce its active of contingcncy
power generation capability, which can serve at least as
Jt
Optimal objective min reactive power
spinning reserve, and the corresponding implicit financial selection production COS&

Actually it is difficult to determine the real value of Rcarrangcmcnt of output

opportunity cost. For simplicity, we consider it - Optimal power flow
approximately as: The mwcmcnt of Output diffcfcrcnce
s0"rcCs between opf and noupf

payment

542
2004 IEEE lntemational Conference on Electric Utility Deregulation, Restructuring and Power Technologies (DRF’T2004) April 2004 Hang Kong

111. CASESTUDY

A . Results Based on IEEE-30 Bus System ......-...-.

The IEEE-30 bus system is selected to be the test
system. Six generators are located at buses 1, 2, 5 , 8, I I
and 13 respectively. Two shunt capacitors, whose
maximal capabilities are 4 and 19 MVars, are located at
bus 10 and 24. The reactive power payments are
calculated based on equivalent reactive power capability.
Results are shown in table ].Where S, and S2 are the
compensation cost for generators and shunt compensators
respectively.

TABLE I
REACTIVEPOWER COSTOF VAR SOURCES
i l : . I P I * u 2 ; r
Rmrumtl
Fig.3. The nodal volragcs in IEEE 30 system before and after thc
optimization

B. Results Based On Sichuan Power Svstem

Sichuan power system with 293 buses, 25 generators
and 46 shunt capacitorslreactors is selected to be the other
test system. The results of key buses are listed in table 2
and 3. Where S, and S2 are reactive power capacity
payments for generator sources and for shunt
It can he seen that equivalent reactive power compensations respectively.
capabilities of reactive power source vary with their TABLE 11
locations and capacities. So their values in regulating the
voltage in system and reacting to the load variation are Relative
Bus Max
different. From table I, we know that generator 1 is the I .-
,n ....- ,
MV.r SEN conmibution ERC

most important reactive power source. Generally speaking,

the value of generators is higher than capacitors’, even if 1.032
they are under the same condition.
When unforeseeable contingencies and sudden change
of reactive power requirements arise, the reliability and
TABLE I11
security of the system are compromised and voltage
collapses may result from cascading power outages, every
reactive power source has its responsibility to regulate
reactive power output in order to protect the integrity of
the system. The SCROPF software is used to solve the
optimization problem of minimizing the total cost of
reactive power production costs. After regulation, the
outputs of generators are all in their capacity limits, there
is no opportunity costs. Both cheaper capacitors are used Conclusion can be made from table 2 and table 3 that
up, their quantity costs are $2.5156 and $0.5296 value of reactive power sources are vitally related to its
respectively. Fig. 3 shows after optimization, not only location and type. Why so many different types of
quantity cost is reduced hut also system voltage level is reactive power sources are coexistent in the same system?
improved. At the same time, system loss drops from initial The reason is that the cost of reactive power service
7.99 MW to 6.61 MW, it is reduced by 17.27%. depends mainly upon the choosing of reactive
compensation devices, which depends, in turn, on the
nature of the loads. On one hand, slowly changing loads
require slowly changing or “static” reactive support
equipments such as capacitors and reactors. On the other
hand, rapidly changing loads, such as furnaces, require
rapid or “dynamic” reactive support equipments such as
generators.
As electric power system is a homeostasis system, its

543
2004 IEEE International Conference on Electric Utility Deregulation, Restructuring and Power Technologies (DRPT2004) April 2004 Hong Kong

operating point is changing frequently, which requires 1V. CONCLUSIONS

reactive power sources to regulate voltage at any moment. Competition of electrical industry requires competitive
In Sichuan power system, reactive power devices that market for reliability or ancillary services. In this paper a
anticipate in regulating voltage include generators, shunt new reactive power market stmcture based on
capacitors, shunt reactors and transformer taps. A key consolidated compensation is studied in detail. The
characteristic of Sichuan power system is the great corresponding optimal power flow problem is defined and
number of hydroelectric power station. Power system solved by SCROPF method. The proposed method is clear
requirements for reactive power are continually varying in concept and convenient in practice. This paper has
between peak periods and off-peak periods. reached several significant conclusions. They are:
-l-np.lr-=d 1) The equivalent reactive power capabilities of
reactive power sources which are important in
maintaining system voltages depending not only on
network configuration but also on their maximal
capabilities and locations;
2) Because of the varying nature of loads, it is
C
e Ihd ur U( z p 11.1 P TY
sometimes necessary to both supply and ahsorb
* u p a r * W l d o i a
reactive power at the same location in the system
depending on the time of the day;
......__.....__..... 3) To simplify the task, active market and reactive
power market are charged independently. As for
reactive power market, the settlements are made
every quarter. For each quarter, we select an typical
ram, a ~1 rsi)lwr& x inr
operation mode;
Fig.4. The nodal voltages in Sichuan power network before and alter the
optimization
4) The marginal price of reactive power and the loss
increment caused by per reactive power injection can
he obtained by voltage sensitivity method. But these
C. Results Comparison results are achieved on the premise that loads are
Sichuan power system is used for comparative study, unchangeable. In case that system response to load
the objective function for the optimization problem is to variation is nonlinear, it is difficult to obtain system
minimize the overall cost of reactive power production of response to great load change;
generators and shunt compensators. The results from four 5) The proportion of active and reactive power
operation modes show clearly the effects of reactive payments have not been discussed in this paper,
power sources regulating on the total reactive power which is the direction for further research.
production costs (see Fig. 5 ). The revenue reduced from
reactive power pricing will be high. Therefore reactive v. REFERENCES
power market based on consolidated compensation is [I] Shangyou. Hao, A. Papalcxooulos. "Rcctivc powcr pricing and
feasible in terms of technology and economy. management," IEEE Tram. On P o w r Sj>stems,vol. 12, pp. 95.104,
Feb. 1997.
1 [2] M. L. Baughman, S. N. Siddiqi. "Real time of rcactivc pawcr:
theory and casc sNdy results," IEEE Trans. On Power Sysrems, vol.
6 , pp. 23-29, Feb. 1991.
Innon-0pf I [3] Berg, V. Sanford J. Adams and B. N i e k m , "Power factors and the
efficient pricing and production of reactive power," 7he Energy
h lopf Joumal, Special Electricity Issue, vol. 4, pp. 93-102.
cv)
n [4] A . A. El-Keib, X. Ma. "Calculating shon-run marginal costs o f
50
active and reactive power production." IEEE Trans. On Power
Syslems, vol. 12, pp. 559-565, May. 1997.
U
[SI Y. Z. Li, A. K. David, "Whccling rates of reactive power flow
under marginal cost pricing," IEEE Trans. On Power Systems, vol.
9, pp. 1263-1269, Aug. 1994.
[6] 1. W. Lamant, 1. Fu, "Cost analysis of reactive power support,"
IEEE Trans. On Power Systems. vol. 14, pp. 890-898, Aug. 1999.
171 S. Ahmed, G. Subac, " A method for simulation and analysis of
1 2 3 4 reactive power markct," IEEE Trons. On Power Svslems, vol. 15.
o p e r a t i o n modes pp. 1047-1052, Aug. 2000.
[8] I. Barquin, T.G. San Roman, J.J. Alba Rios and P. Sanchcz Martin,
Fig.5. Statistics o f cost for reactive power before and aftcr the "Reactive power pricing: a coneepNal framcwork for remuneration
optimization and charging procedurds,"IEEE Trans. On Puner Syslems, vol. 15,
..
DD.483489. May. 2000.
[9] Y. Dai, Y.X. Ni, C.M. Shen. F.S. Wen, Z.X.Hanand F.F. Wu, "A
srudy o f reactive power marginal pncc in electricity market,"
ElerrricPower System Reseorch, vol. 57, pp. 4148,2001.

544
2004 IEEE International Conference o n Electric Utility Deregulation, Restructuring and Power Technologies (DRPT2004) April 2004 H o n g Kong

[ I O ] K. Bhattacharya, J. Zhong, "Reactive power as an ancillaty

sewicc," IEEE Tram On Pow,er Syrrems, vol. 16, pp. 294-300,
May. 2001.
[I I ] Wilsun Xu, Yi Zhang, Luiz C.P.da Silva. Prabha Kundur and Allan
A . W m c k , "Valuation of Dynamic Reactive Powcr Support
Services for Transmission Acccss," IEEE Trans. On Power Sysiems.
vol. 16, pp. 719-728, Nov. 2001.

VI. BIOGRAPHIES
Piao-hong Kong was bom in Hangrhou, China on May 30,1978. She
received her BS degree and will receive her MS dcgrcc in clcctrical
enginecnng ham Sichuan University, China in 2001 and 2004,
respectively. Her research interests are electrical power market and
reactive power pricing.

Juo-yang Liu was bom in Sichuan. China in 1963. He received his BS

and MS degrecs in electrical enginccnng from Sichuan University, China
in 1984 and 1986 respectivcly. And his P h D degrcc was reccived in
electrical engineering from Brunel University, England in 1998. He has
bccn a professor of Sichuan University, His rcscarch interests are power
system economics and electncity pricing, FACTS, voltage and reactive
power EO"tro1.

Lei-lei Pan was bom in Chcngdu, China in 1979. She reccivcd her BS
degree and will receive her MS degree in clcctncal engineering from
Sichuan University, China in 2001 and 2004, respectively. Her research
interests are powcr system stability and reactive power control.

Yuan Huang was bom in Sichuan, China in 1974. She reccived hcr BS
dcgrcc and will receive her MS degree in electrical engineering from
Sichuan University, China in 2001 and 2004, rcspectivciy. Her research
interests are powcr market and energy transaction.

545