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Reactive Power is a Cheap Constraint

Author

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  • Edward Kahn
  • Ross Baldick

Abstract

Hogan (1993) has proposed a version of marginal cost pricing for electricity transmission transactions that include a component for reactive power to support voltage at demand nodes. His examples support the notion that the cost of satisfying voltage constraints can be quite high. We show that in his simplest example the price on this constraint results from an uneconomic and artificial characterization of the problem, namely an inefficient and unnecessarily constrained dispatch. By eliminating this characterization, the price of reactive power falls to a very modest level. Our counterexample has implications for the institutional arrangements under which transmission pricing reform will take place. We believe that environment will be an open access competitive setting, where dispatch is still controlled by one group of participants. Manipulation of marginal transmission costs becomes quite feasible in complex networks through subtle changes to dispatch. Therefore an open access regime using marginal cost pricing must involve either some kind of monitoring and audit function to detect potential abuses, or alternatively, institutional restructuring to eliminate conflicts of interest.

Suggested Citation

  • Edward Kahn & Ross Baldick, 1994. "Reactive Power is a Cheap Constraint," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4), pages 191-202.
    • Handle: RePEc:aen:journl:1994v15-04-a09
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    Cited by:

    1. Kahn, Edward & Bailey, Shawn & Pando, Luis, 1997. "Simulating electricity restructuring in California: Interactions with the regional market," Resource and Energy Economics, Elsevier, vol. 19(1-2), pages 3-28, March.
    2. Richard O’Neill & Emily Fisher & Benjamin Hobbs & Ross Baldick, 2008. "Towards a complete real-time electricity market design," Journal of Regulatory Economics, Springer, vol. 34(3), pages 220-250, December.
    3. Robert F. Cope III & David E. Dismukes & Rachelle F. Cope, 2001. "Modeling regional electric power markets and market power," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 22(8), pages 411-429.
    4. Borenstein, Severin & Bushnell, James & Kahn, Edward & Stoft, Steven, 1995. "Market power in California electricity markets," Utilities Policy, Elsevier, vol. 5(3-4), pages 219-236.

    More about this item

    JEL classification:

    • F0 - International Economics - - General

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