IDEAS home Printed from
   My bibliography  Save this paper

Derivation of Locational Marginal Prices for Restructured Wholesale Power Markets


  • Liu, Haifeng
  • Tesfatsion, Leigh S.
  • Chowdhury, A.A.


Although Locational Marginal Pricing (LMP) plays an important role in many restructured wholesale power markets, the detailed derivation of LMPs as actually used in industry practice is not readily available. This lack of transparency greatly hinders the efforts of researchers to evaluate the performance of these markets. In this paper, different AC and DC optimal power flow (OPF) models are presented to help understand the derivation of LMPs. As a byproduct of this analysis, we are able to provide a rigorous explanation of the basic LMP and LMP-decomposition formulas (neglecting real power losses) presented without derivation in the business practice manuals of the U.S. Midwest Independent System Operator (MISO).

Suggested Citation

  • Liu, Haifeng & Tesfatsion, Leigh S. & Chowdhury, A.A., 2009. "Derivation of Locational Marginal Prices for Restructured Wholesale Power Markets," Staff General Research Papers Archive 13068, Iowa State University, Department of Economics.
  • Handle: RePEc:isu:genres:13068

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. Somani, Abhishek, 2012. "Financial risk management and market performance in restructured electric power markets: Theoretical and agent-based test bed studies," ISU General Staff Papers 201201010800003479, Iowa State University, Department of Economics.
    2. Young, David & Poletti, Stephen & Browne, Oliver, 2014. "Can agent-based models forecast spot prices in electricity markets? Evidence from the New Zealand electricity market," Energy Economics, Elsevier, vol. 45(C), pages 419-434.

    More about this item


    AC optimal power flow; Locational marginal pricing; wholesale power market; DC optimal power flow; U.S. Midwest Independent System Operator (MISO);

    JEL classification:

    • C6 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling
    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • D6 - Microeconomics - - Welfare Economics
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L3 - Industrial Organization - - Nonprofit Organizations and Public Enterprise
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:isu:genres:13068. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Curtis Balmer). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.