IEEE Power & Energy Magazine - July/August 2016 - 46

economic signals will play a crucial role in coordinating
interactions amongst power system users. active system
users with on-site generation, storage, demand response, or
large new loads such as electric vehicles can be coordinated
with the use of economic signals to not only mitigate negative system impacts but enhance power system efficiency
over the entire power grid.
We have seen that the potential of DeRs can be huge
and that they can strongly impact the bulk power system.
The investments in different types of DeRs, the volume of
deployment, the form of their operation, and their impact
on the electric grid will critically depend on the prices and
charges that apply to them. The critical issue to be discussed
here is how precise the economic signals that arrive at
the countless DeRs connected in the distribution network
should be to guarantee their efficient participation. It is by
now obvious that time differentiation, at least at the hourly
level, is of essence in the presence of large amounts of intermittent generation. We shall focus here on the locational
component of the economic signals.
lMPs of energy are a reflection of the diverse costs of
production and demand response everywhere in the power
grid, as well as of the impacts of network losses and technical constraints. Presently, lMPs are only used in some
countries and exclusively at the transmission level. While,

Meter
Power Flows

"User Profile"

figure 7. How to design tariffs that reflect the actual pattern
of consumption, production, and network utilization.

in tightly meshed transmission networks, the differences
in the values of lMPs at different nodes may not exceed
10%, in other cases the differences caused by active network
constraints could be very substantial, as shown in figure 8
for the u.s. Midwest Iso system. some DeRs, such as storage, electric vehicles, gas-fired microcogenerators, microturbines, and demand itself, can be very responsive to price
levels, and precise information about the value of the local
lMP could enhance efficiency significantly.
another issue, repeatedly indicated by Prof. William
hogan from harvard university, is the frequent lack of
information in the electricity price-whether lMPs or not-
on the conditions of scarcity in the system's supply of operating reserves. DeRs could provide operating reserves and

Manitoba
Ontario
North Dakota
Minnesota
South Dakota
Minnesota Hub: US$24.19
Wisconsin
Michigan Hub: US$400.16

Michigan

Illinois Hub: US$135.73
Indiana Hub: US$143.34
Nebraska

Indiana
Missouri

Colorado

DERs and Loads

Illinois

Kansas
29 May 2012
3:35 p.m.

Kentucky

Ohio

LMP (US$)
800-1,000
600-800
500-600
400-500
300-400
250-300
200-250
150-200
125-150
115-125
100-115
90-100
82-90
76-82
68-76
62-68
56-62
50-56
46-50
42-46
38-42
34-38
30-34
26-30
20-26
14-20
6-14
0-6
-10-0
-999 - -10
GEN
HUB

Tennessee

INT

figure 8. A sample of LMPs in the Midwest ISO system (courtesy of MISO).
july/august 2016

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Table of Contents for the Digital Edition of IEEE Power & Energy Magazine - July/August 2016