A method for pricing VAR providers in the electricity markets considering voltage security

This paper presents a novel approach for procuring VAR service in a competitive market-based environment, in which the transmission operator (TO) is supposed to run the market and enter into long-term contracts with the successful candidates for providing the required VAR whenever called upon. The proposed method is new in that the VAR procurement problem and control problem, including load shedding, are uniformly formulated so that N-1 security is guaranteed. Voltage stability is newly introduced into the VAR market problem in an explicit manner for normal and emergency states. The objective function is the total cost for TO, which includes the payment to VAR providers, power loss cost for normal states, and control costs for emergency states. The explicit inclusion of voltage security margin enables the TO to easily identify the critical VAR providers who should be contracted to maintain the required security level. This implies that the VAR providers in this market will be fairly remunerated on the basis of their contributions to the system security that measures the relative worth of each VAR provider. The proposed method has been applied to the IEEE 57 bus-system to demonstrate its usefulness. (c) 2006 Institute of Electrical Engineers of Japan. Published by John Wiley & Sons, Inc.