Some observations on market clearing price and locational marginal price

Abstract

This paper starts from the fundamental concepts of market clearing price (MCP) and locational marginal price (LMP) in the electricity markets, and presents some interesting observations on MCP and LMP. The point at which demand curve and supply curve intersects establishes the MCP. The non-existence of MCP and existence of multiple MCPs is explored. LMP is the marginal cost of supplying the next MW of load at a specific location. LMPs with the presence of price-responsive demand and multi-period coupling constraints are discussed. For the first time, the cases where LMP is higher than the highest generation bidding price and where LMP is lower than the lowest generation bidding price are discussed, all using examples for a simple 3-bus network.