Locational Marginal Pricing – RAP Blueprint
Locational marginal pricing (LMP) provides efficient price signals that reflect the marginal cost of electricity generation and
What is LMP? In the context of energy development and finance, "LMP data" typically refers to "Locational Marginal Price" data. Locational Marginal Prices (LMPs) are prices that are paid for electricity in specific locations within a power grid at a specific point in time.
LMP is a pricing mechanism used in electricity markets to determine the cost of electricity at specific locations and times. It reflects the cost of supplying one additional unit of electricity to a specific point in the grid at a particular moment in time, taking into account the constraints and limitations of the grid.
The LMP price reflects the cost of electric power generation, the cost of delivering that power to a specific location, and the cost of managing transmission constraints in a local area. Remember, not all locations on the electricity grid are created equal.
LMPs differ generally among locations because transmission and reserve constraints prevent the next-cheapest megawatt (MW) of electric energy from reaching all locations of the grid. Even during periods when the cheapest megawatt can reach all locations, the marginal cost of physical losses will result in different LMPs across the system.
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