A nodal pricing approach for reactive power in distribution networks

Electricity tariffs are traditionally associated with the cost of active power, whereas reactive power prices are neglected. However, the efficiency and power quality of distribution systems increase if reactive power rates are explicitly modeled. This paper proposes a practical, simple, and transparent reactive power pricing mechanism based on the change of apparent power due to reactive power injection. The resulting prices depend on the reactive power injection and thus they may be different at each bus. Fair payment and economically attractive remuneration schemes for reactive power utilization are implemented in order to maintain a desired power factor. Numerical results on a 69-bus distribution system illustrate the effectiveness of the proposed pricing approach.