Markets for Reactive Power and Reliability: A White Paper

The Ferc report on reactive power clearly and succintly lays out the issues and raises important questions about market power, contingent-claim versus real-time markets, the need for an optimal power flow that incorporates reactive power, etc. Unfortunately, the economic/engineering models so far available in the literature fail to represent the true economic production, transporation, and use under the contstraint of a full alternating-current (AC) power flow whre the expected net benefit is defined as the sum of the probablility-weighted economic outcomes for all contingencies, including line and generator failures. This is the correct way, in terms of economics, to determine optimal reliability, levels of investment and operation parameters under alternative contingencies, as well as efficient and optimal production and prices for real and reactive power.

The purpose of this paper is to take a broad look at how markets should be organized, not only for reactive power but for real power and reliability, since these markets are fundamentally interdependent and essential for efficient and reliable delivery of electric power.