Locational Marginal Price

• Locational Marginal Price Calculation
• Locational Marginal Price Sensitivities
• Locational Marginal Prices

Republished July 24, 2014 to update a hyperlink.

True to its name, locational marginal pricing is based on the location in which the power is received or delivered. Locational marginal pricing is analogous to a taxi ride for megawatts of electricity. The real time pricing of electricity at many points across PJM’s grid makes it possible for wholesale power markets to function. This pricing, also known as Locational Marginal Pricing, or LMP, is newly explained in an updated fact sheet at pjm.com. A global standard for energy markets and operations, LMP was introduced at PJM in 1998. This map shows the locational marginal price or LMP for each transmission zone in the region PJM serves. The legend in the bottom right corner of the map shows color coded values for LMP; these values are reflected on the map. You can zoom in on a specific location of the map for details. One energy market runs the day before the energy is needed (day ahead market), while another one runs in real-time to balance last minute demand needs. Switch between the Day-ahead, Real-time pre-dispatch and Real-time dispatch locational marginal price (LMP) maps using the drop down menu at the top of the map.

What is Locational Marginal Pricing (LMP)? LMP stands for Locational Marginal Pricing and represents the cost to buy and sell power at different locations within wholesale electricity markets, usually called Independent System Operators (ISOs). Examples of ISOs include PJM, ISONE, MISO, CAISO, and NYISO.

Wholesale electricity prices change throughout the day and night, depending on many factors including the level of demand for electricity and the varying costs of generating power from different types of generators. Wholesale electricity price maps are a useful resource for visualizing location-specific prices and transmission constraints in real time. These maps are created by individual regional transmission organizations (RTOs) for the territory they cover. These maps are updated often, usually every five minutes (see Midwest above).

Locational Marginal Prices, or LMPs, are location-specific prices developed within the RTO. LMPs are often higher near load centers like cities, where demand for electric power is concentrated. Significant color changes (i.e., changes in LMP) across a geographic region usually signify a constraint that limits the transmission of electricity from one area to another.

Two common examples of transmission constraints involve moving power from upstate New York into New York City and Long Island (see map below right) and moving power from the west across Pennsylvania and Virginia into the load centers of the eastern cities. The map below left shows the LMP (color) change across the PJM Interconnection (PJM) through Pennsylvania and Virginia, separating the western portion of PJM from the eastern seaboard. PJM operates an electric power system covering all or part of 13 Mid-Atlantic and Midwestern States.

Other factors can influence local real-time prices, for instance a generator outage, a thunderstorm warning, differences in fuel prices, or a difference in temperature across an RTO's territory.

There are many differences among the RTO price maps. Some U.S. RTOs map their prices by zone (ISO New England and New York ISO); by discrete pricing points called nodes (California ISO); or by extending many nodes into a contour map (Midwest ISO, PJM, and Southwest Power Pool), while ERCOT (the system operator for most of Texas) does not currently produce a public map. The New York ISO and ISO New England provide both day-ahead and real-time maps; other RTOs map only real-time prices.

Clicking on a U.S. RTO in the map below will take you to that RTO's price map. Also, each RTO's main website is linked below.

Locational Marginal Price Calculation

Locational Marginal Price Sensitivities

Locational Marginal Prices

Tags: electricity, prices, RTO (regional transmission organization), transmission