The effects of extended locational marginal pricing in wholesale electricity markets

In this paper, two pricing mechanisms in electricity markets are studied, the locational marginal price (LMP) and the extended locational marginal price (ELMP). The effects of these two pricing mechanisms are compared with regards to the allocation of the market surplus between generators and loads. The two pricing mechanisms are also analyzed with regards to the required uplift payments. The results confirm that uplift payments are reduced under the ELMP pricing mechanism. However, ELMP does not appropriately represent the marginal market clearing price for the market dispatch solution.