Power prices work best to support reliability when prices are locational

Michael Giberson

From a reliability perspective, the crucial aspect of the real-time wholesale prices is that they result from the security-constrained economic dispatch, which is based on a real-time assessment of grid capabilities. Experience has shown that market prices work best to support reliability when prices are locational, because locational prices that are consistent with dispatch instructions provide market participants with financial incentives to take actions that maintain the physical balance between supply and demand for power at each grid location.

The quote is just one claim about how good power market design supports power system reliability, from the 2009 State of the Markets report by the ISO/RTO Council.

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