The restructured electricity market plays an important role in the economics of country. It is indispensable to develop an effective pricing mechanism to address the transmission network issues and to generate accurate economic signals. Locational marginal pricing (LMP) is a valuable mechanism for pricing electricity in restructured electricity markets. LMP provides the economic signals for market participants, informing them when & where power is cheap or expensive. LMP may vary at different time and locations based on transmission congestion, losses & parameter variation of network. It is essential for the market participants to be acquainted with effect of parameter variation on LMP and it helps for reliable decisions about investment, enable higher levels of grid stability & produce competitive markets for reliable power sources. This paper presents formulation of LMP in Optimal Power Flow (OPF) by considering the system constraints. The effect of network parameter variation on LMP is observed on standard IEEE 6-bus test system. The simulation is carried out on IEEE-6 bus test system by using Power World Simulator and obtained results have been presented. The presented analysis based on results is useful for decision about investment, to upgrade transmission network, to increase competition and improve system efficiency & ability for accomplishing the power demand.

Electricity Market, Locational Marginal Pricing, Optimal Power Flow, Power World Simulator