Category: 📘 Glossary & Acronyms
Locational Marginal Price (LMP)
The price of electricity at a specific location on the electricity transmission network, reflecting the cost of supplying the next unit of electricity at that location.
Locational Marginal Pricing reflects the fact that electricity prices can vary across the transmission network due to physical constraints and transmission congestion.
LMP typically includes three components:
By reflecting these costs, LMP signals where electricity generation or consumption is most economically efficient within the grid.
Locational marginal pricing is used in many electricity markets to manage congestion and ensure efficient dispatch of generation resources.
It provides price signals that encourage electricity generation or demand response in locations where the grid is constrained.
If a transmission line becomes congested between two regions, electricity prices may rise in the importing region because additional generation must be supplied locally.
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