What LMP means
LMP is the cost of serving one more megawatt of demand at a given point. When the grid has plenty of room, prices are close to each other everywhere. When lines are full, prices split apart.
In most US markets, LMP has three parts: energy, congestion and losses. ERCOT prices include energy and congestion but treat losses differently. Check the ERCOT protocols for the details.
Nodes, hubs and zones
- Node: one point on the grid. Generators are usually paid the price at their node.
- Hub: an average of many nodes, used for trading.
- Load zone: the area price that power users pay.
The gap between a local price and a hub price is called basis. A wide basis is a sign of congestion.
Questions people ask
Why can LMP go negative?
When there is more power than the lines can carry away, generators may pay to keep running. This happens most where wind or solar output is high and transmission is tight.
Does a low LMP mean a site is good for a data center?
Not on its own. Low prices can point to congestion, and the price a load pays is the zone price, not the price at one node. Power cost is one input among many.
Related
More glossary
- What is time to power?
- What is powered land?
- What is a powered shell?
- What is large load interconnection?
- What is a point of interconnection?
- What is an interconnection queue?
- What is queue position?
- What is ERCOT?
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