LMPs are made up of System Energy Price, Congestion Costs, and Losses. System Energy Price represents the cost to serve power on a system, ignoring transmission and congestion costs.
In organized markets, power plants are dispatched lowest cost to highest cost; hypothetically, if demand was 100 MWs on a system, the System Energy Price would be the cost of turning on the 100th MW of power. System energy prices are the same for all pricing nodes on a system. Price differences in nodes on the same system come from congestion costs and losses. From an LMP pricing perspective, a “system” is an ISO like PJM, MISO, or CAISO.
Source: Energy Acuity LMP Platform
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