A Novel Policy for LMP Calculation in Distribution Networks Based on Loss and Emission Reduction Allocation Using Nucleolus Theory

This paper proposes a new policy to calculate the locational marginal price (LMP) in the distribution networks containing distributed generation (DG). The proposed policy is based on remunerating the DG units to reduce the loss and emission of the network. LMP at each DG bus is calculated according to the contribution of the DG to the reduced amount of loss and emission. An iterative algorithm which is based on the nucleolus theory is proposed to allocate the loss and emission reduction. The proposed algorithm will provide a robust state estimation tool for distribution companies (DISCOs) in the next step of operation. The state estimation tool provides the decision maker with the ability to exert its control over private DG units when the loss and emission are minimized. Also, the proposed pricing policy requires decision maker to simply apply its best response strategy to the LMP based on the priority of loss, emission and DISCO's extra benefit. The proposed methodology is applied to two realistic distribution networks, and efficiency and accuracy of the method are verified.