Pricing of Reactive Power Service in Deregulated Electricity Markets

The electric power industry is undergoing significant changes whose ultimate goal is the reduction of consumer prices by means of competition. Unlike generation and distribution in most cases transmission is considered a natural monopoly which should be independently operated so that competition in generation is ensured. One of the key issues in restructured environment refers to the way the cost of transmission services are satisfactorily allocated among all involved partners taking into account as accurately as possible the real impact of every transaction on the transmission system. Because of competitive structure of energy markets reduction of regulations in load area and more motivation for using available transmission systems facilities power system is utilized near its secure boundaries. Considerably ancillary services that provide reliability and voltage security become very important in deregulated environment. Reactive power is one of the most important ancillary services in power system because during normal operations it is required to maintain the necessary balance between generation and load in real time to maintain voltages within the required ranges and to