A Framework to Quantify the Economic Benefit from Local VAR Compensation

Abstract

It is generally accepted that reactive power (or Var) compensation will bring benefits for utilities and industrial customers by providing local voltage and power factor support. However, there is a lack of a systematic approach to quantitatively identify the economic benefit. In addition, with deregulation and restructuring, it is important to indicate the amount of benefit that each market participant may potentially receive given the right price signals. If such information can be easily obtained and presented, it will be more convenient for decision-markers to determine the cost benefit sharing of installing a Var compensator. The vision of this paper is to lay out a possible method for quantitatively evaluating the benefits from local reactive power compensation. The approach is to quantify the benefits into several categories such as reduced losses, shifting reactive power flow to real power flow, and increased transfer. The calculation of these benefits are illustrated with a simple two-bus power system model and then presented with a more complicated model using Optimal Power Flow to calculate the benefits. Simulation on the more complex system is conducted with seven buses in two areas. The simulation results show that the possible economic benefits can be significant, if compared with capacity payments to central generators or payment of power factor penalties applied by utilities. The potential economic value of local Var compensation may give various parties in electricity supply, delivery and end-use consumption a better understanding of the Var benefits to assist their cost-benefit analysis for Var compensation installation. Sensitivity analysis is also provided to illustrate that the benefits may not be monotonically increasing. Also, this paper suggests that the future reactive power market should consider local Var providers or other way to encourage load Var capability, since local Var benefit is significant
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