What is Locational Marginal Pricing (LMP)?
LMP stands for Locational Marginal Pricing and represents the cost to buy and sell power at different locations within wholesale electricity markets, usually called Independent System Operators (ISOs). Examples of ISOs include PJM, ISONE, MISO, CAISO, and NYISO. LMPs are made up of three components, Energy Price, Congestion Cost, and Losses. Most ISOs have Day Ahead and Real Time LMPs. Day-ahead LMPs represent prices in day-ahead markets which let market participants buy and sell wholesale electricity a day before the operating day to avoid volatility. Real-time LMPs represent prices in real time markets which let participants buy and sell power during the day of operation. As a simplified example, let’s say you lived in a neighborhood and at noon today you expected you would have 100 MWs of electricity demand. Yesterday you would have bought 100 MWs of electricity to be delivered at 12 today on the day-ahead market. However when 12 today rolls around, demand is actually 105 MWs, you would buy the additional 5 MWs on the real-time market. Real-time market prices are generally more volatile than day-ahead market prices.
Energy Acuity (EA) is the leading provider of power generation and power delivery market intelligence. Founded in 2008, EA was built on the principle that essential energy market research could be conducted and presented more efficiently than the traditional third-party data providers.
EA’s unique approach merges primary research, public resource aggregation, web monitoring and expert analysis that is delivered through a simple, dynamic online platform. This allows our clients to focus on actionable information and win business over the competition.