Definition
The cost of supplying the next increment of electric load at a specific location on the transmission grid, reflecting the marginal cost of generation plus the cost of transmission congestion and marginal losses at that node. LMP is the standard pricing mechanism used in organized wholesale electricity markets (RTOs/ISOs) and has three components: energy (system-wide marginal cost), congestion (constraint cost), and loss (marginal loss factor). The loss component reflects the incremental cost of power degradation over distance — the additional generation required to overcome I²R transmission losses when serving load at that location.
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Topic Deck
Markets & Pricing
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Source
FERC Pro Forma OATT / LGIP