Assessment of the Economic Benefits from

The U.S. power industry is under increasing pressure to provide reactive power support, underlying the necessity for a thorough economic evaluation of local reactive power compensation. This paper aims to quantitatively assess the economic benefits resulting from local reactive power provisioning through methods including reduced losses, shifting reactive power flow to real power flow, and enhanced transfer capabilities. The analysis employs both a simple two-bus model and a more complex model utilizing Optimal Power Flow, applying these to a system characterized by seven buses across two areas. The simulations reveal that the economic advantages of local reactive power compensation are substantial, especially when contrasted with capacity payments made to centralized generators or imposed power factor penalties on utilities. Such insights are crucial for utilities to engage in a comprehensive cost-benefit analysis of Var compensation. Furthermore, given the significant economic benefits identified, the paper advocates for the inclusion of local Var providers in future reactive power markets.