Electric Power Systems Research 77 (2007) 1627–1636

Optimal DG placement in deregulated electricity market

Durga Gautam, Nadarajah Mithulananthan ∗
Electric Power System Management, Energy Field of Study, Asian Institute of Technology, P.O. Box 4, Klong Luang, Pathumthani 12120, Thailand
Received 19 August 2006; received in revised form 14 November 2006; accepted 16 November 2006
Available online 29 December 2006

Abstract
This paper presents two new methodologies for optimal placement of distributed generation (DG) in an optimal power flow (OPF) based wholesale
electricity market. DG is assumed to participate in real time wholesale electricity market. The problem of optimal placement, including size, is
formulated for two different objectives, namely, social welfare maximization and profit maximization. The candidate locations for DG placement
are identified on the basis of locational marginal price (LMP). Obtained as lagrangian multiplier associated with active power flow equation for
each node, LMP gives the short run marginal cost (SRMC) of electricity. Consumer payment, evaluated as a product of LMP and load at each load
bus, is proposed as another ranking to identify candidate nodes for DG placement. The proposed rankings bridges engineering aspects of system
operation and economic aspects of market operation and act as good indicators for the placement of DG, especially in a market environment. In
order to provide a scenario of variety of DGs available in the market, several cost characteristics are assumed. For each DG cost characteristic, an
optimal placement and size is identified for each of the objectives. The proposed methodology is tested in a modified IEEE 14 bus test system.
© 2006 Elsevier B.V. All rights reserved.

Keywords: Distributed generation; Locational marginal price; Optimal power flow; Electricity market; Social welfare

1. Introduction
DGs are considered as small power generators that comple-
ment central power stations by providing incremental capacity
to power system. Although DGs may never replace the central
power stations, these can be an attractive option when constraints
in transmission network prevent economic, or least expensive,
supply of energy reaching demand. However, penetration and
viability of DG at a particular location is influenced by tech-
nical as well as economic factors. The technical merits of DG
implementation include voltage support, energy-loss reduction,
release of system capacity, and improve utility system reliability
[1]. Economical merit, on the other hand, encompasses hedge
against high electricity price. This incentive is enhanced with
vertical unbundling of utilities and market mechanisms such as
real time pricing. By supplying loads during peak load periods,
where the cost of electricity is high, DG can best serve as a price
hedging mechanism.
DG can have a great value in a highly congested area where
LMPs are higher than elsewhere. In such situation, it can serve
∗ Corresponding author. Tel.: +66 2 524 5405; fax: +66 2 524 5439.
E-mail address: mithulan@ait.ac.th (N. Mithulananthan).
the local load and effectively reduce the load. The placement of
DG, however, should be carried out with due consideration to
its size and location. The placement should be optimal in order
for the maximum benefit of DG implemented in the network.
Improper placement in some situations can reduce benefits and
even jeopardize the system operation.
Numerous techniques are proposed so far to address the via-
bility of DGs in power system. Capacity investment planning of
distributed generation under competitive electricity market from
the perspective of a distribution company is proposed in Ref. [2].
An approach for optimal design of grid connected DG systems
in relation to its size and type to satisfy on-site reliability and
environmental requirements is presented in Ref. [3]. Besides,
several optimization tools, including artificial intelligence tech-
niques, such as genetic algorithm (GA), tabu search, etc., are
also proposed for achieving the optimal placement of DG. An
optimization approach using GA for minimizing the cost of net-
work investment and losses for a defined planning horizon is
presented in Ref. [4]. GA has been used to obtain penetration
level of DG for minimizing the total cost of operation includ-
ing fixed and variable cost in Ref. [5]. The method for optimal
placement of DG for minimizing real power losses in power dis-
tribution system using GA is proposed in Ref. [6]. The gradient
and second order methods to determine the optimal location for

0378-7796/$ – see front matter © 2006 Elsevier B.V. All rights reserved.
doi:10.1016/j.epsr.2006.11.014
1628 D. Gautam, N. Mithulananthan / Electric Power Systems Research 77 (2007) 1627–1636

the minimization of losses or line loading is employed in Ref.
[7]. An iterative method that provides an approximation for the
optimal placement of DG for loss minimization is demonstrated
in Ref. [8]. Analytical methods for determining optimal loca-
tion of DG with the aim of minimizing power loss are proposed
in Ref. [9]. Placement and penetration of distributed generation
under LMP based standard market design with the objective of
generation cost minimization is proposed in Ref. [10]. Optimal
placement of DG with Langrangian based approach using tra-
ditional pool based OPF and voltage stability constrained OPF
formulations is proposed in Ref. [11].
Present study encompasses the placement of DG in a pool
based wholesale electricity market with centralized dispatch.
DG is considered as a negative load. The placement problem is
formulated for the two different objectives, namely, maximizing
social welfare and maximizing the profit of DG owner.
The paper is organized in five sections. Section 2 sets out
the OPF formulation dealing with social welfare maximization
problem. Section 3 presents the methodology adopted to evalu-
ate the placement of DG wherein the rankings used to identify
the candidate nodes for the placement are also discussed. The
OPF results and inferences drawn from the same are covered in
Section 4. Several cases have been considered to depict possible
scenarios and results have been shown in graphical and tabular
format. The conclusions that can be drawn from the analysis are
presented in Section 5.
2. Problem formulation
The problem is formulated with two distinct objective
functions, namely, social welfare maximization and profit max-
imization. Social welfare is defined as the difference between
total benefit to consumers minus total cost of production [12].
It is the sum of producers’ surplus and consumers’ surplus as
shown in Fig. 1. In general term, it represents the surplus to
society and is maximum when the market price is equal to the
marginal cost of producing the last unit of electricity [12].
The traditional OPF algorithm for cost minimization is modi-
fied to incorporate the demand bids, in addition to the generation
bids. LMP is determined as the lagrangian multiplier of the
power balance equation in OPF. The generator and customer bids
are taken as inputs to OPF. The base case OPF based on social
welfare maximizing algorithm evaluates the generation dispatch,
demands and prices at each of the nodes. The nodal prices so
obtained are indicator for identifying candidate nodes for DG
placement. The placement is intended to meet the demand at a
lower price by changing the dispatch scenario.
The profit maximization problem is viewed from the perspec-
tive of DG owner, who chooses to place DG at the load nodes.
In order for them to achieve maximum revenue out of the dis-
patched power, placement and size of DG chosen should reduce
the LMP to a value that maximizes the profit. As higher LMP
value might considerably lower the revenue making the profit
negative.
2.1. Social welfare maximization
The objective function is formulated as quadratic benefit
curve submitted by the buyer (DISCO) minus quadratic bid
curve supplied by seller (GENCO) minus the quadratic cost
function supplied by DG owner.
N

max (Bi (PDi ) − Ci (PGi )) − C(PDGi ) (1)
i=1
Alternatively, the maximization problem (1) can be formu-
lated as a minimization problem with multiplying the objective
function by −1.
N

min (Ci (PGi ) − Bi (PDi )) + C(PDGi )
(2)
i=1
subject to
2.2. Equality constraints
The network for the transmission of electric energy is mod-
eled via the power balance equation at each node in the network.
The sum of power flows, active and reactive, injected into a node
minus the power flows extracted from the node has to be zero.
N

Pi = PGi + PDGi − PDi = vi [vj {Gij cos(δi − δj )
j=1

+Bij sin(δi − δj }] (3)

N

Qi = QGi − QDi = vi [vj {Gij sin(δi − δj )
j=1

−Bij cos(δi − δj }] (4)

2.3. Inequality constraints

Generation limits:
The generating plants have a maximum and minimum gen-
Fig. 1. Social surplus with quadratic supply and demand curves. erating capacity beyond which it is not feasible to generate due
 D. Gautam, N. Mithulananthan / Electric Power Systems Research 77 (2007) 1627–1636 1629

to technical or economic reasons. Generating limits are speci- For generator bus,
fied as upper and lower limits for the real and reactive power
outputs. PDi = 0
Real power generation limits:
PDGi = 0
PGi
min
≤ PGi ≤ PGi
max

2.4. Profit maximization

Reactive power generation limits:
Gi ≤ QGi ≤ QGi
Qmin max
Line flow limit:
The line flow limit specifies the maximum power that a
given transmission line is capable of transmitting under given
conditions. The limit can be based on thermal or stability con-
siderations. Thermal limits are usually considered for shorter
lines. The following constraint checks for the absolute power
flow both at sending and receiving ends of particular line to be
within the upper limit of the line.
Sij ≤ Sijmax
Sji ≤ Sji
max
Bus voltage limit:
Voltage limits refer to bus voltage to remain within an allow-
able narrow range of levels.
vmin ≤ vi ≤ vmax
i i
where N denotes the total number of buses in the system; PGi
denotes real power generated at bus i; PDi denotes real power
demand at bus i; PDGi denotes the power supplied by the DG
at bus i. Bi (PDi ) = aDi + bDi PDi − cDi (PDi )2 , denotes purchaser
benefit functions at bus i; Ci = (PGi )aGi + bGi PGi + cGi (PGi )2 ,
denotes the producer offer (bid) price at bus i;
C(PDGi ) = aDGi + bDGi PDGi + cDGi (PDGi )2 , denote the
cost characteristic of DG at bus i; vi denotes the voltage at
bus i; δi denotes the power angle at bus i; Bij denotes the
susceptance of the line ij; Gij denotes the conductance of the
line ij; QGi denotes reactive power generated at bus i; PGi max
and PGi denotes upper and lower real power generation
min
limits of generator at bus i; Qmax Gi and QGi denote upper and
min
lower reactive power generation limits of generator at bus i;
vmax
i and vmin
i denote upper and lower limits of voltage at bus
i; Sij denotes the complex power transfer from bus i to bus j;
Sji denotes the complex power transfer from bus j to bus i;
Sijmax and Sjimax denote the complex power flow limit for line ij
The profit maximization formulation constitutes two nested
blocks. The inner block is handled by the independent sys-
tem operator (ISO). In order to achieve the short-run economic
optimum, ISO collects the electric power bids from suppliers,
consumers and DG placement and size from DG owner. The
DG owner being one of the market participants, lies outside the
block and submits the DG size they are willing to penetrate in
the market. ISO then runs OPF taking into consideration the net-
work constraints. The objective of this OPF is to minimize the
total costs. This block allows overall control and coordination of
generation and transmission. The LMP obtained from the OPF
is used by the DG owner in order to calculate the profit which
is evaluated as revenue minus cost for the particular DG. The
process is iterative as LMP is also a function of DG penetration.
The profit with DG placement at each of the node is evaluated
as:
Profiti = λi × PDGi − C(PDGi ) (5)
where PDGi denotes the DG size at node i; λi denotes
the LMP at node i after placing DG; C(PDGi ) = aDGi +
bDGi PDGi + cDGi (PDGi )2 denotes the cost characteristic of DG
at node i.
The optimization process will identify the node and corre-
sponding optimal DG size that will bring maximum profit to the
DG owner.
3. Methodology
For a specific combination of supplier and demand bid
curves, the base case OPF first calculates different electricity
prices for different nodes in the network. The nodal prices are
obtained from the lagrangian multipliers of the non-linear equal-
ity constraints. The increasing functions for supplier bids and
decreasing functions for the consumer bids are treated as the
marginal cost or benefits of the bidder. The difference in prices
results from active line constraints and losses in the transmission
system.
To identify candidate nodes for the placement of DG, two
rankings are defined, namely, LMP based ranking and consumer
payment (CP) based ranking.

and line ji.

3.1. Locational marginal price (LMP) based ranking
For base case OPF,
LMP is the lagrangian multipliers associated with the active
PDGi = 0 power flow equations for each bus in the system. LMP at any
For load bus, node in the system is the dual variable for the equality con-
straint at that node [13]. LMP is generally composed of three
PGi = 0 components, a marginal energy component (same for all buses),
1630 D. Gautam, N. Mithulananthan / Electric Power Systems Research 77 (2007) 1627–1636

a marginal loss component and a congestion component. Con- One scenario might be where price is high but load is relatively
sidering the case of real power spot price at bus i, LMP is given small, while in the other, price is relatively low but load is high.
by: The ranking based on consumer payment is intended to focus
N
on the later scenario wherein total nodal payment is given the
∂PL  L
∂Pij priority rather than the high price. The ranking will have overall
LMPi = λ + λ + μLij (6)
∂Pi ∂P effect of reducing dominant loads in the system. In effect, LMP
ij=1
goes down and the dominant customer would be better off, as the
LMPi = λ + λL,i + λC,i (7) amount they need to pay would be less compared to no DG case.
The candidate nodes are iteratively selected for the
where λ is the marginal energy component at the reference bus
placement. The placement is carried out with several cost charac-
which is same for all buses, λL,i = λ(∂PL /∂Pi ) is the marginal loss
teristics assumed for DG. As the placement technique is intended
component and λC,i = μLij (∂Pij /∂Pi ) is the congestion compo-
to bring down the LMP, DG with operating cost higher than LMP
nent. Thus, the spot price at each bus is location specific and
will find no incentive for placement. The DG with operating cost
differs by the loss component and the congestion component.
lower than those bided by supplier is expected to have higher
Theoretically, this location-based price equals the economically
penetration while the one with higher cost is expected to have
efficient market value of electricity at that point, factoring into
smaller penetration.
account constraints everywhere in the system.
Higher LMP implies a greater effect of active power flow 4. Simulation results and discussion
equations of the node on total social welfare of the system. In
other words, higher LMP implies higher the generation pressed The effects of DG penetration under the two scenarios,
by demand at that node. It thus provides indication that for namely, social welfare maximization and profit maximization,
the objective of social welfare maximization, injection of active are discussed in detail. The analysis is extended for the various
power at that node will improve the net social welfare. As the cost characteristics assumed for the DG.
DG is assumed to inject real power at a node, the node with high-
est LMP will have first priority for DG placement. Accordingly, 4.1. Cost characteristics used for DG
the load buses are ranked in descending order of LMPs with the
first node in the order as the best candidate for DG placement as Wide varieties of DG technologies with varying operating
shown below. characteristics are available in the market. To depict the vari-
⎡ ⎤ ation, assumptions are made for the cost characteristics. CHP
LMP1 units, due to their heat recovery system can deliver power at
⎢ ⎥
⎢ LMP2 ⎥ much cheaper price than the central generation. The technolo-
⎢ ⎥
⎢ ⎥ gies such as fuel cells are characterized by their high cost while
LMP = ⎢ LMP3 ⎥ (8)
⎢ . ⎥ technologies such as reciprocating engines and gas turbines lie
⎢ . ⎥
⎣ . ⎦ somewhere in the middle. In order to accommodate the vari-
LMPn eties of DG units, assumptions are made on the basis of the
cost characteristics of central generation. Table 1 shows the cost
where n is the number of load locations. characteristics of DGs considered in this work.
The cost comparison among the various units is made as per
Best location = index {max(LMP)} (9)
the incremental cost. Incremental cost is a function of power out-
put of the unit where slope indicates cost to produce incremental
3.2. Consumer payment based ranking
quantity and intercept indicates no load cost. Other conditions
remaining the same, the lesser the slope, the lower the incre-
CP calculated as the product of LMP and capacity of load is
mental cost and higher the penetration. The crossing over of
considered as another criterion to segregate candidate nodes for
two different incremental cost characteristics reveals that opera-
DG placement. Thus, the CP evaluated at the load bus i is the
tional cost effectiveness depends on power output. The crossing
product of LMP and load at bus i.
over is determined by no load cost and slope of the curve. The
⎡ ⎤
CP1
⎢ ⎥ Table 1
⎢ CP2 ⎥
⎢ ⎥ Distributed generation data
⎢ ⎥
CP = LMPi × Loadi = ⎢ CP3 ⎥ (10) DG ID aDG bDG cDG
⎢ . ⎥
⎢ . ⎥
⎣ . ⎦ DG1 0.002 15 0
DG2 0.004 19 0
CP4 DG3 0.04303 20 0
DG4 0.25 20 0
Best location = index {max(CP)} (11)
DG5 0.1 30 0
CPi reflects the total amount the consumer at node i need to DG6 0.01 40 0
DG7 0.003 43 0
pay for the electricity. The ranking is influenced from the fact that
market for DG placement can be viewed from two standpoints. Note: aDG , bDG , cDG are quadratic cost coefficient of DG.
 D. Gautam, N. Mithulananthan / Electric Power Systems Research 77 (2007) 1627–1636 1631

Table 2
Ranking based on LMP
Rank Bus PD (MW) LMP ($/MWh)

1 14 33.91 54.644
2 11 39.68 54.413
3 10 12.65 52.229
4 9 26.26 50.698
5 13 10.7 50.501
6 7 19.89 49.204
7 4 56.05 47.758
8 12 11.18 46.658
9 5 26.52 43.636

is extended for various cost characteristics assumed for the

Fig. 2. Cost characteristic of various DG.
unit cheaper due to lower no load cost can prove to be expensive
beyond certain power output if the slope is large and vice versa.
The cost characteristic of DG units considered in modified
IEEE 14 bus test system is shown in Fig. 2.
The cost characteristics considered have wide variety of
slopes and accordingly, intersection at several points. Hence,
the comparative study of operational cost among the units relies
on power output.
The incremental cost characteristics of various DGs consid-
ered in this study is shown in Fig. 3. As the quadratic component
of DG1 and DG2 is very small, their incremental cost is almost
constant for the entire range of output. Same is the case with
the DG6 and DG7. However, DG3, DG4 and DG5 show mono-
tonically increasing incremental cost with crossover at several
points.
4.2. Base case analysis
The social welfare maximization problem encompasses the
welfare of consumers as well as producers. The analysis
DG.
The system used in this study, modified IEEE 14 bus test
system, consists of 9 load buses and 5 generators. The loads are
assumed to be elastic with power factor of 0.91 (lagging). The
maximum social welfare is found to be 4425.31 $/h. The total
real power loss in the system is 7.042 MW. The generation, load
and LMP corresponding to the maximum social welfare for the
base case are determined at each node. Results revealed that
generator buses have lower values of LMP compared to the load
buses.
4.3. Candidate nodes for DG placement
The system has a maximum load of 56.05 MW at node 4.
Contrary to the node with maximum load, the highest LMP of
54.64 $/MWh is recorded at node 14 as shown in Table 2. This
shows high LMP should not necessarily be at the node with high
load. Load exceeding the transmission capacity at a particular
location might lead to high LMP. However, due to the loop flow,
loads at other nodes and overall network configuration do play a
role in determining LMP. The ranking of the load buses accord-
ing to LMP and consumer payment are shown in Tables 2 and 3,
respectively.
4.4. DG placement for social welfare maximization

The optimal DG size for each of the load bus is determined

from the social welfare maximizing problem. Results revealed
that there is an optimal DG size at each of the load bus for
which the net social welfare is maximum. However, the max-

Table 3
Ranking based on consumer payment
Rank Bus PD (MW) LMP ($/MWh) Consumer payment ($/h)

1 4 56.05 47.758 2676.84

2 11 39.68 54.413 2159.11
3 14 33.91 54.644 1852.98
4 9 26.26 50.698 1331.33
5 5 26.52 43.636 1157.23
6 7 19.89 49.204 978.67
7 10 12.65 52.229 660.70
8 13 10.7 50.501 540.36
9 12 11.18 46.658 521.64
Fig. 3. Incremental cost characteristics of various DG.
1632 D. Gautam, N. Mithulananthan / Electric Power Systems Research 77 (2007) 1627–1636

imum net social welfare obtained from these optimal sizes is

different from one load bus to another. Another worth notice-
able point is that the placement as well as penetration of DG
is found to vary with the cost characteristics used. Even for the
same load bus, different optimal sizes are obtained when differ-
ent cost characteristics are used. The cheaper the unit the higher
the penetration and so is the net social welfare. This shows DG
penetration as well as social welfare is a function of DG cost
characteristics.
The study has been carried out to identify the optimal place-
ment and penetration when the DG is cheaper or expensive than
the existing central generation. The results associated with two
expensive DGs, namely, DG6 and DG7 are presented as sample
results. However, summary of the results for all DGs are given
in the end of this section.

4.5. Placement of DG6

The maximum net social welfare that can be achieved when
the placement of DG6 is carried out at different load buses is
shown in Fig. 4.
The corresponding optimal DG size at each of the load bus
is also shown in Fig. 5. For instance, if placement is to be car-
ried out at node 14, optimal size of DG for the social welfare
of 4577.18 $/h is 42.84 MW. Similarly, for placement at bus
11 the optimal size giving the social welfare of 4563.29 $/h is
48.69 MW and so on. It is interesting to note that net social wel-
fare is maximized for the case of DG at node 14. Hence, the
optimal placement of DG6 is node 14 with the optimal size of
42.84 MW. The social welfare maximization is found to capture
the first candidate node of LMP ranking given in Table 2. More-
over, the ranking is found to capture first four candidate nodes
accurately in the same order.
The variation of net social welfare with respect to DG size for
node 14 is shown in Fig. 6. As apparent from the figure, beyond
the optimal size there is a reduction in net social welfare. For
non-optimal size same social welfare can be obtained for two
different sizes of DG. However, maximum net social welfare is
obtained only for the optimal DG size.
Fig. 5. Optimal DG size at respective nodes with DG6.
4.6. Placement of DG7
The maximum net social welfare that can be achieved when
the placement of DG7 is carried out each of the load buses is
shown in Fig. 7. The maximum net social welfare of 4483.04 $/h
is obtained when the placement is made at node 14. Corre-
sponding optimal DG size is found to be 25.33 MW. The smaller
optimal size compared to the placement of DG6 can be attributed
to higher incremental cost of DG7.
The optimal size of DG after placing DG7 at each of these
buses is shown in Fig. 8. From the figure it is revealed that no
DG is selected for node 5. As apparent from Table 2, node 5 is
the last candidate node for DG placement. Hence, the placement
is found to follow the ranking based on LMP.
The variation of net social welfare with respect to DG size
for the placement of DG7 at node 14 is shown in Fig. 9.
Results revealed that placements as well as sizes vary with
the cost characteristics. The summary of results corresponding
to the placement of all the seven DGs considered in the study is
given in Table 4.

Fig. 4. Net social welfare at respective nodes with DG6. Fig. 6. Social welfare vs. DG size for the placement of DG6 at node 14.
 D. Gautam, N. Mithulananthan / Electric Power Systems Research 77 (2007) 1627–1636 1633

Table 4
Result summary for the placement of DG with different cost characteristics
DG Best location Optimal DG Social welfare Remarks
size (MW) ($/h)

DG1 Bus 4 202.62 8460.47 CP based ranking

DG2 Bus 4 195.05 7586.12 CP based ranking
DG3 Bus 9 141.28 6427.09 –
DG4 Bus 14 41.94 4993.77 LMP based ranking
DG5 Bus 14 50.38 4848.79 LMP based ranking
DG6 Bus 14 42.84 4577.18 LMP based ranking
DG7 Bus 14 25.33 4483.04 LMP based ranking

the penetration and so is the net social welfare. Hence, the lower
incremental cost followed by higher penetration is found to favor
Fig. 7. Net social welfare at respective nodes with DG7. consumer payment based ranking given in Table 3.

4.7. DG placement for profit maximization

The present discussion encompasses the placement of the

same DG characteristics as the one considered for social welfare
maximization.

4.8. Placement of DG6

Fig. 10 shows the corresponding maximum profit at each load

Fig. 8. Optimal DG size at respective nodes with DG7.
Interestingly, it is observed that for the placement of DG1
and DG2, social welfare is maximized when placement is made
at node 4. In other words, the placement is found to track first
candidate node of consumer payment based ranking rather than
LMP ranking. Furthermore, as shown in Table 4 the penetration
of DG1 and DG2 is higher compared to that of DG6 and DG7.
The higher penetration can be attributed to the lower incremental
cost as is apparent from Fig. 3. The cheaper the unit, the higher
bus after the placement of DG6. Fig. 11 shows the optimal DG
size corresponding to the maximum profit at each of the load bus.
The maximum profit of 75.135 $/h is found for the placement at
node 14. The corresponding optimal DG size is 21.76 MW which
is less than the value obtained for social welfare maximization
shown in Fig. 5.
The variation of profit with the penetration of DG6 at load
bus 14 is shown in Fig. 12. The maximum profit is found for the
optimal size as shown in Fig. 11.
As the penetration increases, LMP at a node will reduce.
If the LMP reduces to a value making the consumer payment
lower than the operating cost of DG, profit for DG owner would
be negative. This is apparent from Fig. 12 which shows that
beyond the optimal DG size, profit will decrease and can even
be negative if the penetration reaches a higher value.

Fig. 9. Social welfare vs. DG size for the placement of DG7 at node 14. Fig. 10. Maximum profit at respective nodes with DG6.
1634 D. Gautam, N. Mithulananthan / Electric Power Systems Research 77 (2007) 1627–1636

Table 5
Result summary for the placement of DG with different cost characteristic
DG Best location Optimal DG Profit ($/h) Remarks
size (MW)

DG1 Bus 4 119.43 2766.58 CP based ranking

DG2 Bus 4 119.43 2260.33 CP based ranking
DG3 Bus 9 105.38 1592.49 –
DG4 Bus 11 37.29 470.72 –
DG5 Bus 4 50.46 323.53 –
DG6 Bus 14 21.76 75.14 LMP based ranking
DG7 Bus 14 12.55 29.25 LMP based ranking

Fig. 11. Optimal DG size at respective nodes with DG6.

Fig. 14. Optimal DG size at respective nodes with DG7.

Profit maximization results reveal that there is no profit for

Fig. 12. Profit vs. DG size for placement of DG6 at node 14.
DG owner when the placement is carried out at bus 5.
Results show that even for the DG with same cost character-
istic, profit maximization comes up with the lower optimal size
compared to social welfare maximization as can be seen from
Tables 4 and 5.

4.9. Placement of DG7 4.10. Comparison between social welfare and profit
maximization
The profit that can be achieved to DG owner with the place-
ment of DG7 and corresponding optimal sizes at each of the load Tables 6 and 7 show the comparative study of results obtained
buses is shown in Figs. 13 and 14, respectively. The variation from two placement techniques. The placement of DG6 and DG7
of profit with the penetration of DG7 at load bus 14 is shown in
Fig. 15.

Fig. 13. Maximum profit at respective nodes with DG7. Fig. 15. Profit vs. DG size for placement of DG7 at node 14.
 D. Gautam, N. Mithulananthan / Electric Power Systems Research 77 (2007) 1627–1636 1635

Table 6
Comparison of results for placement of DG6
DG Bus Social welfare maximization Profit maximization

Social welfare ($/h) LMP ($/MWh) PDG (MW) Profit ($/h) LMP ($/MWh) PDG (MW)

14 4577.18 40.86 42.84 75.135 43.67 21.76

11 4563.29 40.97 48.69 70.818 43 25.87
10 4537.51 40.87 43.32 56.611 42.79 22.08
9 4524.67 40.94 46.88 52.136 42.87 19.53
13 4508.79 40.86 42.8 46.013 42.19 23.6
7 4455.76 40.59 29.59 9.864 44.39 2.26
4 4519.41 41.02 50.98 20.618 43.97 5.26
12 4475.75 40.56 28.14 26.905 41.95 14.99
5 4441.02 40.45 22.44 10.629 41.3 8.8

Table 7
Comparison of results for placement of DG7
DG Bus Social welfare maximization Profit maximization
Social welfare ($/h) LMP ($/MWh) PDG (MW) Profit ($/h) LMP ($/MWh) PDG (MW)

14 4483.04 43.15 25.33 29.249 43.112 12.55

11 4462.79 43.15 24.32 19.109 44.553 12.61
10 4452.27 43.11 19.02 13.655 44.386 10.07
9 4443.48 43.10 17.28 9.131 44.085 8.63
13 4431.32 43.07 11.82 3.09 43.527 6.07
7 4428.72 43.01 2.26 3.127 44.392 2.26
4 4431.57 43.03 5.26 5.033 43.973 5.26
12 4427.19 43.03 5.47 0.959 43.354 2.78
5 4425.31 41.65 0.00 0 41.646 0.00

is observed for social welfare as well as profit maximization
problem. The corresponding values of LMP at each of the nodes
after placing the optimal size of DG are tabulated.
5. Conclusions
The paper proposes two new methodologies of DG placement
in an OPF based wholesale electricity market. Optimal place-
ment and size is identified for social welfare as well as profit
maximization problem. For each DG cost characteristics, there
is an optimal location and size for which the net social welfare is
becoming maximum. The same condition is found to hold true
for profit maximization, as well.
For the DG placement at a node, social welfare maximization
ends up with lower LMP value compared to profit maximiza-
tion. Accordingly, optimal DG size for profit maximization is
lower than that for social welfare maximization. This is due
to the fact that social welfare is concerned with consumer as
well as producers surpluses; however, profit is concerned only
with the surplus to producers which will acquire high value
as the price increases. The high LMP results in higher con-
sumer payment with a consequent increase in the revenue to DG
owner.
DG penetration is found to reduce the dispatch of central
generation. The optimal placement and penetration is found to
depend on the cost characteristics of DG as well as those of
central generations. The DG with incremental cost lower than
the central generation is found to have a higher penetration in the
system, and similarly, the one with higher incremental cost, the
lower penetration. Considerable reduction in central generation
dispatch is observed with high DG penetration.
LMP and consumer payment have been identified as tools
for screening candidate nodes for DG placement. The DGs with
lower incremental cost compared to central generating stations
have a higher penetration and is found to follow the ranking
made on the basis of consumer payment. On the other hand, the
DGs with higher incremental cost have lower penetration and is
found to follow the ranking made on the basis of LMP.
It has also been observed that a high penetration of DG can
also lead to negative profit for the DG owner. The situation is
found to prevail when LMP reduces considerably due to high DG
penetration. If the LMP reduces to a value making the consumer
payment lower than the operating cost of DG, profit for DG
owner would be negative. Under such scenario, DG owner will
find no incentive for placement.
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