A Taxi Ride for Electricity

How was your drive into work this morning? Did you, like so many of us, sit in another traffic jam?

Like highways and city streets, transmission lines can also get congested depending on the time of day or season. PJM uses a concept called “locational marginal pricing” that considers congestion on the grid as it sets the price for energy sales and purchases in the PJM market. True to its name, locational marginal pricing is based on the location in which power is received or delivered.

Think of it like a taxi ride for megawatts. When traffic is light, you can expect a consistent and predictable cab fare. This is like a period with little congestion on the grid. But during rush hour, you’d expect a higher fare, like during a time of congestion on the grid.

If you would like to learn more about locational marginal pricing or other aspects of PJM’s markets, visit PJM’s recently redesigned Learning Center.

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