What Are LMPs?
beginnerThe Marginal Price
What is an LMP?
In SCED, the merit order determines which generator is marginal — the last one called on to serve demand. The LMP (Locational Marginal Price) is the market price that marginal generator sets. It's what every generator earns and every load pays at that location, that hour.
With a single bus, every location has the same LMP — there's nowhere to "be different".
This system has two generators:
| Generator | Capacity | Bid |
|---|---|---|
| Nuclear | 500 MW | $20/MWh |
| Gas CC | 300 MW | $50/MWh |
With load at 400 MW, nuclear covers it all. The LMP is $20/MWh — the cost of the last MW dispatched.
Why does everyone pay $20 even if gas never runs? The LMP is a uniform clearing price. Every generator earns it, every load pays it. This uniform price is what makes the system economically efficient.
Try it yourself
Increase load to 700 MW
Nuclear maxes out and Gas CC becomes the marginal unit. Watch the LMP jump to $50/MWh.