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LMP stands for locational marginal price: what electricity costs at one specific point on the grid. The same megawatt can cost $15 in one town and $80 fifty miles away at the same moment. This guide explains where that difference comes from.
Every few minutes, each US grid operator runs an auction. Power plants offer to produce electricity at a price, and the operator's software picks the cheapest combination of offers that exactly meets demand. The price everyone gets paid is set by the most expensive plant that was still needed. Economists call that plant marginal, and that's the M in LMP: locational marginal price.
If demand is low and wind is blowing, the marginal plant is cheap and so is the price. On a hot evening, the marginal plant is an expensive gas peaker and the whole market clears at a high price.
The wires that move electricity have limits, like lanes on a highway. When a line between a cheap region and an expensive region fills up, the cheap power physically cannot get through. The operator has to run costlier plants on the far side of the bottleneck, and prices on the two sides split apart. That split is called congestion.
A little energy is also lost as heat while it travels, so delivering power far from where it's made costs slightly more. Those are losses.
Put together: LMP = energy + congestion + losses. California adds a fourth piece, a greenhouse-gas adder from its cap-and-trade program.
You can quote this price at two levels of zoom. A zonal or hub price averages a whole region into one number. Good enough for a dashboard. A nodal price is computed at every individual connection point on the grid: a substation, a power plant's bus. A large operator like PJM has more than 10,000 of these nodes, each with its own price every five minutes.
Nodal is where the real decisions happen. A battery earns the price at its node, not the regional average. Two sites ten miles apart can have completely different economics because one sits behind a congested line and the other doesn't. This is why storage developers study nodal price history before picking a site.
Here's a real reading from a California trading hub: price $13.40, made of $12.06 energy + $1.66 congestion − $0.32 losses + $0 GHG. The congestion term is the one traders look at first: it tells you the wires around that location are tight, and by how much.
If you want to see this live, our map of California nodal prices updates every five minutes, and the API returns every price with its full breakdown.
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