Abstract— In this paper a new method for reactive power pricing in competitive electricity markets is presented. This method of reactive power pricing is based on marginal costs theory. Effective factors on marginal costs of buses are: capital costs of generators, operating costs, and the costs of reactive power losses. Due to considering the entire costs of reactive power production, this method will be incentive for producers to participate in reactive power production. A Reactive Optimal Power Flow (ROPF) is developed to solve this problem using the nonlinear programming method. It is assumed that when ROPF is solved, active power settled in the uniform auction and Market Clearing Price (MCP) and active power outputs of generators identified.

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