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We'll start by looking at marginal pricing.
The marginal price is the cost to the system of supplying the next MW of load at a bus.
In this scenario we have two generators and one load. Let's view the animated visual of this.
Generator 1 is willing to offer up to 100 MW for $1 per MW.
Generator 2 is willing to offer up to 10 MW for $10 per MW.
The load requires 100 MW to be supplied.
We can see that the 100 MW can all be supplied by Generator 1.
SPD is then used to calculate the marginal price at Bus D. Let's view the scenario through SPD's 'eyes'.
Remember, the marginal price at a bus is the cost of supplying the next MW of load to that bus.
In this case, because Generator 1 has only offered up to 100 MW, the next MGW would have to come from another source. Here, this source is Generator 2 at $10 per MW.
Because Generator 2 would supply the next MW of load at Bus D, the marginal price at Bus D is $10 and Generator 2 is known as the marginal generator.
The way SPD produces marginal prices is an important factor when it comes to understanding what causes the spring washer effect.