What is System Marginal Price (SMP)?

High voltage electricity transmission lines

System Marginal Price (SMP) refers to the electricity market clearing price for a particular time period in a specific location. It is the price at which the wholesale electricity market operates to balance the supply and demand of electricity in real-time. The SMP is determined by the marginal cost of the most expensive generator that is needed to meet the demand at any given moment. This generator is known as the "marginal unit." The SMP is also influenced by other factors such as transmission constraints, weather conditions, and demand fluctuations. In short, the System Marginal Price represents the real-time cost of electricity in a particular location and is a key factor in determining the profitability of power generation and demand-side management strategies.


SMP forecasting in electricity markets refers to the process of predicting the System Marginal Price (SMP) for a future time period, from several hours or days ahead in the short-term to months and even years. This forecasting is important for electricity market participants such as power generators, electricity retailers, and large energy consumers, as it can help them to make informed decisions regarding their energy production, consumption, and trading activities.


SMP forecasting typically involves the use of mathematical models and statistical algorithms that take into account various factors that influence electricity prices, such as demand patterns, weather conditions, fuel prices, and availability of generation resources. These models are often based on historical data and are continuously updated as new information becomes available.


Accurate SMP forecasting can help market participants to optimize their bidding strategies, manage their risk exposure, and make more informed investment decisions. It also plays a critical role in the efficient and reliable operation of the electricity grid, as it allows grid operators to anticipate and respond to changes in electricity supply and demand in a timely and effective manner.

Potential customers for System Marginal Price (SMP) forecasting in the electricity market include a range of stakeholders who are involved in energy production, consumption, and trading. Some examples of potential customers are:

  • Power Generators: Power generators can use SMP forecasting to optimize their bidding strategies and make more informed decisions about the scheduling and dispatch of their generation resources.
  • Retail Electricity Providers: Retail electricity providers can use SMP forecasting to manage their exposure to price volatility and to develop pricing strategies that are more responsive to changes in market conditions.
  • Large Energy Consumers: Large energy consumers, such as industrial facilities and data centers, can use SMP forecasting to optimize their energy usage patterns and to reduce their energy costs.
  • Energy Traders: Energy traders can use SMP forecasting to identify market trends and opportunities for arbitrage, and to manage their risk exposure in the market.
  • Grid Operators: Grid operators can use SMP forecasting to anticipate changes in electricity supply and demand and to take proactive measures to ensure the stability and reliability of the grid.

Overall, SMP forecasting can be a valuable tool for any stakeholder in the electricity market who is looking to optimize their operations, reduce their costs, and manage their risk exposure.

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