Reactive power service is a key component of power market ancillary service

and reactive power price in the generation side is the base of reactive power market. In this paper

reactive power generation costs are discussed

which are decomposed into two parts: reactive capacity price and reactive power production price. The method is tested on the three-bus system. The results demonstrate that reactive ancillary service plays an key role in active power transmission. Research shows that with a reasonable economic compensation

generators will act to maintain security and stability of the system on its own initiative.