This paper develops a price structure for providing reactive power service and control based on optimal power flow (OPF) approach. The cost of reactive power support service is determined based on capability and contributions to the improvement of system performance such as security, reliability and economics, by computing sensitivity of objective function with respect to reactive power support. The OPF model, in which the objective function is minimization of system loss, is solved by the

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... solved by the interior point approach. For VAr planning purpose, three parallel indices are first presented to determine the sites of new VAR sources, based on the cost-benefit analysis, the sensitivity method and the voltage security margin method. Then, the analytic hierarchical process is used to comprehensively consider the effect of three indices and the network topology for each candidate VAr source site. The proposed approach was tested on an IEEE 30-bus system with satisfactory results.