Summary In this paper, a novel method is presented to study the impact of the most congested line on Locational Marginal Price (LMP), and Transmission Congestion Cost (TCC). In most congested condition, the abrupt difference in LMP between two nodes result in enormous TCC and create a huge loss for participants. The method developed in this paper is to find the most congested line on the basis of TCC value, and its sensitivity on the overall network is thoroughly studied. The LMPs computed at each node help in grouping the nodes or buses into two parts, namely, zone 1 or congested zone and zone 2 or non‐congested zone. This method helps market operators to analyze the impact of the most congested line. In addition, the method is handled by obtaining the exact location and sizing of Distributed Generation (DG). Moreover, to formulate the problem accurately, the proposed method is based on AC optimal power flow (ACOPF), which includes network losses in contrast with the lossless DCOPF. The MATLAB interior point method is used to solve the proposed method, and it is tested on IEEE Reliability Test System (IEEE‐RTS) 24 bus and IEEE 30 bus system network in different operating conditions. The results thus obtained shows the betterment of the proposed method.

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