Market Design for Scaling Up Local Clean Energy Systems

Market Design for Scaling Up Local Clean Energy Systems

Why is market design important for Smart Local Energy Systems?

Smart local energy systems (SLES) offer the new opportunity to unlock valuable demand flexibility from distributed energy technologies, such as electric vehicles, home batteries and heat-pumps. When combined with consumer-level information and communications technology, these resources allow previously passive consumers to become ‘prosumers’ – consumers who can proactively manage their consumption, production and/or storage of energy.

UK smart local energy system demonstrators are generating a range of new local energy markets and platforms, offering new opportunities for prosumers to actively engage with the energy system. A wide variety of designs and business models for these markets and platforms are possible, for example:

- Platforms are already operating that aggregate groups of prosumers to offer frequency regulation services and operating reserves to the National Grid.
- New markets for local flexibility services could enable prosumers to help manage voltage and thermal constraints to prevent outages.
- Markets for direct peer-to-peer energy trading have been proposed which would reward flexible prosumers for their help matching local supply and demand, offering a win-win for prosumers and the system as a whole.

To ensure local energy markets create value locally, and can successfully scale up, current energy market and regulatory arrangements will need adjustment. The major opportunity is for local energy markets to be integrated at a national scale, with clean local energy and flexibility reducing the need for large investments in generation and transmission infrastructure. Achieving this scale-up will require new market design frameworks and supporting technologies that incorporate prosumer preferences and behaviours.

What will the policy, regulation and markets team deliver for EnergyREV

The market design team in EnergyREV aims to answer the research question: “How can energy markets be designed to successfully integrate local clean energy systems at the national scale?” The project will enhance the value offered by EnergyREV by providing novel market design insights and quantitative evidence which can be shared with the smart local energy system demonstrators, policy-makers and the wider energy sector.


What will the market design team deliver for EnergyREV?

A simulation platform will be developed to investigate the real-time interactions between local energy markets and the power system using the PFER Demonstrator projects as case studies. The simulations will be built in a bottom-up fashion from the individual prosumer (distribution feeder) level, up to the wholesale market (transmission system) level. The scalable nature of this approach offers the unique opportunity to study complex interactions between local and system-level markets. Working with the demonstrators, the team will update the platform based on real-world transaction and power system data, and feed-back design recommendations.

The simulation platform will facilitate the design of new coordination mechanisms and policies for managing interconnected local energy markets. This will be key for successfully replicating and scaling out smart local energy systems nationally. Coordination needs to be maintained between interconnected local markets so that system constraints are respected, and their interactions do not result in cascading volatility. In addition, new incentive mechanisms will be designed to help achieve local community objectives, including air quality improvement and fuel poverty reduction.

By blending the insights from local energy markets with recent economic theory on electricity market design given high renewable penetration,  the team will investigate the changing role of the capacity

market, balancing mechanism and ancillary services, and will investigate the interaction between investment decisions and real-time operation. The marriage of local market design and system-level market design is novel and key to realizing the system-wide benefits of the government’s energy policy.