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?

Our project aims to answer the research question “How can local and system-level energy markets be designed to successfully integrate smart local energy systems (SLES) at the national scale?”

Energy markets are a critical energy system component:

  • From an engineering perspective they provide the coordination mechanism for ensuring power flows remain balanced and within operating constraints throughout the system across locations and timescales.
  • From an economics perspective they determine the transactions and economic flows that incentivize investment, efficiently allocate scarce capacity and enable particular business models.

Our project brings together researchers from power systems engineering, economics and computer science, and has connections with policy and social science focused work within EnergyREV. We aim to support the design of SLES and to provide quantitative evidence for future energy market reforms.

What are the EnergyREV team doing in this area?

We are pursuing three main streams of work:

  1. We are developing new market designs for SLES to facilitate the large-scale coordination of distributed energy sources, while efficiently managing network constraints, uncertainty and local community objectives.
  2. We are investigating how the UK’s system-level markets can be redesigned to successfully integrate local flexibility. This includes enhancements to the capacity market and contracts-for-difference auctions to account for the importance of co-optimising investment in generation, flexibility and network infrastructure.
  3. We have developed the Open Platform for Energy Networks (OPEN), which is an open-source Python software platform for integrated modelling, control and simulation of SLES. This unified computational platform supports the other two workstreams.
How is EnergyREV exploring these issues?

We are working directly with the energy demonstrators to understand their most pressing market design challenges, and to feedback insights and recommendations. As SLES scale up the size and density of distributed energy resources, key challenges that emerge for market design include:

  • How to model different sources of uncertainty and incorporate them into flexibility procurement and network design
  • How to design coordination mechanisms between overlapping market platforms operating across vastly different physical and temporal scales.

Our work is addressing these challenges by bringing together advances across multi-agent control, machine learning, game theory and robust decision-making under uncertainty.

Through the EnergyREV Policy Contact Group, we are also working with UK policymakers and regulators to understand their highest priority policy questions so that we can target our work towards generating evidence which can help support future energy market reforms. To do this, we have populated our new designs with national level data so that we can conduct system-wide simulation studies to assess the overall potential value of different market reforms.

What are the emerging insights?

Multiscale design offers a new approach for integrating peer-to-peer (P2P) energy trading as a core part of how power systems are designed and operated. (Follow the links to the associated papers).

Carefully designed transaction fees can be used to manage network constraints and uncertainty within decentralised P2P trading platforms, without requiring a central authority to check and approve transactions.

Fixed and nodal retail prices can coexist in distribution networks. Having more customers on nodal prices improves overall efficiency and reduces network charges required to recover investment costs.

Accounting for social relationships and cooperation within local energy systems can complement local energy market design.

The OPEN software platform is open-source and available for download:

Meet the team

Theme Leads: Cameron Hepburn and Thomas Morstyn

Co-Investigators: Jeff Hardy and Jonathan Radcliffe

Researchers: Alex Teytelboym; Chaimaa Essayeh; and Iacopo Savelli



Report: Perth West as a Case Study for the value of Greenfield Smart Local Energy System


Briefing report: Putting wind and solar in their place: Internalising congestion and other system-wide costs with enhanced contracts for difference in Great Britain (November 2022)


Journal Paper: Better together: Harnessing social relationships in smart energy communities (August 2021)

Journal Paper: Multiscale design for system-wide peer-to-peer energy trading (May 2021)

Journal Paper: Electricity prices and tariffs to keep everyone happy: A framework for fixed and nodal prices coexistence in distribution grids with optimal tariffs for investment cost recovery (March 2021)


Conference Paper: A novel ex-ante tariff scheme for cost recovery of transmission investments under elasticity of demand (September 2020)

Conference Paper: Nodal and fixed price coexistence in distribution networks with optimal investment planning and tariff design (September 2020)

Journal Paper: OPEN: An open-source platform for developing smart local energy system applications (July 2020)

Journal Paper: A coalition formation game framework for peer-to-peer energy trading (March 2020)


Journal Paper: Integrating P2P Energy Trading with Probabilistic Distribution Locational Marginal Pricing (December 2019)

Journal Paper: Grid Influenced Peer-to-Peer Energy Trading (August 2019)