Market Design for Scaling Up Local Clean Energy Systems

Why is market design important for Smart Local Energy Systems?

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

How did EnergyREV explore these issues?

We pursued three main streams of work:

We developed 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.
We investigated 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.
We 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 supported the other two workstreams.

We worked 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 addressed 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 worked with UK policymakers and regulators to understand their highest priority policy questions so that we could target our work towards generating evidence that can help support future energy market reforms. To do this, we populated our new designs with national level data so that we could conduct system-wide simulation studies to assess the overall potential value of different market reforms.

What did EnergyREV learn?

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: https://github.com/EPGOxford/OPEN