Energy Revolution Research Consortium - Plus - EnergyREV - Market Design for Scaling up Local Clean Energy Systems

Smart local energy systems offer the new opportunity to unlock valuable demand flexibility from owners of distributed energy technologies, such as electric vehicles, home batteries and heat-pumps. When combined with consumer-level ICT infrastructure, these resources allow previously passive consumers to become 'prosumers' - consumers who can proactively manage their consumption, production and storage of energy.

The smart local energy system demonstrators are expected to generate a range of 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. Platforms are already operating that aggregate groups of prosumers and offer balancing services to National Grid. New markets for local flexibility services could enable prosumers to help manage voltage and thermal constraints, contributing to distribution system resilience. Markets for direct peer-to-peer energy trading have also been proposed, which would offer a win-win for prosumers, and the system as a whole, by facilitating the use of flexible resources to help match local supply and demand.

To ensure local energy markets create value locally, and can successfully scale up, energy market and regulatory arrangements will need adjustment. The major opportunity is for local energy markets to be integrated at the 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, with prosumer preferences and behaviours of central importance.

The project aims to answer the research question: "How can local and system-level energy markets be designed to successfully integrate local clean energy systems at the national scale?" High performance computing will be used for large-scale simulation, to study the interactions between local energy markets operating in parallel at different time scales and physical scales. This will facilitate the design of new local and system-level coordination mechanisms and policies, and allow their impact to be evaluated. The project will enhance the value offered by the Energy Revolution Research Consortium by providing novel insights and quantitative evidence which can be shared with the smart local energy system demonstrators as well as policy-makers.

Through this project, a new framework would be developed for combined local and system-wide energy market design, with the aim of helping to integrate local clean energy systems at the national scale.

Local authorities would benefit from new methodologies for building policy objectives into the design of local energy markets. This could include incentivising the take up of electric vehicles to improve air quality in particular areas, coordinating efficient use of on-street charging stations, offering subsidised energy to alleviate fuel poverty and increasing local utilisation of community-owned renewable generation.

Distribution network operators would be able to benefit from new market mechanisms for incentivising flexibility from prosumers. Without active coordination, the introduction of distributed renewables and the electrification of transport and heat are expected to lead to increasingly costly distribution networks, with more severe demand variability requiring investment in rarely used infrastructure. If properly coordinated, prosumers could alleviate this by contributing their flexibility to help manage demand locally. The project will investigate how local markets for distribution network services can be designed to incentivise efficient operation without exposing individual consumers to unacceptable price-volatility or unfairly penalising them for their location in the network.

At the national scale, coordinated use of clean local energy and flexibility could reduce the need for large investments in generation and transmission infrastructure. New negotiation mechanisms will be developed so that local energy markets operating in parallel at different time scales and physical scales can be integrated without degrading system resilience. The project will also investigate how the capacity market can be updated to achieve efficient investment in a system with a significant proportion of flexibility embedded within distribution networks.

Ultimately, by helping to ensure local energy markets are operating in alignment with system-level policy objectives, the research has the potential to contribute towards reducing energy costs for consumers across the system, reducing the cost of decarbonisation and improving energy security.