Developments and Challenges in Local Electricity Markets: A Comprehensive Review

Abstract

In recent years, power systems have undergone changes in technology and definition of the associated stakeholders. With the increase in distributed renewable generation and small-to medium-sized consumers starting to actively participate on the supply side, a suitable incorporation of decentralized agents into the power system is required. A promising scheme to support this shift is given by local electricity markets. These provide an opportunity to extend the liberal wholesale markets for electrical power found in Europe and the United States to the communal level. Compared to these more established markets, local electricity markets, however, neither have few practical implementations nor standardized frameworks. In order to fill this research gap and classify the types of local electricity markets, the presented paper therefore starts with the challenges that these markets attempt to solve. This is then extended to an analysis of the theoretical and practical background with a focus on these derived challenges. The theoretical background is provided in the form of an introduction to state-of-the-art models and the associated literature, whereas the practical background is provided in form of a summary of ongoing and recent projects on local electricity markets. As a result, this paper presents a foundation for future research and projects attempting to approach the here presented challenges in distribution of generation, integration of demand response, decentralization of markets and legal and social issues via local electricity markets.

Design choices in peer‐to‐peer energy markets with active network management

“…However, there are numerous approaches to decentralised consensus optimisation (e.g. ADMM and RCI) that divide the solving of the central dispatch problem among a large number of peers [3,53,54]. As the original optimisation problem is unaltered in this case, the market performance should match the result of design variant CD.…”

“…Yet, inseparably related to decentralisation is the concept of local energy markets (LEMs). Bjarghov et al [3] define these markets as 'a tool to decentralise the coordination of participants in a grid, by unifying participants behind a common denominator-local electricity market prices. These market prices aim to facilitate local trade, or in other words, prioritise the exchange of energy resources in smaller spatial distances over larger distances'.…”

“…To be more precise, participation describes the increasing electricity generation by active prosumers via small‐scale renewable plants plus the subsequent trading and sharing of excess energy among them [2]. While participation per se does not feature regional motives, decentralisation focusses on local price building and community‐based energy trading [3]. Ultimately, flexibilisation includes new concepts to incentivise grid‐supportive behaviour of supply and demand.…”

“…A more in‐depth analysis of the challenges of LEMs, including a review of respective projects, is presented by Ref. [3]. While the paper's focus is on the used modelling approaches and associated distribution grid problems, the authors do not provide a detailed comparison of different design options.…”

Impact of Local Electricity Market in the Low Voltage Distribution Network

“…Over the past years, several studies have been conducted on the coordination of modelling of LEM and distribution network constraints [5]. The most prominent method is AC optimal power flow (OPF) where network constraints are formulated as AC branch flow equations in the local market clearing problem [6].…”