Re-Designing GB’s Electricity Market Design: A Conceptual Framework Which Recognises the Value of Distributed Energy Resources

Abstract

The design of electricity markets determines the technologies, services and modes of operation that can access value, consequently shaping current and future electricity landscapes. This paper highlights that the efficacy of Great Britain’s electricity market design in facilitating net zero is inadequate and must be reconfigured. The rules of the current electricity market design are remnants of an electricity sector dominated by large-scale, centralised, fossil fuel technologies. Therefore, routes to market for the provision of necessary services to support net zero, not least flexibility, are largely inaccessible for distributed energy resources and, despite their benefits to the system, are thus undervalued. Based upon a review and consolidation of 30 proposed electricity market designs from liberalised electricity sectors, this paper proposes a new electricity market design for Great Britain. This design is presented alongside a new institutional framework to aid in the efficient operation of the market. Specifically, this paper proposes a new local balancing and coordinating market located at each grid supply point (the transmission and distribution interface). This is realised through the implementation of a distributed locational marginal pricing structure which is governed by the evolution of the current distributed network operator, known as the distributed service provider (DSP). The DSP also operates a local balancing and ancillary market for their geographical area. The wholesale market is reconfigured to coordinate with these new local markets and to harmonise the actors across the distribution and transmission network.

The Role of Regulators in Promoting the Procurement of Flexibility Services within the Electricity Distribution System: A Survey of Seven Leading Countries

“…Regulators can also play an important role in specifying the market design for flexibility markets. Appropriate market designs can help to capture the value that decentralized resources such as DER can provide to the electricity system [26]. The role of the distribution utility as a neutral market facilitator is a possibility that is envisaged in the future.…”

Value for Money: Local Authority Action on Clean Energy for Net Zero

“…The proposed institutional changes represent a significant alteration to current practices, but are a feasible route to achieving net zero targets in accord with other authoritative analyses (e.g., [51,52]) of necessary reconfigurations of the UK's energy systems and governance to achieve net zero. The benefits of a more decentralised system, such as accessing local demand flexibility to manage grid constraint issues, deferring costly network reinforcement and reducing transmission costs by locating generation closer to demand, are found to be a significant contributor to achieving net zero [52,53]. Recommendations are intended as a stimulus to further research and debate on placespecific local investment and potential added social value to localities.…”

“…There is also potential for pooling finance for de-risking and cross-subsidising projects with lower economic returns, in order to maximise benefits to locality. By making use of all locally generated renewable heat and power, integrated local energy could potentially support reduced energy prices, albeit regulatory changes would be needed to support local flexibility services and demand management [52,53]. This is particularly important in the context of recent energy price rises and renewed concerns about energy security.…”

Navigating the crises in European energy: Price Inflation, Marginal Cost Pricing, and Principles for Electricity Market Redesign in an Era of Low-Carbon Transition

“…Design for efficient type and location of investment (insofar as it is recognized that short-run incentives do not adequately incentivize location of big generation) is thinner but emphasizes the need for coordinated system planning of generation and transmission, a 'system architect' function. Local and distributed electricity issues are well covered, amongst others, in research by the Exeter INOGOV program e.g., (Pownall, Soutar and Mitchell, 2021).…”