Unlocking Local Energy Markets

Rachel Bray, University of Exeter

Overview
Local Energy Markets (LEMs) can be platforms for small-scale supply and demand-side providers to participate collectively in energy trading at the distribution level by creating new commercial market services and optimising distribution network capacity.

Flexibility services offered by LEMs have the potential to provide downward or upward adjustment to the energy system, contributing towards balanced power; and solving capacity and voltage constraints on the distribution networks, thereby deferring or avoiding expensive grid reinforcement costs.

This model of electricity trading and network operation differs significantly from the way in which the UK electricity system currently operates. Markets and network operation have historically been designed to reflect the ‘conventional’ centralised configuration of the system, rather than supporting smaller scale, more active local participation in both supply and demand.  Policies and regulations in place at the moment may therefore act as barriers to the creation of LEMs, one example being the current supplier hub model.

The supplier hub model severely restricts the trading opportunities of LEMs by requiring all energy transactions to take place via a third party licensed supplier. This effectively blocks any innovative solutions which the collective trading power of LEM participants could offer. This paper looks at several of those trading options and discusses the advantages that those services could bring to local networks given the removal of the supplier hub model.

Relevance of the topic to the themes of the conference

LEMs have the potential to transform the current market structure of electricity trading and introduce a new model which places consumers at the heart of the energy system. Emergent LEM services could include dynamic pricing, P2P trading and various demand side management options which could help to overcome system balancing issues; whilst LEMs could ensure a route for smaller providers to aggregate in the delivery of these services.

Methodology

We will present the results of a desk-based review of the existing GB policy and regulatory environment, and how it relates to LEMs in general, and current energy supply models in particular.  We have also reviewed international developments in this area, particularly emerging supplier models in New York, Germany and Australia.

Results

By allowing customers to have more than one energy supplier at a time; allowing customers to trade their excess generation between themselves without transacting through a licensed energy supplier; and allowing customers to sell their generation to whomever they chose would open up access to new markets and services, such as P2P, which are currently inaccessible due to existing regulation. Regulatory and market barriers to be overcome include access to the Balancing and Settlement Code; billing, settlement and metering processes; as well as network charging arrangements.

Conclusions

Preliminary results show that LEMs cannot be realised without the removal of current regulatory barriers. We put forward a framework for new supplier arrangements intended to enhance the potential adoption of LEMs in the UK.