Lecture 6 – Electricity Markets: Local Market Coupling

Question 1

What is the classical structure of the electricity system?

Answer 1

▪ Trading only on the transmission grid level
▪ Many actors excluded from trading
▪ Mostly unidirectional energy flows
▪ Distributed Energy Resources generate energy uncoordinated at fixed feed-in tariffs
▪ Variations in renewable energy generating are compensated by reserve capacities

Question 2

How does the future electricity system look like?

Answer 2

▪ Mostly bidirectional energy flows
▪ Trading not only on the transmission grid level
▪ Increasing demand for regulation (energy, system services)
▪ Increasing stochastic components on the generation side
▪ Using storage as a buffer
▪ Increasing demand for coordination
▪ Networking and automation of energy resources as an approach to a solution
▪ Local market coupling necessary

Question 3

What do local energy markets enable?

Answer 3

Local Energy Markets enable the integration of new participants (e.g. DERs, End Consumers) into national energy markets that were excluded from active participation before, due to complexity or capacity reasons. They alleviate the design and implementation of new power related products like demand side load reduction potential or reactive power.

Question 4

How are the local energy markets implemented?

Answer 4

▪ Local Energy Markets are empowered by additional ICT infrastructure that enables automation of transactions under consideration of consumer preferences and technical constraints.
▪ By incorporating local information, while still maintaining the coupling to the national (and European) environment, the allocation is achieved in a more flexible and timely fashion, which fits the requirements of intermittent and distributed generation resources.
▪ Market Coupling “in depth“ to lower voltage and capacity levels, in contrast to market coupling “in width” as described in the European context.
▪ Local Energy Markets implement the notion of market-based control and scheduling for electricity generation.

Question 5

What is the idea behind local market coupling?

Answer 5

• Prosumers can actively contribute to the local supply of electricity, both in terms of energy, capacity and reserve/balancing energy
• Digitalization of the smart grids and innovative regulation enables peer-to- peer (P2P) trading, but local energy markets are still in their infancy
• Flexibility options at large and small scale, and particularly those enabled by smart grid technologies, can be thought of to compete in a dedicated new market for flexibility
• Aggregators as flexibility providers and grid operators who are in need for flexibility meet and trade with each other on a level playing field − Reduction in losses due to efficient, low-cost local load balancing
• Highly effective and efficient orchestration of the manifold resources through multi-layer trading of flexibility on dedicated platforms, and automated decisions of smart DERs
• Transparency and a clear regulatory framework for DER will be paramount for efficient, and social welfare-optimal, flexibility market outcomes

Question 6

What are the potential local energy market models?

Answer 6

• pure market
• intermediated market
• microgrid market
• centrally controlled market

Question 7

Describe the pure market?

Answer 7

The only flow of information are changing price signals. The end customer is empowered by ICT to react to changing conditions and thus profit from his flexibility by interacting with players in the wholesale market.

Question 8

Describe the intermediated market?

Answer 8

It is characterized by a key player between the wholesale and retail market. Customers do not participate directly in the wholesale market, but only through the (load) aggregator.

Question 9

Describe the microgrid market?

Answer 9

It is characterized by balancing or attempting to balance energy between supply and demand within a predetermined geographical area

Question 10

Describe the centrally controlled market?

Answer 10

Utilities, not end consumers monitor and control the operations at appliance level consumption devices in order to minimize operational costs.

Question 11

How would a Citizen energy community (CEC) look like?

Answer 11

A community-owned microgrid may involve different asset categories (generation, distribution, and microgrid), and be owned by single or multiple parties (e.g., the community, a utility, other public/private enterprises).

Question 12

What would the generation assets in a community-owned microgrid include?

Answer 12

Generation assets include residential/commercial solar PV, storage units, and other DER (incl. demand-side ones).

Question 13

What would the distribution assets in a community-owned microgrid include?

Answer 13

Distribution assets comprise all physical components that are part of the local distribution grid.

Question 14

What would the microgrid assets in a community-owned microgrid include?

Answer 14

Microgrid assets include the central controller of the microgrid, a central energy management system, smart meters, and a real-time communication and control unit.

Question 15

What are the different sizes of microgrid?

Answer 15

− Small-sized microgrids (e.g., commercial buildings);
− Medium-sized microgrids (e.g., communities);
− Large-sized microgrids (e.g., universities, military facilities)

Question 16

What points towards an increase in importance of microgrid in the future?

Answer 16

The 4 Ds (Decarbonization, Digitalization, Decentralization, Democratization)

Question 17

Why is it a problem that market prices are often determined on a national level?

Answer 17

− does not reflect (local) energy scarcity or surplus of supply.
− new market approaches should mirror the locality of their services

Question 18

What is a solution to the problem that market prices are often determined on a national level?

Answer 18

Microgrid energy markets

Question 19

Why are Microgrid energy markets a solution to market prices often being determined on a national level?

Answer 19

− enabling small-scale participants for active energy trade within their community in real time
− facilitating a sustainable, reliable, and local balance of generation and consumption
− representing a viable option for integrating distributed RES into the current energy system in an economical way
− empowering small-scale energy consumers and prosumers
− incentivizing investments in local generation, and helping to develop self-sustainable microgrid communities

Question 20

What can blockchains offer decentralised market designers?

Answer 20

Blockchains offer new opportunities for decentralized market designs and provide transparent and user-friendly applications
− enables energy consumers to participate in the decision on who produces their energy and by which technology it is generated

Question 21

What does the implementation of microgrid energy markets require?

Answer 21

Innovative, secure, and smart information systems as an essential succeeding
factor for their operation

Question 22

Describe microgrid energy markets?

Answer 22

− provide small-scale prosumers and consumers with a market platform to trade locally generated energy within their community
− promote the consumption of energy close to its generation
− foster sustainability and the efficient use of local resources

Question 23

What are the advantages of microgrid energy markets?

Answer 23

▪ Microgrid energy markets can reduce the need for expensive and inefficient energy transportation with substantial losses
▪ Microgrid energy markets strengthen the local community in terms of self- sufficiency and provide the possibility of energy cost reduction
▪ Microgrid markets provide community members with a new asset class and a non-existent direct access to locally generated energy from their neighbors, linking it to the recently emerging „sharing economy“
▪ Microgrid energy market includes personal preferences for local renewable energy and community products.
▪ An economically profitable microgrid market encourages more renewable generation to be built in a community.

Question 24

How can microgrid energy markets reduce the need for expensive and inefficient energy transportation with substantial losses?

Answer 24

− satisfying demand from local energy resources.
− decreasing the latency for managing congestion and distribution faults

Question 25

How can microgrid energy markets strengthen the local community in terms of self-sufficiency and provide the possibility of energy cost reduction?

Answer 25

− keeping profits within the community due to local transactions
− encouraging reinvestments in additional renewable generation

Question 26

What are the different types of personal preferences that a community could have?

Answer 26

− if residents are only economically interested in participating in a microgrid market, the traditional grid price sets their upper price limit for procuring, and the feed-in tariff for selling energy.
− if residents value local renewable energy higher than non-specific brown energy, then their willingness to pay should be higher than the traditional grid price.
− community incentives may lead to consumers’ increased willingness-to-pay higher prices for local energy.

Question 27

How does an economically profitable microgrid market encourage more renewable generation to be built in a community?

Answer 27

− local employment can rise through employment opportunities for building and maintaining additional local generation.
− the local economy can grow as more profits stay within the community.
− socio-economic incentives (e.g. employment rates and the security of energy supply) should be given equal consideration as any economic factors.

Question 28

How does the P2P trading process run?

Answer 28

1. Day-ahead market:
   ▪ Direct interaction between local market participants without the involvement of third parties via P2P trading
   ▪ Prosumer bid into a day-ahead market and plans its grid consumption, P2P trade, battery storage utilization and the grid feed-in.
2. Intraday market:
   ▪ The community submits a commitment to the day-ahead market, considering the wholesale electricity price and local wind and solar power generation uncertainties.
   ▪ The community balance any deviations from the day-ahead market commitment by adjusting P2P trade, battery usages, and grid electricity procurement from the intraday electricity market.

Question 29

What does P2P with blockchain enable and offer?

Answer 29

P2P with blockchain technologies enables tracking of the transactions made and offers a transparent and automated settlement of the market transactions.

Question 30

What main purposes is P2P trading with blockchain served to fulfil?

Answer 30

Serving two main purposes:
(1) further integrating Distributed Energy Resources (DER)
(2) lowering the costs for reserve energy by mitigating the market power of the incumbents.
(3) finding a local energy auction mechanism which is simple, easy to understand, with lower transaction costs.

Question 31

How does the Peer-to-peer trading platform architecture look like?

Answer 31

▪ Connection of the heterogeneous households both to the main grid and interconnected by a local grid
▪ Minimizing the community’s expected costs of procuring electricity from the wholesale markets as the main objective
▪ The interplay and synergies of pooled heterogeneous households engaged in P2P trading
▪ Two different market designs in the context of battery flexibility:
− Decentralized, privately owned batteries in private households
− Centralized, commonly accessible and thus shared battery

Question 32

How effective is P2P trading?

Answer 32

P2P trade can save more than 30% of the electricity costs for a community, allowing for a significant increase in self-sufficiency, and utilization of local renewable energy resources.