In order to make a business case for the local market, one needs to answer the question of what are the local prices based on since the market is coupled to the wholesale market. Also, why would one community member be ready to pay more than another to the same local producer?
We describe the drivers behind the local market. These come mainly from three different sources; avoided network losses, reduced network capacity and a reduced tax burden on the locally produced electricity.
The article argues that excluding taxes, there are short and long term benefits to be gained from active demand side participation. The short term benefits are related to network energy losses and represent at most a few percent of the retail cost of electricity. Long term savings are due to investment deferral and have a very slow dynamic due to the length of the network component lifetime. An optimistic estimate of both types of savings is provided. The article concludes that the economic case for the local market is rather weak, but it could change due to a number of technological and economic trends