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Local electricity market pricing mechanisms’ impact on welfare distribution, privacy and transparency

Abstract

Local energy communities and electricity markets have emerged as possibilities for interaction among
prosumers. A substantial effort has been invested into creating efficient pricing mechanisms for various market
arrangements, all of which take into consideration distinct characteristics of local electricity trading. However,
since they are all evaluated in terms of various systems and market conditions, it is challenging to directly
compare the mechanisms. In this research, three well-established pricing mechanisms from the literature are
systematically compared and evaluated under identical settings on their influence on welfare distribution
across various market participant groups, privacy protection, transparency and complexity level. According
to the findings, the supply–demand ratio pricing system leads to the lowest costs for consumers and is also
the most privacy compliant and transparent. Furthermore, prosumers obtain the highest cost-savings through
the consensus alternating direction method of multipliers pricing mechanism, whereas the equilibrium pricing
mechanism performs best regarding economic fairness. The aim of this article is to provide insight into the
performance of different pricing mechanisms to energy regulators and local electricity market facilitators.
The comparative analysis should aid in making informed decisions on the implementation of local electricity
markets.
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Category

Academic article

Language

English

Author(s)

Affiliation

  • SINTEF Energy Research / Energisystemer
  • Norwegian University of Science and Technology

Year

2023

Published in

Applied Energy

ISSN

0306-2619

Volume

341

View this publication at Norwegian Research Information Repository