Feasibility assessment of decentralised, layered-decomposition optimisation structure for the EU internal energy market

Abstract

Distributed Energy Resources are becoming increasingly numerous, with many positive and negative implications for the electricity sector. A decentralised, layered-decomposition optimisation structure is a proposed alternative to the current market structure that would allow local distribution areas to self-optimise their supply and demand with distributed generation. This paper explores the effects of distributed generation and investigates a regulatory framework that would adapt a layered-decomposition structure to the specifics of Europe’s internal energy market. The regulatory requirements suggested by the findings of this paper are a nodal pricing scheme, the expanded role of distribution system operators, harmonisation of the day-ahead and intraday markets, with increased granularity of intraday markets to 15-minute auctions, merging of market operators, and the establishment of local markets at the distribution level that operate as energy markets, flexibility markets, and ancillary service providers. A PEST analysis was conducted, with a decision matrix quantitatively comparing three alternative structures, a status quo “minimal DSO” structure, a grand central optimisation structure, and a decentralised layered-decomposition structure with the supporting regulatory framework. A timeline was proposed that outlined the phases for the structure’s implementation. Future recommendations are to conduct operational policy research for the coordination of local markets and to determine a market clearing optimisation formula.