IEEE Power & Energy Magazine - May/June 2018 - 37

Current State of Play (Small Data)
The current energy market in the united Kingdom is a vertical system (Figure 2), in which local producers and consumers have limited access but, aggregated to a reasonable
scale, are able to participate in the central energy or frequency markets. This has worked well since the inception
of the electricity market under the traditional structure of
the electricity supply system, with generation and consumption separated at both ends of the system. With the cost of
low-carbon technologies-such as pVs, electric vehicles
(eVs), battery storage, and heat pumps-rapidly decreasing, these technologies are increasingly being connected at
the edge of the distribution system. millions of businesses
and homes that have traditionally been passive energy consumers will become energy prosumers, able to store, convert, and generate energy. This will enable them to become
active participants in the market.
From a customer perspective, the current vertical business model may disadvantage local energy producers, especially those employing renewable technologies, by providing
limited choices in terms of how to utilize output. Specifically, excess intermittent energy from prosumer renewable
resources in its raw form is recycled by the grid at a very low
rate: 3 pence/KWh (versus the retail rate of 24 pence/KWh),
as it represents an intermittent, low-reliability energy supply,
i.e., variability of energy outputs. The central system then
acts as a giant energy store that would increase the perceived
supply reliability to a level that meets the supply standards.
as illustrated in Figure 2, in doing this, it both limits the
financial value of the local resources and places an extra burden on the supply system-particularly when local wind and
pV become significant at the distribution level.
at the distribution network level, the current dno business model recovers network operation and investment costs
through its use of system and connection charges. revenues
are largely determined by the amount of money spent on its
network each year, with investment set to earn a fixed rate
of return on capital. under this business model, a dno has
an incentive to invest in the network to meet forecast load

growth on the assumption that all loads require the same
level of high reliability. a significant capacity is designed
into the network to support the short-duration system peak,
with the inevitable consequence that the network remains
underutilized for most of the year. The current dno business model continues into a future that does not distinguish
flexible from fixed demand; thus, it will further diminish the
efficiency of asset utilization by tending to connect flexible
resources to low-voltage (LV) networks.
at the market level, the economic principles underpinning current market structures are based solely on price
and quantity, with no consideration regarding the reliability
of energy supply. The traditional structure for an electricity market establishes an equilibrium between supply and
demand while trading only one level of reliability for energy
products. all electricity must meet the security standards
defined by regulatory bodies, which generally require near
100% reliability. in the emerging low-carbon environment,
there is an opportunity to use the flexibility of emerging
loads that have a higher degree of tolerance to the poor reliability of energy supply. These will include loads such as
electric heat and transport, smart appliances, and home area
energy storage. For this opportunity to be exploited, the current market arrangements need to be extended from cost and
quantity to reliability. This will allow low-reliability energy
supply, such as local pV and wind, to be directly traded with
a third party in the local area. Such an arrangement offers
the prospect of providing more choices to users and fully
unlocking the value of local resources.

Disruptive Technology-Big Data
Analytics and Application in a Sharing
Energy Economy
a sharing economy mobilizes traditionally underutilized
assets owned by individuals or communities and thereby
enables them to provide services that create much greater
value for the assets than would otherwise be available. The
application of the principle of a sharing economy to local
energy markets is through a p2p-traded market that allows a

£0.17/kWh

£0.03/kWh

Recycled by the Grid
1

Vertical Transaction

Horizontal Transaction
Trading Platform

£0.10/kWh

figure 2. Vertical and horizontal transactions.
may/june 2018

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Table of Contents for the Digital Edition of IEEE Power & Energy Magazine - May/June 2018