Liquidity will be ‘a real challenge’ for local energy markets

Trading across a series of local markets may help to overcome the issue

Populating local energy markets with enough participants to ensure that services can be bought and sold easily will be “a real challenge”, according to a senior figure at Electricity North West.

Trading across a series of local markets to manage dual network constraints may, however, provide the liquidity needed to enable their smooth operation.

“Liquidity is a real challenge because a lot of the constraints we will be looking to manage will be very localised constraints,” said Electricity North West networks strategy and technical services director Paul Bircham.

He made the comments at the Future Networks Conference in Birmingham, during a discussion of distribution network operators planned transformation into distribution system operators. This would mean them taking a more active role in the management of their networks via local balancing markets.  

Bircham told delegates he “can’t say at this stage” whether there would be enough firms trading on local markets to provide the liquidity that distribution networks would “ideally” like to see. He said “physical constraints” may limit the number of connections to distribution networks and therefore the number of participants.

“It may mean that a series of local markets looking at managing a number of dual network constraints in certain areas may be needed to be able to get that liquidity,” Bircham added. He said openness and transparency will also help to overcome any issues around liquidity.

If done successfully, the creation of local balancing markets should lead to a situation where network operators do not invest in reinforcements “unless they could prove from market evidence that provision of that capacity by the users of the network was more expensive than the engineering solution”.

Delegates heard earlier at the conference that networks will need to collaborate on common smart tech standards in order to avoid the imposition of restrictive rules and regulations by government.