Business, regulatory, and technical challenges for integration of network aware algorithms in local flexibility markets

Local flexibility market (LFM) concepts are currently under development by several actors to reduce the cost of distribution system infrastructure upgrades, as well as to enhance the integration of distributed renewable energy sources. New mathematical algorithms and ICT tools are required to improve the LFM clearing. The paper identifies the main barriers and enablers for the implementation of network aware LFMs and presents a discussion on the role of market architecture in the integration of LFMs. After a literature review about the LFM concepts, the Business Modelling scenarios methodology is presented, with reference to short, medium, and long-term scenarios. Then, the business model of network aware LFMs is defined, by highlighting the main challenges that can affect their commercial viability. The paper examines the business model, in each of the three scenarios, and addresses the challenges from regulatory, technical, and business perspectives. The conclusions show that even if network-aware market clearing algorithms will become relevant in the future, the business case for network-aware LFMs is quite uncertain. It currently faces technical and regulatory challenges, and in the future, it might be threatened by the inclusion of distribution grids to power-flow calculations in the Day Ahead market.