Local Power Markets

Discussion Papers 1904, 32 S.

Pio Baake, Sebastian Schwenen, Christian von Hirschhausen


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In current power markets, the bulk of electricity is sold wholesale and transported to consumers via long-distance transmission lines. Recently, decentralized local power markets have evolved, often as isolated networks based on solar generation. We analyze strategic pricing, investment, and welfare in local power markets. We show that local power markets with peer-to-peer trading are competitive and provide efficient investment incentives, even for a small number of participating households. We identify positive network externalities that make larger markets more attractive but lead to inefficiencies where networks compete. Collectively, our results present a set of positive efficiency results for peer-to-peer electricity markets.

Pio Baake

Forschungsdirektor Regulierung in the Firms and Markets Department

JEL-Classification: D16;D26;D47;L94
Keywords: Market design, networks, peer-to-peer markets, electricity