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Local Power Markets

Author

Listed:
  • Pio Baake
  • Sebastian Schwenen
  • Christian von Hirschhausen

Abstract

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.

Suggested Citation

  • Pio Baake & Sebastian Schwenen & Christian von Hirschhausen, 2020. "Local Power Markets," Discussion Papers of DIW Berlin 1904, DIW Berlin, German Institute for Economic Research.
    • Handle: RePEc:diw:diwwpp:dp1904
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    References listed on IDEAS

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    More about this item

    Keywords

    Market design; networks; peer-to-peer markets; electricity;
    All these keywords.

    JEL classification:

    • D16 - Microeconomics - - Household Behavior - - - Collaborative Consumption
    • D26 - Microeconomics - - Production and Organizations - - - Crowd-Based Firms
    • D47 - Microeconomics - - Market Structure, Pricing, and Design - - - Market Design
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities

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