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Local Energy Markets

Pio Baake, Sebastian Schwenen and Christian von Hirschhausen

Journal of Industrial Economics, 2023, vol. 71, issue 3, 855-882

Abstract: In current power markets, the bulk of electricity is sold wholesale and transported to consumers via long‐distance transmission lines. Recently, decentralized local energy markets have evolved, often as isolated networks based on solar generation. We analyze strategic pricing, investment, and welfare in local energy markets. We show that local energy markets yield competitive equilibrium prices and provide efficient investment incentives. Yet, we find that strategic behavior leads to allocative inefficiency. We propose a clearing mechanism that induces truth‐telling behavior and restores first‐best welfare.

Date: 2023
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https://doi.org/10.1111/joie.12338

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Persistent link: https://EconPapers.repec.org/RePEc:bla:jindec:v:71:y:2023:i:3:p:855-882

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Journal of Industrial Economics is currently edited by Pierre Regibeau, Yeon-Koo Che, Kenneth Corts, Thomas Hubbard, Patrick Legros and Frank Verboven

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