5 Benefits of Market-Based Approaches to Local Flexibility

Efficiently managing an increasing share of renewable energy and Distributed Energy Resources (DERs) can be challenging for Transmission System Operators (TSOs) and Distribution System Operators (DSOs). This challenge is further heightened by the need to manage the congestion DERs, such as storage assets and electric vehicles (EVs) can bring to the grid.

There are a lot of parts at play. As the grid system becomes more decentralized, decarbonized and digitalized, operators need ways to effectively manage and maintain their electric grid, while optimizing for cost-efficiency, securement of supply from the power system and frictionless integration with existing power markets. Market-based approaches focused on local flexibility can solve these demands and goals.

The EU’s “Clean energy for all Europeans package” is the living example of adopting a modern, more flexible electricity market that integrates a greater share of renewables to meet ambitious targets set for 2030, and even towards 2050. It’s a framework that’s designed to be responsive to real-time grid needs with DER flexibility.

This article will look into the benefits of local flexibility markets and how market-based approaches can offer solutions for increased electrification and coordination between TSOs and DSOs.

What are local flexibility markets?

Local flexibility markets provide system operators and other participants with opportunities to trade flexibility services during increased electrical demand to better manage and mitigate grid congestion.

Flexibility markets also offer other services, such as constraint management and peak management. As a leading UK flexibility project, Scottish & Southern Energy Networks will be procuring services such as: minimum import capacity trading, maximum export capacity tracing, offsetting and wholesale portfolio optimization.

The need for coordination between TSOs and DSOs

Better coordination between TSOs and DSOs is integral for better system management. When coordination is enhanced, each role increases their real-time visibility into each other’s roles while strengthening network resilience, and improving data sharing and communication, thereby reducing chances of a major power outage.

DSOs are responsible for efficiently managing electricity distribution and traffic in the distribution networks for a reliable supply. TSOs are responsible for system balance by controlling the operation of the transmission grid – from the generation plants to regional or local DSOs.

Key benefits for all service market participants during the energy transition process

Below we will outline five benefits of adopting market-based approaches for local flexibility for regulated (DSOs and TSOs) and non-regulated (Balance Responsible Parties, Chip Multiprocessors, etc.,) market parties.

Efficiently match supply and demand for flexibility

The availability of local flexibility resources gives service providers fair opportunities to compete against traditional energy resources. As well, they can deliver power at a low cost while also providing the most value to the entire energy system. This means that resources are efficiently allocated with accurate pricing for market participants and ensures higher liquidity.

Integrate demand-side flexibility

Demand-side flexibility, also known as load flexibility, helps with cost-efficient energy transition — a method more acceptable to European citizens. Loads can be linked together into single aggregate units, which gives current operators the opportunity to lessen the amount of costly peak power produced. Currently, regulated cost-based approaches struggle to integrate loads because the cost of the load is based on the changing value of electricity to the consumer, plus time and location. Load flexibility integration not only helps with shaving off- peak power use (and thus creates savings), but also targets grid congestion, accommodates fluctuation and stimulates more investment from diverse flexibility providers.

Work together with coupled sectors

Without any sector-specific tariffs, this type of partnership that exists to assist with decarbonization can better facilitate integration of renewables and achieve climate targets. Tariff design can also contribute to potential grid loss savings.

Contribute to energy efficiency and access to local energy

Focusing on local flexibility can reveal opportunities for energy saving, like building control systems that can show sources of energy waste. As well, consumers may have a preference for locally produced energy, even if it means they have to pay more. The availability of local flexibility gives these consumers the option to shift their consumption time to when their desired local production is available.

Market platform operation by neutral third parties

By allowing non-active, neutral third parties to operate the market, risk of conflict of interest is avoided for active parties in terms of trading facilitation and price formation. This also offers unbundling at the DSO level, which gives market participants fair access to regulated grid assets to ensure they are fully utilized.

Extra suggested benefits

Local flexibility markets can also create regulatory incentives for DSOs and TSOs to acquire flexibility most efficiently. As well, the continued promotion of pilot projects and regulatory sandboxes for innovative product development provides opportunities to test new regulatory structures to better support advanced grid technologies and new business models.


An increase in a more decentralized power system calls for a need to set up a market that offers enough flexibility to respond to local needs while building on the transparency of the organized wholesale energy market.

Market-based approaches to local flexibility can optimize usage of the energy produced by the local grid to address challenges for all market participants, especially DSOs and TSOs, to ensure better coordination between operators, effective network congestion management and efficient allocation of flexibility resources.

As one of the leading players in the industry, Opus One is also working closely with quite a few clients to adopt market-based approaches for local flexibility and transactive energy market during the energy transition, such as SP Energy Networks, Scottish and Southern Electricity Networks and Southern California Edison. Learn more about our partnership stories, please click here.