April 3, 2023

Why the time for Local Energy Markets is now

The energy landscape is transforming at a rapid pace. Powerledger’s Dr Jemma Green says Local Energy Markets will be the next big thing in our race to decarbonise.

With government mandates and legislation around emissions becoming a reality in Australia, the path towards decarbonisation is now about how fast we can move.

Energy networks are stepping up to the challenge, looking to better incorporate solar, wind, hydro and the newcomer hydrogen into traditional and future grid infrastructure. Batteries are in demand, microgrids have come into their own, and virtual power plants are on the rise. We’re on the way.

However, there’s one solution in the renewable future toolkit that is yet to gain momentum – Local Energy Markets (LEM’s).

By coordinating Distributed Energy Resources (DERs), improving the use of renewables and empowering customers, LEM’s are a decarbonisation solution built to answer our modern energy system needs. 

We are predicting LEM’s will be the big mover in energy transformation technologies, adopted at speed by networks looking to answer their infrastructure and decarbonisation requirements.  

Harnessing the power of community

LEM’s have been a well-discussed concept for a number of years, but more recently, advances in technology has made them widely feasible. 

As a real-world solution, they are an attractive option for DSO’s looking to reduce the export and import of DER energy into the network, and increase the benefits that customers and the community derive from the renewable energy sources, such as rooftop solar.  

Desktop modelling of various scenarios shows that prosumers, those with solar and a battery, could benefit by up to 15 to 25% on sell-in rates for DER they generate. Straight energy consumers – those with no solar - could save up to 5% on energy costs. 

This financial incentive is an addition to the environmental considerations, with a higher percentage of renewables being used rather than ‘lost’ on the network, and better customer satisfaction by green-minded customers for being able to use more ‘clean’ energy.

The ideal LEM model

LEM’s allow individual DER trading with each other at the point of generation and use, rather than aggregation of DER into larger volumes as if found in a virtual power plant.

To be effective, a LEM needs to be localised, and therefore have participant limits. Ideally with a few thousand customers, all located within a single substation. This will keep trades and transactions localised, reducing cross substation transfers, therefore reducing pressure on grid infrastructure.

Within a LEM, you need a mix of energy participants. An ideal ratio is 50% consumers, 30% prosumers with solar PV, and 20% prosumers with solar and a battery.

A distributed ledger technology for the LEM provides the mechanism to execute the trades between the prosumers and the consumer.

Solving DSO dilemmas

The challenges faced by distributors across the world by the two-way flow of power on systems designed for one-way traffic, are well known.

Network upgrades and infrastructure redesign – and the associated high costs - is currently a high priority for many distributors, to better manage and balance the increased pressure created by the flow and fluctuations of renewables.

Along with other technologies like batteries, LEM can answer those needs. 

By matching energy demand in an area with energy generation, they reduce pressure on infrastructure around managing the flow, alleviating the need for large investments in augmentation.

LEM’s also reduce the burden on DSO’s to aggregate and manage the many small DER that are a feature of modern networks. 

Making small-scale DER easier to manage, and reducing pressure on transformers means more DER can be generated, distributed and used, thus improving decarbonisation of the network and economy. 

New opportunities for Retailers

If LEM’s are a win-win for customers and DSO’s, the last piece of the puzzle is for Retailers, and despite perceptions, LEM’s can offer wins here too.

While on the face of it LEM’s appear to reduce incentives for Retailers given they provide autonomy to customers and improved pricing structures, that would not be the case considering their reduced exposure to volatile high spot prices and lower prudentials.

However, as the adoption of LEM’s gather pace, we believe Retailers will be able to develop new commercial models that include LEM’s.

Offering a LEM option can increase a Retailer appeal, attracting larger numbers of customers motivated by the increased green energy consumption, or prosumers looking for a better return on solar generation. This vastly increases customer acquisition and retention.

Bringing LEM’s to life

Real-world LEM projects are kicking off, one of the newest in India where a distributor will soon trial the benefits of a LEM to the grid and participants. Facilitated within a grid-connected microgrid environment, using a community battery as a backup power supply, participants are a mix of commercial, industrial and residential customers. The results of this trial in India are yet to be shared.

Without a doubt, LEM’s are only one piece of the solution in creating a more renewable future. But with the multiple wins they offer to stakeholders, plus decarbonisation, they are a solution for right now. 

If you would like to know more about LEM technology, see a demo of how it works, or receive further case studies and insights, please email Powerledger at

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