Designing local flexibility markets: A toolbox for policymakers and market operators

The share of decentralised, volatile renewable energy sources in electricity consumption is rising in Europe. By providing a platform for trading flexibility, local flexibility markets (LFMs) assist in matching fluctuating electricity supply and demand locally, thereby, mitigating the need for costly conventional congestion management. While the design of LFMs must account for local regulatory, geographical, economic, and technological specifics - directly resulting in an increasing number of different LFM designs - a certain degree of standardisation is essential to maximise efficiency and scalability. To consolidate all relevant design choices for LFMs into one comprehensive and practical framework that (1) enables the step-by-step description and comparison of different LFMs and (2) highlights potential design choices in a toolbox for policymakers and market operators to guide the discussion on new LFM designs tailored to specific use cases, we develop an integrated taxonomy of LFMs, following a multivocal approach by incorporating knowledge from a structured literature review on LFMs, grey literature on research projects and implemented real-world LFMs, as well as semi-structured expert interviews. Subsequently, we use our taxonomy to describe an existing real-world LFM and to guide the discussion of design options for a new LFM for low-carbon congestion management. • Addressing the growing importance of local flexibility markets (LFMs). • Development of a taxonomy for LFMs to describe, compare, and guide design choices. • Enabling diverse stakeholders to engage in interdisciplinary discussions on LFM design. • Application of our taxonomy to describe a real-world LFM. • Providing a structured, three-step approach to use our taxonomy for LFM design.