Hybrid local energy markets in Japan: assessing the impact of regional renewable energy integration, demand flexibility, and consumer behavior

• Proposing a regional hybrid market, integration P2P and CBM energy trading. • Employing decentralized optimization ensures computational efficiency and feasibility. • Comparing Japan’s regions on self-sufficiency, local generation, fairness, and prices. • Enhancing equity among participants by employing local generation in hybrid trading. • Analyzing the impact of local generation on LEM pricing and demand behavior. The increasing penetration of distributed energy resources is transforming conventional power systems, necessitating innovative market structures to enhance energy efficiency, reduce grid dependency, and improve economic sustainability. This study proposes a decentralized hybrid local energy market (HLEM) that integrates peer-to-peer trading and community-based market mechanisms to facilitate both intra- and inter-community energy exchanges across different regions in Japan. The model incorporates market participants’ risk attributes, shaped by demand elasticity, into the decision-making process to evaluate market participation and trading behavior. A decentralized optimization framework is used in the model, utilizing the Alternating Direction Method of Multipliers, which guarantees both computational efficiency and feasibility. Furthermore, Jain’s Fairness Index serves to assess fairness and the level of participant engagement within the market. The framework is validated, using real-time data collected from the Japan Electric Power Exchange market, taking into account regional differences in demand trends, price responsiveness, and the availability of renewable energy. The results indicate that local generation has a considerable effect on market pricing systems, influencing demand patterns. Tokyo and Chubu achieve grid independence six and five times, with average price reductions of 21 percent and 14 percent, respectively. In contrast, Tohoku achieves grid independence for the one-time slot, while Kyushu remains entirely dependent on external resources, resulting in the lowest price reductions. Additionally, equity among participants is enhanced with the availability of local generation via HLEM, particularly in areas where demand flexibility is greater. The findings emphasize the capability of hybrid market frameworks to improve energy adaptability, lessen dependence on the upstream grid, and foster fair energy distribution.