Source - Palm et al LFM Drivers and Barriers (2023)

Full title: Drivers and barriers to participation in Sweden’s local flexibility markets for electricity Authors: Jenny Palm, Anna-Riikka Kojonsaari, Isak Öhrlund, Nina Fowler, Cajsa Bartusch Institutions: IIIEE, Lund University; Uppsala University (Department of Civil and Industrial Engineering) Published in: Utilities Policy, 82, Article 101580 (2023) DOI: 10.1016/j.jup.2023.101580 License: CC BY File: Raw/PDF extractions/Palm et al 2023_LFM/Palm et al 2023_LFM.md

Research question and contribution

What are the drivers of and barriers to participating as a flexibility service provider in Sweden’s local flexibility markets? The study fills a gap in earlier LFM research, which had focused heavily on market design and the aggregator role — largely ignoring the perspective of resource owners.

Both enrolled FSPs (flexibility service providers) and PFSPs (potential FSPs who declined) are included, giving both the supplier-side success story and the drop-out story.

Method

• 25 in-depth interviews with 30 informants from 25 organizations
• Conducted in late 2020 with organizations that had been invited to participate in CoordiNet Uppland and CoordiNet Skåne for the 2020/21 winter season
• 12 enrolled FSPs (officially participating); 13 PFSPs (invited but declined at interview time)
• Organizations covered: industry, energy storage, building owners, aggregators, heat producers, renewable power producers, transportation
• Notable: ~15 further PFSPs declined even to be interviewed, citing lack of knowledge — the information barrier prevented research participation
• Framework: sociotechnical systems approach — barriers and drivers are embedded in organizational, regulatory, technical, and cultural contexts, not purely economic

Empirical context — CoordiNet Uppland and Skåne

The two markets:

• CoordiNet Uppland (Vattenfall Eldistribution) — primary bottleneck was TSO subscription denied since 2016; DSO used market-based flexibility to stay under subscription limit. One aggregator was active in supporting FSP participation.
• CoordiNet Skåne (E.ON Energidistribution) — subscription constrained partly by 600 MW locked for Baltic Cable export; TSO temporary subscriptions available at ~244 SEK/MWh created a competing option, limiting DSO market willingness to pay.

Both are CoordiNet Swedish demonstration areas. Interviews were conducted after one market season (V2020/21 was the second demonstration winter). Interviewees reflect the startup learning curve of early LFM participation.

Key finding: monetary incentives less important than expected

Financial incentives were not the primary driver. Most FSPs did not join for money — activation volumes were too infrequent and prices too low to justify purely economic participation. The potential to earn future revenue mattered more than current payoff. Most informants acknowledged the business case was unproven but joined anyway.

This contradicts the standard economic rationality assumption in market design: early LFM participation is largely driven by non-monetary values.

Drivers (Table 1)

Champion concept: The single most-mentioned driver. Organizational participation depended on an individual inside the organization with personal interest, curiosity, and an internal mandate. Without the champion, the organization would not have engaged. This driver was not covered in prior LFM research and was only identified because it emerged spontaneously in interviews — interviewers added a specific question about it mid-study.

Barriers (Table 2)

Most important barriers in detail

Information barrier: The biggest barrier for PFSPs. Not merely “lack of information” but the difficulty of understanding and then explaining the market concept internally to get organizational support. Cross-administrative coordination in large organizations (e.g., municipalities) was particularly hard. Multiple PFSPs said they couldn’t easily explain to colleagues what they were doing — which blocked budget and mandate approval.

LFM design barriers (primarily FSPs):

• Baseline estimation — FSPs did not know what consumption they would have had without activation; the calculation felt arbitrary. One quote: “You could say that you had intended to consume something, but it may be untrue what you come up with.” One story circulated of a sports arena that turned on all its lighting to establish a high baseline and then earned money on the resulting (falsified) reduction — this damaged trust in the baseline mechanism.
• Day-ahead bidding — D-1 gate closure means real-time information gathered between bidding and activation cannot be used. One FSP: “You lose all information that is added between the day before and the control occasion.”
• Short contracts — FSPs stated they could not invest in enabling technology if contracts ran season-by-season. “If you have short contracts, it will never be possible to make any investments.”
• Pricing difficulty — FSPs were required to price their own flexibility; this was not easy. One: “I have no idea what price to set on flexibility. It can differ several hundred percent when we internally have discussed reasonable prices.”

TSO/LFM revenue competition — multiple FSPs and PFSPs noted that balancing market (TSO) revenue was approximately 5× higher than the CoordiNet Skåne local market. This creates a rational diversion of capacity away from local markets toward national markets — directly relevant to sthlmflex’s later closure dynamics and the two-equilibrium problem documented in the CoordiNet final report.

Regulation barriers — organizations that owned backup generators or reserve capacity faced licensing complications: participating in the LFM could mean reclassifying as a power plant. One example: data centres with diesel tanks face environmental licensing barriers to selling backup diesel capacity as electricity flexibility.

Key conclusions and policy implications

1. Simplify participation — the market must be accessible without deep technical expertise; PFSPs need clear information about what they have and what they need to do
2. Develop automation — manual bidding and activation is universally identified as unworkable for long-term participation; without automation, only large actors with dedicated staff can participate
3. Support aggregator development — aggregators are critical enablers; FSPs who had an aggregator partner would not have participated without one; the aggregator should be supported to pool, bid, automate, and communicate
4. Address non-monetary drivers — policy should communicate social/environmental contributions, not just revenue potential; sustainability framing and public relations value are real drivers
5. Flexibility audit services — many PFSPs perceived themselves as lacking flexibility when they may simply lack knowledge; structured audits could convert PFSPs into FSPs
6. Include FSPs and PFSPs in market design — PFSPs wanted to contribute to innovation; not including them in design processes wastes their insight

Relationship to existing wiki content