Local electricity market designs for interconnected nanogrids: Impact on rural electrification in Madagascar

Abstract

Sustainable, reliable, and affordable energy access is a major challenge in many parts of the world. The paper addresses this challenge by proposing a local electricity market (LEM) design for nanogrids deployed in Madagascar. Each nanogrid shares a solar PV and battery system, and it meets demand locally before trading surplus energy with other nanogrids on a microgrid bus, facilitated through the creation of a LEM. Two distinct market approaches are investigated and compared: central clearing and bilateral trading. Bilateral trading generates trading prices through direct interaction between consumers and producers, whereas central clearing sets a single trading price based on the cost-ordered supply curve. Our study shows that central clearing generates more consumer-friendly prices and facilitates the trading of all technically feasible energy, while bilateral trading may results in unmatched trading capacity. We find an average price for central trading of 0.49 €/kWh compared to 1.24 €/kWh with a bilateral trading mechanism. To promote the low market prices, a bottom-up retail tariff structure is proposed. The aim of this simplified tariff is to promote initial electrification by minimizing entry prices for end-users’ first electricity access to 0.89 €/kWh compared to the current average of 2.11 €/kWh. The discussed results were evaluated in consultation with the local company in Madagascar to ensure practical suitability and to achieve maximum significance.