Network Feasibility
Overview
Traditional financial markets assume that any buyer can trade with any seller provided they agree on a price.
Electricity systems do not have this freedom.
Every transaction must satisfy the physical laws governing the electricity network.
The role of the Automatic Market Maker is therefore not simply to determine prices, but to determine prices subject to physical feasibility.
A transaction is only valuable if it can actually occur.
Electricity Flows According to Physics
Unlike money, electricity cannot be directed along an arbitrary route.
Once energy is injected into the network, it flows according to Kirchhoff's Laws and the electrical characteristics of the transmission and distribution system.
Market participants cannot choose the path taken by electricity.
Instead, every transaction changes the operating state of the network.
As more transactions occur, lines become more heavily loaded, voltages change and network limits are gradually approached.
The market must therefore respect these physical constraints.
The Network Has Finite Capacity
Every component of the electricity system has a finite operating limit.
Examples include:
- transmission lines,
- distribution feeders,
- transformers,
- substations,
- interconnectors.
Each asset can safely transport only a limited amount of power.
Exceeding these limits risks overheating equipment, reducing asset lifetime or causing protective systems to disconnect parts of the network.
The market must therefore ensure that accepted transactions never exceed available capacity.
Not Every Buyer Can Buy
Consider a simple network.
Wind Farm
│
│
Line (100 MW)
│
│
Town
Suppose the town currently consumes 95 MW.
Although the wind farm may have hundreds of megawatts available, only an additional 5 MW can be transported before the transmission line reaches its thermal limit.
If another consumer requests 20 MW, there are only two possibilities.
Either:
- reject the transaction,
or
- accept only the feasible portion.
The limitation is not generation.
The limitation is the network.
The Automatic Market Maker therefore cannot simply match willing buyers and sellers.
It must first determine whether the requested transaction is physically possible.
Transactions Interact
Electricity transactions are not independent.
Every accepted trade changes the state of the network.
For example,
accepting one additional charging request for an electric vehicle increases loading on nearby feeders.
That reduces the remaining capacity available for every subsequent transaction.
Similarly,
accepting local battery discharge may relieve congestion, increasing the number of future transactions that become feasible.
Each accepted transaction therefore changes the feasible operating space for every future participant.
The market state evolves continuously.
Direction Matters
Network capacity is not the only physical constraint.
The direction of power flow also matters.
Consider a residential feeder.
During the evening,
power flows from the substation towards homes.
During a sunny afternoon,
rooftop solar may reverse the direction of flow, exporting energy back towards the substation.
These two operating conditions have very different network characteristics despite involving similar power levels.
Consequently, importing and exporting electricity should not necessarily receive identical prices.
The value of a transaction depends upon whether it improves or worsens the current operating state of the network.
Congestion Creates Scarcity
Scarcity within an electricity network is often local rather than national.
There may be abundant renewable generation elsewhere in the country, yet a neighbourhood can still experience congestion because insufficient network capacity exists to transport that energy.
Conversely,
one region may have excess renewable generation that cannot be exported because transmission corridors are already full.
The scarce resource is therefore not always electricity itself.
Often the scarce resource is network capacity.
The Automatic Market Maker must recognise this distinction.
Prices should respond not only to energy scarcity but also to infrastructure scarcity.
Feasible Transactions
Every requested transaction can therefore be viewed as answering two questions.
First,
Is sufficient energy available?
Second,
Can that energy be transported through the network without violating any physical constraints?
Only transactions satisfying both conditions are feasible.
This transforms the market from a purely economic optimisation into a constrained cyber-physical optimisation problem.
Feasibility Before Pricing
Many existing electricity markets determine prices first and resolve network problems afterwards through redispatch, balancing markets or constraint payments.
FP-AMM reverses this sequence.
Network feasibility becomes an integral part of market clearing.
Instead of allowing infeasible transactions and correcting them later, the market continuously evaluates whether each proposed transaction can be accommodated within the current physical state of the network.
Only feasible transactions contribute to price formation.
This ensures that prices reflect the actual operating capability of the electricity system rather than an idealised network with unlimited capacity.
A Dynamic Feasible Region
As renewable generation changes, demand evolves and batteries charge or discharge, the feasible operating region of the electricity system changes continuously.
The role of the Automatic Market Maker is therefore to continuously estimate this feasible region and adjust prices accordingly.
Prices become a reflection of the remaining flexibility within the network.
As spare capacity decreases, prices naturally rise to discourage additional loading.
As congestion is relieved or renewable generation increases, prices fall to encourage additional consumption.
Network feasibility therefore provides the physical foundation upon which the pricing mechanism is built.
The following section explains how FP-AMM continuously estimates the state of the electricity system using both market information and physical measurements, enabling prices to adapt in real time as network conditions evolve.