Principles
The core design principles underpinning FP-AMM.
Overview
FP-AMM has been designed from first principles.
Rather than beginning with existing electricity market rules and making incremental modifications, the architecture starts by asking a more fundamental question:
How should a modern electricity market coordinate millions of distributed energy resources while remaining physically feasible, economically efficient and fair?
The answer is expressed through a set of design principles that guided every component of FP-AMM.
These principles are not independent features. They are the design objectives that underpin the market architecture described throughout this documentation.
Physics Before Economics
Electricity markets exist to coordinate a physical electricity system.
No market mechanism can create energy, network capacity or stability that does not physically exist.
Every transaction accepted by FP-AMM must therefore remain physically feasible and respect the operational limits of the electricity network.
Economics is used to coordinate engineering—not to replace it.
This principle underpins:
- Network Feasibility
- Physical State Estimation
- Holarchical Coordination
Continuous Coordination
The electricity system changes continuously.
Renewable generation fluctuates.
Demand evolves.
Network constraints appear and disappear.
Millions of devices continuously enter and leave the system.
Markets should therefore operate continuously rather than as isolated periodic auctions.
Every accepted transaction updates:
- the physical state,
- the economic state,
- future commitments,
- participant incentives.
The market therefore becomes a continuously operating cyber-physical control system.
Electricity is a Service, Not a Commodity
Consumers do not purchase electrons.
They purchase services.
Examples include:
- charging an electric vehicle before departure,
- maintaining a comfortable indoor temperature,
- producing hot water,
- operating industrial processes.
FP-AMM therefore coordinates the delivery of energy services rather than simply buying and selling instantaneous electrical power.
This allows flexibility to become an explicit contractual property rather than an implicit engineering assumption.
Reliability Should Be Explicit
Traditional electricity markets largely assume identical reliability for every unit of demand.
Modern electricity systems no longer require this assumption.
Different services possess different operational flexibility.
FP-AMM therefore treats reliability as an explicit contractual attribute through Service Levels.
Essential household consumption remains outside the market and continues to receive the level of reliability expected from today's electricity system.
Only devices possessing intrinsic flexibility voluntarily participate in Service Level scheduling.
Prices Are Control Signals
Prices are not simply financial outcomes.
They are distributed control signals.
Prices communicate:
- where energy is scarce,
- where renewable generation is abundant,
- where network congestion exists,
- where flexibility creates value.
Rather than directing individual devices explicitly, FP-AMM allows prices to coordinate behaviour throughout the electricity system.
Economic incentives therefore become aligned with engineering objectives.
Reward System Value
Not all electricity contributes equally to the operation of the system.
Electricity supplied:
- at the right location,
- at the right time,
- under the right network conditions,
creates greater value than identical energy supplied elsewhere.
Likewise, flexibility that avoids congestion or reduces scarcity provides value beyond simple energy production.
FP-AMM therefore rewards participants according to the value they create for the overall electricity system rather than solely according to the quantity of electricity they generate or consume.
Fairness by Design
Fairness is a foundational design principle of FP-AMM.
Rather than treating fairness as an ethical aspiration or a desirable side effect of market outcomes, FP-AMM defines fairness operationally and embeds it directly into the market architecture.
The thesis defines fairness through four complementary conditions that together determine how participants are rewarded, protected and charged. These fairness conditions form the foundation of the Fair Play mechanism and the wider market architecture. :contentReference[oaicite:0]{index=0}
F1 – Fair Rewards
Participants should be rewarded according to the value they create for the electricity system.
This includes behaviours such as:
- providing flexibility,
- relieving congestion,
- consuming renewable surplus,
- improving overall system efficiency.
The market should encourage behaviour that improves system outcomes rather than rewarding arbitrary market position.
F2 – Fair Reliability
Participants should receive the level of reliability they have chosen through their Service Level.
Reliability should therefore become an explicit contractual commitment rather than an implicit assumption.
Essential electricity services remain protected, while flexible devices participate voluntarily according to their selected Service Level.
F3 – Fair Access
During periods of genuine scarcity, access to limited resources should follow transparent, predictable and auditable rules.
Allocation should reflect contractual commitments, essential need and system objectives rather than simply the highest willingness to pay.
Fair Play ensures that no participant becomes permanently disadvantaged through repeated scarcity events.
F4 – Fair Cost Allocation
Participants should bear the costs that arise from the demands they place upon the electricity system.
Those whose behaviour creates congestion, scarcity or additional operating costs should contribute proportionally to those costs.
Likewise, participants whose behaviour reduces overall system costs should benefit accordingly.
This aligns prices with cost causation while creating efficient long-term investment incentives.
Together these four conditions define fairness within FP-AMM.
Every major component of the architecture contributes to one or more of these fairness conditions:
- Service Levels deliver Fair Reliability.
- Fair Play delivers Fair Access.
- Automatic Market Making rewards Fair Rewards.
- Shapley Settlement delivers Fair Cost Allocation.
Decentralise Decision Making
The electricity grid is naturally hierarchical.
Households connect to feeders.
Feeders connect to substations.
Substations connect to transmission networks.
Decision making should therefore occur as close as possible to where information exists.
Local constraints should be resolved locally.
Only information relevant to higher levels of the system should propagate through the market hierarchy.
This allows FP-AMM to scale naturally from individual devices to national electricity systems.
Simplicity Through Modularity
Complex systems should be constructed from simple components with clearly defined responsibilities.
Each major element of FP-AMM performs a distinct role:
- Automatic Market Maker forms prices.
- Holarchical Coordination distributes decision making.
- Service Levels define reliability commitments.
- Fair Play allocates scarce resources fairly.
- Shapley Settlement allocates value and costs.
Together these mechanisms form a coherent architecture while remaining understandable and independently testable.
Evidence Before Ideology
Electricity markets should be evaluated according to measurable outcomes rather than historical precedent or institutional preference.
Competing market designs should be compared using transparent objectives, including:
- affordability,
- reliability,
- fairness,
- resilience,
- sustainability,
- investment adequacy,
- renewable utilisation.
No mechanism should be retained simply because it has always existed.
Likewise, no new mechanism should be adopted without rigorous evaluation against common objectives.
Building a Market That Evolves
The electricity system will continue to change.
New technologies, business models and customer behaviours will emerge throughout the coming decades.
FP-AMM has therefore been designed as an adaptable market architecture rather than a fixed market design.
Its purpose is not simply to optimise today's electricity system, but to provide a framework capable of coordinating future electricity systems as they continue to evolve.
The remainder of this documentation describes how these principles are realised through the mechanisms that comprise FP-AMM.