Retail Market
Retail subscriptions, service levels and device coordination.
Overview
The Retail Market defines the relationship between electricity suppliers and consumers.
Within conventional electricity markets, retail contracts are typically based on a small number of tariff components, such as a standing charge and a price per kilowatt-hour consumed.
While simple to understand, this approach assumes that all electricity consumption imposes broadly similar costs on the electricity system.
In reality, this is rarely the case.
Different consumers require different levels of network capacity, contribute differently to peak demand, exhibit varying levels of flexibility and expect different levels of reliability.
FP-AMM therefore treats retail electricity not simply as the purchase of energy, but as the purchase of an electricity service.
Purpose
The Retail Market performs four fundamental functions.
- Defines the service purchased by consumers.
- Communicates system conditions through economic signals.
- Recovers the costs imposed by individual consumers.
- Provides incentives for efficient participation in the electricity system.
Rather than acting solely as a billing mechanism, the Retail Market becomes the primary interface between consumers and the wider electricity system.
Electricity as a Service
Consumers do not simply purchase units of energy.
Instead, they purchase access to an electricity service comprising multiple dimensions.
Within FP-AMM, these dimensions are treated separately because they impose different costs on the electricity system.
The Retail Market therefore separates three distinct products:
- Energy
- Power
- Reliability
Each represents a different aspect of electricity supply and each is procured through a different economic mechanism.
Three-Axis Procurement
FP-AMM separates retail procurement into three independent dimensions.
Energy
Energy represents the electrical work consumed over time.
The Wholesale Market continuously procures energy from generators and other energy resources, recovering the variable cost of producing electricity.
Consumers therefore pay for the energy they actually consume.
Power
Power represents the instantaneous rate at which electricity is transferred.
High peak demand requires larger generators, transformers, substations, cables and other network infrastructure, even if total annual energy consumption remains relatively low.
Consumers therefore procure a level of network capacity appropriate to their expected demand.
This creates a direct relationship between peak demand and the infrastructure required to support it.
Reliability
Reliability represents the probability that electricity will remain available during periods of scarcity.
Consumers may choose different contractual Service Levels depending upon the criticality of their electricity consumption.
Higher Service Levels receive greater protection during periods of scarcity, while more flexible consumers may choose lower-cost service arrangements.
Reliability therefore becomes an explicit product rather than an implicit assumption.
Cost Causation
One of the guiding principles of FP-AMM is that participants should, as far as reasonably practical, bear the costs they impose on the electricity system.
Rather than assuming every consumer contributes equally to system costs, the Retail Market recognises that different consumption patterns require different levels of infrastructure, operational flexibility and reserve capacity.
Recovering costs according to cost causation improves transparency while providing stronger incentives for efficient behaviour.
Consumer Categories
Consumers place different demands upon the electricity system.
For example:
- some consume relatively little energy with modest peak demand,
- others consume large quantities of energy but have limited flexibility,
- some possess electric vehicles, batteries or heat pumps capable of shifting demand,
- others require consistently high power throughout the day.
FP-AMM therefore groups consumers according to the characteristics that determine the costs they impose upon the wider system.
One example classification is:
- P1 – Low power, low flexible demand
- P2 – High power, low flexible demand
- P3 – Low power, high flexible demand
- P4 – High power, high flexible demand
These categories are not intended to reward or penalise particular technologies.
Instead, they provide a structured way of recognising that different patterns of electricity consumption create different requirements for generation, network capacity and system operation.
Cost Recovery
Different categories of system cost are recovered through different components of the Retail Market.
For example:
- variable energy costs are recovered through wholesale energy prices,
- power-related costs are recovered through capacity procurement,
- reliability costs are recovered through Service Levels,
- shared infrastructure costs are recovered through the Network Economics framework.
Separating these cost streams improves transparency while avoiding the need for a single energy price to recover fundamentally different categories of expenditure.
Consumer Flexibility
Consumers increasingly possess resources capable of responding to changing system conditions.
Examples include:
- electric vehicles,
- battery storage,
- heat pumps,
- smart appliances,
- industrial demand response.
Within FP-AMM, these resources participate voluntarily through the Automatic Market Maker.
Rather than centrally scheduling individual devices, retail prices communicate current system conditions.
Consumers and their automation systems remain free to decide how and when flexibility is provided.
This preserves consumer autonomy while allowing flexibility to emerge naturally through economic incentives.
Essential and Flexible Demand
Not all electricity consumption should participate equally in market-based coordination.
Essential demand, such as lighting, refrigeration or medical equipment, should continue to receive the highest level of protection.
Flexible demand, by contrast, may voluntarily respond to changing prices or participate in Fair Play during periods of scarcity.
Separating essential and flexible consumption ensures that economic optimisation never compromises basic consumer welfare.
Relationship to Other Market Layers
The Retail Market connects consumers to the wider FP-AMM architecture.
It receives energy prices from the Wholesale Market.
It purchases reliability through Service Levels.
It interacts with Fair Play during periods of scarcity.
It contributes towards network infrastructure through the Network Economics framework.
Together, these mechanisms provide consumers with a transparent electricity service while ensuring that costs are recovered according to the demands placed upon the wider electricity system.
Summary
Within FP-AMM, the Retail Market is no longer simply a billing mechanism.
It defines the electricity service purchased by consumers, separating energy, power and reliability into distinct economic products while recovering costs according to the demands individual consumers place upon the electricity system.
By recognising cost causation, supporting voluntary flexibility and allowing consumers to choose different levels of service, the Retail Market provides a transparent framework that aligns consumer incentives with the efficient operation of a modern electricity system.