Scarcity Allocation
Overview
Scarcity occurs when the electricity system cannot simultaneously satisfy every requested service while remaining physically feasible.
This may arise because:
- available generation is insufficient,
- network capacity has been exhausted,
- voltage or thermal limits have been reached,
- reserve margins must be maintained, or
- multiple participants require access to the same constrained resource.
Under these conditions, the market can no longer satisfy every request.
A decision must therefore be made about how the available resource should be allocated.
Scarcity Allocation is the component of Fair Play responsible for making these decisions.
Scarcity is a Physical Constraint
Scarcity is never created by the market itself.
It is a consequence of the underlying physical electricity system.
The Automatic Market Maker continuously adjusts prices to encourage participants to change their behaviour before scarcity occurs. In many situations, these price signals are sufficient to balance supply and demand or relieve local network congestion.
Only when the market reaches the physical limits of the system does Scarcity Allocation become active.
This distinction is important.
Scarcity Allocation is not an alternative to market pricing—it is the mechanism used when pricing alone can no longer resolve the imbalance.
Respecting Service Levels
Not every request has the same reliability requirement.
Before any allocation decisions are made, requests are grouped according to their contractual Service Level.
For example:
- Essential services remain protected.
- Premium services receive higher contractual priority.
- Flexible services provide the majority of system flexibility.
Scarcity Allocation always respects these contractual commitments.
Fairness is therefore applied within Service Levels rather than replacing them.
Participants who have contracted for higher reliability continue to receive the level of service they have purchased, while flexibility is primarily drawn from requests that have voluntarily offered it.
Selecting Between Equivalent Requests
Even after Service Levels have been considered, multiple feasible allocation decisions often remain.
For example:
- several electric vehicles may all be able to defer charging,
- multiple batteries may provide equivalent flexibility,
- several heat pumps may be equally suitable for temporary interruption.
From an engineering perspective, each of these requests may be interchangeable.
Choosing one participant repeatedly, however, would create persistent unfairness over time.
Scarcity Allocation therefore introduces a fairness layer that determines how equivalent requests should be selected.
Fairness Over Time
Fairness is not evaluated within a single market interval.
Instead, FP-AMM considers the cumulative experience of each participant across repeated scarcity events.
Participants that have historically contributed more flexibility, or have previously experienced greater service reductions, gradually receive higher priority during future allocation decisions.
Conversely, participants that have consistently received favourable outcomes become slightly more likely to contribute during subsequent scarcity events.
This creates a self-correcting process that distributes the burden of scarcity across many market interactions rather than concentrating it on the same participants.
Probabilistic Allocation
Rather than maintaining a fixed deterministic queue, Scarcity Allocation uses probabilistic selection.
Eligible requests remain candidates for allocation, but the probability of being selected depends upon:
- contractual Service Level,
- accumulated fairness history,
- current physical feasibility.
This approach provides several advantages.
It prevents permanent queue positions.
It avoids deterministic patterns that can be exploited.
It continuously corrects historical imbalance.
It remains robust as participants enter and leave the market.
Over time, the market naturally converges towards equitable outcomes while still respecting contractual priorities.
Preserving Economic Efficiency
Fairness never replaces economic optimisation.
The Automatic Market Maker first determines the economically efficient operating point subject to all physical constraints.
Only after this process has identified the feasible set of candidate allocations does Scarcity Allocation determine how any remaining shortage should be distributed.
Fair Play therefore acts as a fairness-preserving tie-breaker rather than a replacement for least-cost operation.
This separation ensures that the market remains both economically efficient and socially fair.
Example
Consider a neighbourhood where ten electric vehicles are scheduled to charge overnight.
An unexpected reduction in available renewable generation means that only seven vehicles can be charged immediately without exceeding local network limits.
The Automatic Market Maker identifies that three charging sessions must be deferred.
Service Levels are then considered.
Any vehicles requiring immediate charging under higher reliability contracts retain priority.
Among the remaining flexible requests, Scarcity Allocation considers each participant's fairness history and probabilistically selects those whose charging will be deferred.
During future scarcity events, participants who previously experienced deferral become less likely to be selected again, allowing the burden of flexibility to be shared across the community over time.
Relationship to Fair Curtailment
Scarcity Allocation governs situations where demand exceeds the available resource.
The opposite situation can also occur.
Periods of high renewable generation may produce more electricity than the network can safely transport or consume.
In these cases, Fair Curtailment applies the same fairness principles to determine how generation reductions should be shared across producers.
Together, Scarcity Allocation and Fair Curtailment provide a unified framework for managing both shortages and surpluses within the electricity system.
Next
The next section describes Fair Curtailment, which applies the same fairness principles when surplus generation exceeds the ability of the electricity system to absorb or export it.