Auction-Based vs Continuous Clearing in Local Flexibility Markets with Block Bids

Abstract: Flexibility markets can be introduced as a tool for the distribution system operator (DSO) to avoid high costs and public opposition against new network investments. Continuous flexibility markets have the advantage of allowing more liquidity, which can be critical in the earlier stages of such markets, and can be operated closer to real-time, thereby enabling a better use of the latest forecasts; but, by design, they also result to a lower social welfare compared to auction-based markets. This paper has two main contributions. First, it introduces a continuous local flexibility market which includes both network constraints and asymmetric block bids. Second, it proposes an algorithm that can accurately determine the upper and lower bound of the social welfare loss compared with an auction-based clearing model.