A Simple Method for Distributed Locational Marginal Pricing @blockspace.nz
TL;DR:
The real scarcity at the edge isn't energy. It's capacity headroom.
dKWh - delivery kilowatt hour - is the unit of deliverable access, and a P2P FTR-like market lets us price and trade it, aligning DERs, loads, and infrastructure with true grid conditions.
This digital market is a new way to think about the grid, and it's a new way to think about the value of distributed energy resources (DERs).
dKWh: Pricing Grid Access Risk
The Problem
Every day, distributed energy resources —solar panels, batteries, EV chargers— face delivery risk: the uncertainty that you'll have reliable access to the grid when you need it most.
This isn't just about outages. As grid capacity tightens from seasonal peaks, new connections, and misallocated upgrades, three critical risks emerge:
Performance degradation — Your ability to export solar or charge your EV gets curtailed without warning
Unpredictable cost shifts — Grid upgrade costs and demand charges get redistributed in ways you can't hedge against
Vanishing headroom — Local capacity disappears as neighbors connect more DERs, with no compensation for your lost access
You can't control tariffs. You can't predict how others invest behind the meter. So how do you measure and manage your exposure to delivery risk?
The Solution
dKWh — the delivery kilowatt-hour — is a new tradeable unit that lets you price and hedge grid access risk.
Unlike energy markets that only trade power itself, dKWh creates a market for grid capacity. It reflects actual locational headroom, not just usage patterns. It gives DER owners a way to price their presence on a shared, limited network.
Why This Matters
Today's energy markets price DERs at locational marginal price (LMP) or zero, treating grid access as free and unlimited. But the grid edge isn't invisible—it's constrained.
Until we create markets that price delivery capacity separately from energy, DER value will stay artificially capped, and delivery risk will keep growing as an unmanaged, uncompensated burden on distributed energy investments.
dKWh makes the grid edge visible by putting a price on what matters most: reliable access to the network itself.
Bilateral DTR using dKWh
A Bilateral Delivery Transaction Right (DTR) is a peer-to-peer contract that lets participants trade dKWh units to secure and trade access across the distribution grid — based on directional power flow and local headroom availability.
Each party stakes dKWh to a delivery path (e.g. N2 → N5, Peak hours). If power flows as agreed, one side earns the payout, and the other's stake is burned. It's trustless, real-time, and entirely outside the legacy tariff system.
Distribution grids are getting congested and unpredictable — especially with rooftop solar, batteries, and EVs. Today, there's no way to hedge your access risk, price local headroom, or monetize grid flexibility.
The Bilateral DTR using dKWh:
Creates a market for delivery risk, not just energy
Lets DERs hedge curtailment and congestion before it happens
Rewards users who free up or accurately forecast grid capacity
Enables price discovery at the grid edge — without needing tariff reform
Why it's beneficial:
It's congestion insurance, peer-to-peer and programmable — for the distribution grid.
Fully decentralized — no ISO or retailer needed
Real-time price signals based on actual flow & congestion
Verifiable & auditable using power telemetry or smart meters
Highly composable — works alongside existing energy markets
Market-driven — lets DERs, batteries, and loads create their own hedges
A Bilateral DTR is a peer-to-peer contract that lets multiple parties balance the value of delivery access across the distribution grid — without needing a central market operator or ISO.
You pick a source node, sink node, time window, and price. Both sides commit dKWh units. If power flows as agreed, the winner earns a payout, and the losing side's stake is burned.
It's like a congestion hedge or delivery swap — but at the distribution level, and fully decentralized. No tariffs changed. No infrastructure needed. Just smart contracts and verifiable power flows.
dKWh is the unit of deliverable access.
Bilateral DTRs are how we trade it.
The dKWh Solution
The Delivery Kilowatt Hour is a simple, practical method to approximate DLMP using measurable, publishable signals from the distribution network.
This isn't perfect precision but it's a very useful approximation. And it might be all we need to enable DERs, aggregators, and flexible loads to finally respond to the true conditions of the grid.
What is DLMP?
Distributed Locational Marginal Pricing has long been considered the holy grail of price signals for distributed and embedded energy resources.
It promises to reflect real-time, locational value of energy, capacity, and constraints at the edge of the grid - something traditional flat tariffs and time-of-use rates cannot do.
By pricing electricity differently at each point on the network based on local supply, demand, and grid congestion, DLMP gives both consumers and generators the incentive to use or produce power when and where it's most valuable.
Why Now?
dKWh offers a simple, measurable approach that works with existing infrastructure and data.
DLMP has remained largely theoretical for 50 years - too complex, too opaque, and too dependent on data utilities often don't have.
There needs to be a method to differentiate energy to dispatch DERs based on an extrinsic value — we need a market to price their presence on a shared, limited network.
dKWh is a simple, practical method to approximate DLMP using measurable, publishable signals from the distribution network.
Key Problems at the Grid Edge
1. No Property Rights to Deliver or Consume
Participants at the grid edge have no guaranteed or tradable rights to inject or withdraw power. Capacity "value" is governed by utility discretion, not market logic. Without rights, there is nothing to price or hedge.
2. No Definition of Available Capacity
In the distribution network, especially at the low-voltage level, there is no clear or consistent definition of "available capacity." Most distribution grids are built as radial feeders, without real-time observability or full SCADA coverage.
3. No Congestion Pricing or Location Signals
There are no financial consequences for using constrained nodes or exporting into overloaded transformers. Distribution pricing is disconnected from real-time system marginal costs.
4. Energy Has No Real Marginal Value
At the edge, energy is often over-supplied and under-demanded (e.g., solar noon). DERs paid flat rates are incentivized to export even when their energy has zero or negative system value.
5. DERs Have No Extrinsic Value
If they can't commit, can't be dispatched, and aren't visible to the system operator, that makes their energy output non-firm. They operate passively, don't warranty delivery, and have no performance obligations.
6. Externalities Go Unpriced
Voltage rise, backflow, transformer stress can all be caused by DERs, all absorbed by the shared network. No feedback. No cost allocation. No accountability.
7. Tariffs Are Averaged, Not Reflective
With energy abundance behind the meter, flat volumetric tariffs ignore timing, location, and impact. Efficient users subsidize inefficient ones. DERs are paid regardless of whether they relieve or worsen network conditions.
Bottom Line - Borderless Dynamic Pricing
The grid edge operates in a vacuum, disconnected from real-time system conditions, cost drivers, and price signals. We've built markets for wholesale energy, but left the distribution system to be a burden on utilities regulated to avoid markets, relying on administrative rules and blind convenience.
It's time to fix that; not by perfecting complexity, but by creating a simple, transparent, and actionable pricing layer that reflects deliverability, not just energy.
Learn More
Ready to dive deeper into the dKWh methodology and its implications for the future of distributed energy markets?