Coordination Architecture, Participation Conditions, and Long-Term Feasibility in Local Flexibility Markets - A Qualitative Case Study of Effekthandel Väst

Abstract

Local Flexibility Markets (LFM) have emerged as a promising market-based solution to address grid constraints and support the transition toward a more decentralized and electrified energy system. Nevertheless, despite their technical potential, the participation of industrial and commercial actors remains limited and uneven. A substantial body of research has been dedicated to engineering and economic perspectives, while largely overlooking the organizational and coordination challenges that influence the practical feasibility of these markets in the future. This study investigates how the coordination architecture influences the functioning, participation, and long-term feasibility of LFMs. Adopting a qualitative research design, the study is based on an embedded single-case analysis of Effekthandel Väst in the Gothenburg region, Sweden. Empirical data was collected through semi-structured interviews with stakeholders in the LFM ecosystem, including Distribution System Operators (DSOs), Flexibility Service Providers (FSPs), aggregators, platform operators, and regulatory experts. Enriched by the incorporation of supplementary empirical material, including reports and industry insights, in addition to a comprehensive literature review. The findings reveal that LFM feasibility is determined by how effective coordination challenges are absorbed by market structures and intermediaries, and less by individual participation incentives. Evidence from the battery paradox, CapEx bias, key-person dependency, and the intermediary role of Max Usage illustrates how participation depends on the capacity of market arrangements to absorb and coordinate complexity across organizational and institutional layers. The study makes four theoretical contributions. It substantiates coordination architecture as an analytical framework for LFM feasibility. Demonstrates that the productive and destabilizing features of polycentric governance are inseparable in fragmented utility landscapes. Identifies participation accessibility as a distinct fourth market design dimension alongside price, product, and timeframe. Lastly, specifies the systemic layers where participation failures originate. Ultimately, this study implies that scaling LFMs beyond early-adopter contexts is fundamentally a governance challenge requiring institutional and regulatory reform rather than isolated market design adjustments.