A Fair, Flexible, Zero-Waste Digital Electricity Market: A First-Principles Approach Combining Automatic Market Making, Holarchic Architectures and Shapley Theory

Abstract: This thesis presents a fundamental rethink of electricity market design at the wholesale and balancing layers. Rather than treating markets as static spot clearing mechanisms, it reframes them as a continuously online, event driven dynamical control system: a two sided marketplace operating directly on grid physics. Existing energy only, capacity augmented, and zonal market designs are shown to admit no shock robust Nash equilibrium under realistic uncertainty, instead relying on price caps, uplift, and regulatory intervention to preserve solvency and security. In response, the thesis develops a holarchic Automatic Market Maker (AMM) in which prices are bounded, exogenous control signals derived from physical tightness rather than emergent equilibrium outcomes. The AMM generalises nodal and zonal pricing through nested scarcity layers, from node to cluster to zone to region to system, such that participant facing prices inherit from the tightest binding constraint. Nodal and zonal pricing therefore emerge as special cases of a unified scarcity propagation rule. Beyond pricing, the AMM functions as a scarcity aware control system and a digitally enforceable rulebook for fair access and proportional allocation under shortage. Fuel costs are recovered through pay as bid energy dispatch consistent with merit order, while non fuel operating and capital costs are allocated according to adequacy, flexibility, and locational contribution. Large scale simulations demonstrate bounded input bounded output stability, controllable procurement costs, zero structural waste, and improved distributional outcomes. The architecture is climate aligned and policy configurable, but requires a managed transition and new operational tools for system operators and market participants.