Distribution-Level Local Imbalance Market for Multi-Timescale Settlement and Network-Constrained Balancing

Existing local energy markets (LEMs) and local flexibility markets (LFMs) in distribution systems are primarily designed to facilitate energy trading and alleviate congestion. However, they lack explicit mechanisms for modeling nodal power deviations, pricing marginal imbalance costs, and allocating fast frequency response. This paper proposes a local imbalance market (LIM) that introduces a node-level imbalance formulation and distribution locational imbalance prices (DLIPs), internalizing network constraints and the balancing costs induced by power imbalances. The LIM incorporates a multi-timescale clearing structure where the distribution system operator (DSO) computes minute-level balancing decisions and DLIPs. A frequency response sensitivity matrix (FRSM) allocates second-scale fast-response costs to the nodes that caused the deviations. A native ADMM-based LIM clearing algorithm is designed to achieve scalable, privacy-preserving coordination among prosumers, aggregators, and the DSO without revealing private information. The second-scale allocation algorithm ensures cost causality and budget consistency through real-time measurement and expost reconciliation. Case studies on three modified distribution networks demonstrate that the proposed LIM enhances balancing efficiency, preserves participant privacy, and achieves accurate cost attribution under renewable uncertainty. The LIM provides a practical and economically consistent pathway for integrating renewable-rich resources into distribution-level market operations.