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Peer-to-Peer Trading in Electricity Networks: An Overview
Wayes Tushar, Tapan K. Saha, Chau Yuen, David Smith, H. Vincent Poor
TL;DR
P2P energy trading faces trust, coordination, and physical-network constraints as decentralized prosumers transact electricity. This paper reviews the field, classifies studies across virtual and physical layers, and identifies recurring technical approaches. It concludes that substantial further work is needed before integrating P2P trading into current energy systems.
Problem
P2P trading must coordinate decentralized prosumer decisions and transactions without compromising electricity-network security, reliability, voltage limits, or network losses.
Method
The paper provides a systematic review, classifies research by virtual- and physical-layer challenges, and identifies core technical approaches used in P2P trading.
Results
The review synthesizes existing P2P energy-trading research, its layer-specific challenges, and the technical approaches applied to address them.
Takeaways & Limitations
The review offers foundational guidance for understanding P2P trading and selecting research directions for specific network layers.
Takeaways & Limitations
Large-scale P2P trading still requires realistic power-system simulations to examine power losses and computational complexity.
Abstract
from arXiv · showhide
Peer-to-peer trading is a next-generation energy management technique that economically benefits proactive consumers (prosumers) transacting their energy as goods and services. At the same time, peer-to-peer energy trading is also expected to help the grid by reducing peak demand, lowering reserve requirements, and curtailing network loss. However, large-scale deployment of peer-to-peer trading in electricity networks poses a number of challenges in modeling transactions in both the virtual and physical layers of the network. As such, this article provides a comprehensive review of the state-of-the-art in research on peer-to-peer energy trading techniques. By doing so, we provide an overview of the key features of peer-to-peer trading and its benefits of relevance to the grid and prosumers. Then, we systematically classify the existing research in terms of the challenges that the studies address in the virtual and the physical layers. We then further identify and discuss those technical approaches that have been extensively used to address the challenges in peer-to-peer transactions. Finally, the paper is concluded with potential future research directions.
I. INTRODUCTION
P2P energy trading is presented as a next-generation approach that gives prosumers greater market participation while creating potential grid benefits. This review organizes the field’s challenges and technical approaches across virtual and physical network layers.
- Motivation: P2P trading lets prosumers sell excess energy or reduce demand through Negawatts while setting transaction terms with limited central control.The approach is expected to increase prosumer gains compared with conventional feed-in-tariff participation.
- Challenges: P2P networks must reconcile decentralized, trustless decision-making with conflicting prosumer interests and hard electricity-network constraints.These constraints include maintaining voltage limits, network security, and acceptable network losses.
- Contributions: The review provides background on P2P networks and markets, classifies research by virtual- and physical-layer challenges, and identifies core technical approaches.It also discusses potential research directions extending current practice.
- Review scope: The paper targets readers with little prior knowledge by covering P2P definitions, network elements, layers, market structures, challenges, and solution approaches.Its organization is intended to help readers select research directions within a specific network layer.
- Positioning: Existing reviews cover projects, market frameworks, and blockchain applications, whereas this paper emphasizes accessible foundations and trading approaches for layer-specific challenges.The paper also describes itself as useful for experienced researchers revising their understanding.
II. P2P TRADING: OVERVIEW OF NETWORK ELEMENTS
A P2P energy network separates market coordination from electricity delivery through virtual and physical layers. Its operation depends on decentralized participation, secure information exchange, market matching, and network-aware restrictions.
- Network architecture: A P2P network allows participants to share resources directly without intermediary entities, while peers can be added or removed without losing network service.This defines the distributed-network basis of P2P systems.
- Virtual layer: The virtual layer secures participant access, information exchange, order creation, market matching, and financial settlement.It provides the platform for deciding energy-trading parameters before physical delivery.
- Physical layer: The physical layer transfers electricity from sellers to buyers after virtual-layer financial settlements, using a traditional grid or an additional microgrid.Payment does not itself warrant physical delivery; it indicates the buyer’s instruction to process renewable-energy injection.
- Information system: A secured information system must connect participants, integrate them into a market platform, provide equal access, monitor operations, and restrict unsafe decisions.Examples include blockchain-based smart contracts, consortium blockchain, and Elecbay.
- Market operation: Market operation matches sell and buy orders in near-real-time granularity while using generation-dependent allocation thresholds and defined payment rules.The information system supports market allocation, payment rules, and bidding formats.
3) Pricing mechanism:
P2P trading uses pricing, metering, communication, and grid configurations to coordinate supply and demand. These mechanisms must support both prosumer bidding and reliable network operation.
- Pricing mechanism: Pricing mechanisms balance energy supply and demand, with network energy surplus lowering prices and scarcity raising them.They differ from traditional electricity markets, where surcharges and taxes form a significant portion of prices.
- Energy management: A prosumer’s energy management system uses transactive-meter data to build generation and consumption profiles and choose bidding strategies.The EMS participates in trading on behalf of the prosumer.
- Grid settings: Grid-connected systems define main-grid connection points to evaluate energy and cost savings, whereas islanded microgrids require sufficient generation capacity.The two settings impose different operational requirements on P2P trading.
- Metering: Transactive meters determine participation using demand, generation, market conditions, and network conditions, and communicate with other prosumers.Each prosumer is expected to have both a transactive meter and a traditional energy meter.
- Communication: P2P trading communication supports prosumer discovery and information exchange through structured, unstructured, or hybrid architectures.Architecture choices must address latency, throughput, reliability, and security requirements for distributed-energy-resource integration.
1) Market participants:
P2P electricity markets require enough participants, including prosumers able to produce energy, and their design depends on the traded energy form and purpose. The literature distinguishes fully decentralized, community-based, and composite markets, including arrangements that coordinate regulated and deregulated trading.
- Market participants: P2P energy trading requires sufficient participants and producers, while its purpose and traded energy form shape pricing and market-mechanism design.
- Market structures: Three market structures are identified: fully decentralized, community-based, and composite markets.
- Fully decentralized markets: Fully decentralized markets let prosumers negotiate trading parameters directly through bilateral contracts without centralized supervision.
- Community-based markets: Community-based markets serve microgrids or neighboring prosumers who trade through a community manager and may act collaboratively or competitively.
- Composite markets: Composite markets combine individual prosumer interactions with community management and can coordinate regulated and deregulated markets through grid price signals.
IV. P2P TRADING: OVERVIEW OF EXISTING CHALLENGES
Existing P2P trading research addresses virtual-layer objectives including cost reduction, supply-demand balancing, prosumer participation, pricing, and transaction security. These mechanisms support local energy exchange while pursuing prosumer and grid objectives.
- P2P trading aims to reduce energy costs, increase renewable-energy use, and improve prosumer social engagement, subject to network reliability constraints.
- Reducing cost of energy: Virtual-layer studies enable prosumers with surplus energy to sell to deficient prosumers, with batteries improving cost savings across multiple market settings.
- Balancing supply and demand: Blockchain platforms track transactions and local supply-demand conditions, while residual imbalances can be met by the grid, community storage, or diesel generation.
- Participation and pricing: Prosumer-centric mechanisms are studied to incentivize active participation, while innovative pricing schemes support financial transactions among buyers and sellers.
- Table I summarizes study categories addressing objectives in the virtual and physical layers.
5) Identifying uncertainty and asynchronicity:
P2P trading must address interaction complexity and secure virtual-layer transactions before agreed energy can move through the physical network. Physical-layer studies focus on voltage and capacity violations, network losses, and system strength.
- Virtual-layer challenges: Large-scale P2P participation creates computation and communication challenges when interaction and negotiation mechanisms are designed for robust operation.
- Virtual-layer challenges: Secure platforms are needed for financial transactions, buy and sell orders, and price information to support prosumer participation.
- Physical-layer challenges: Virtual-layer decisions establish trading parameters, but the agreed energy is transferred through the physical layer afterward.
- Physical-layer challenges: Physical-layer research studies voltage and capacity violations, increased network power loss, and loss of system strength.
- Voltage and capacity constraints: Residential prosumer participation can cause overvoltage and reverse power flow in low-voltage distribution systems.
- Network losses: P2P power exchange can increase node voltages and overload capacity while producing additional energy losses and costs.
1) Violation of voltage & capacity constraints:
Physical-layer P2P trading must account for network losses and declining system strength as renewable penetration grows. The reviewed technical approaches include game theory, auction theory, constrained optimization, and blockchain.
- Violation of voltage & capacity constraints: Energy classes can represent electricity as a heterogeneous product and coordinate P2P trading to minimize network-loss costs.
- System strength: Retiring synchronous generators as renewable penetration increases makes maintaining system strength and inertia in renewable-dominated networks more difficult.
- System strength: Studies investigate renewable-energy impacts on system strength, including inverter-storage coordination for voltage regulation and site-dependent short-circuit ratios.
- Designing P2P trading schemes that address virtual- and physical-layer challenges simultaneously remains difficult.
- Four main technical approaches are identified: game theory, auction theory, constrained optimization, and blockchain.
- Game theory: Game theory models strategic decisions among players, including non-cooperative and cooperative interactions.
- Game theory: Stackelberg games assign at least one leader and responsive followers, with equilibrium requiring no unilateral incentive to deviate.
- Game theory: Coalitional games study joint action, coalition stability, revenue distribution, changing coalition structures, or communication connectivity.
2) Game theory for P2P trading in the virtual layer:
Game theory is widely used in the virtual layer to pursue objectives such as reducing energy costs, designing pricing schemes, balancing generation and demand, and encouraging participation. Its physical-layer application remains limited.
- Virtual layer: Game theory has been extensively applied in the virtual layer to pursue multiple P2P trading objectives.These objectives are outlined across the reviewed studies.
- Virtual layer: Stackelberg games have been used to reduce energy costs and design pricing schemes for secured P2P transactions.
- Virtual layer: Non-cooperative Nash games have been applied to reduce energy costs, balance local generation and demand, and encourage prosumer participation.
- Physical layer: Game-theoretic applications in the physical layer have so far been limited.One reported application uses a multiple-leader–multiple-follower Stackelberg game to study how transmission losses influence retailer and consumer trading behavior.
B. Double Auction
Double auctions organize simultaneous buyer bids and seller asks to determine a trading price and traded quantity, while reviewed P2P studies apply them to virtual- and physical-layer objectives. The section also introduces constrained optimization methods used in P2P scheme design.
- Double auction: A double auction simultaneously collects buyer bids and seller asking prices, orders them, and uses intersecting supply and demand curves to determine price and traded quantity.
- Double auction: Efficient double-auction operation requires truthful reporting and mechanisms satisfying individual rationality and incentive compatibility.
- Virtual layer: Virtual-layer double auctions have targeted balancing local generation and demand, peak-demand shaping, and improved prosumer engagement.
- Physical layer: Physical-layer double-auction designs can explicitly incorporate distribution-network constraints through decentralized continuous auction architectures.
- Constrained optimization: P2P energy-trading schemes also use LP, MILP, ADMM, and NLP as constrained optimization techniques.
- Constrained optimization: ADMM decomposes convex optimization into smaller pieces with separate variable sets, while LP, MILP, and NLP address linear, mixed-integer, and nonlinear formulations.
2) Constrained optimization for P2P trading in the virtual layer:
Constrained optimization methods support P2P energy-trading design in both virtual and physical layers. Virtual-layer studies use LP and MILP for scheduling and rooftop-solar optimization, while physical-layer studies prominently use ADMM.
- Virtual and physical layers: Constrained optimization techniques used in P2P trading include LP, MILP, ADMM, and NLP.
- Virtual layer: Virtual-layer studies apply LP to multi-energy scheduling and MILP to optimize energy generated from rooftop solar.
- Physical layer: ADMM is the most popular constrained optimization technique reported for physical-layer P2P trading.
- Physical layer: Physical-layer ADMM applications include decentralized cost allocation and local optimization of inverter reactive-power compensation and active-power curtailment.
- Blockchain: Blockchain-based approaches are presented as distributed mechanisms that can support decentralized energy trading without a central authority.
- Blockchain: Reviewed blockchain platforms and components include smart contracts, Elecbay, consortium blockchain, Hyperledger, Ethereum, and modified blockchain schemes.
2) Blockchain for P2P trading in the virtual layer:
Blockchain-based platforms have been used in virtual-layer studies to secure and transparently settle P2P energy transactions, while future research must connect virtual-market decisions with physical-network constraints. Key open issues include charging, scalability, grid benefits, storage, stakeholder priorities, injection limits, privacy, and inter-community trading.
- Virtual layer: Virtual-layer studies use varied blockchain platforms to provide secure and transparent energy trading.Examples include parallel double-chain designs with high-frequency verification for trusted transaction settlement.
- Physical layer: Because the physical layer accommodates energy transfer after secured transactions, studies have not reported how transaction security affects physical-layer performance.
- Future research directions: P2P network charges require revision because prosumers do not use the entire electricity network for peer-to-peer transactions.
- Future research directions: Large-scale P2P trading requires realistic network simulation because unregulated electricity flows may prevent intended receivers from receiving the sender’s actual injected power.Such simulations should also examine computational complexity and power loss.
- Future research directions: The distribution-grid benefits of P2P trading still need to be demonstrated, including possible grid participation as a generator or service provider.
- Future research directions: Future work includes testing prosumer coalitions for ancillary services and coordinating multi-level storage through new scheduling and optimization techniques.
- Future research directions: Trading schemes must reconcile conflicting stakeholder uses of prosumer batteries without reducing participant independence or benefits.
- Future research directions: Novel market mechanisms should dynamically adjust prosumer injection limits according to network supply and demand without harming the network.
VII. CONCLUSION
The review organizes peer-to-peer energy-trading research around challenges in virtual and physical network layers, synthesizes the technical approaches used, and identifies future research topics.
- The review classifies state-of-the-art research according to challenges addressed in the virtual and physical layers of peer-to-peer energy trading.
- It identifies and summarizes core technical approaches extensively used to address challenges in peer-to-peer transactions.
- The review relates these approaches to applications in both virtual and physical layers.
- It discusses future research topics for peer-to-peer energy trading.