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Sun, Z.; Tavakoli, S.; Khalilpour, K.; Voinov, A.; Marshall, J.P. Physical and Market Structure of Peer-to-Peer Trading Networks. Encyclopedia. Available online: (accessed on 21 April 2024).
Sun Z, Tavakoli S, Khalilpour K, Voinov A, Marshall JP. Physical and Market Structure of Peer-to-Peer Trading Networks. Encyclopedia. Available at: Accessed April 21, 2024.
Sun, Zheyuan, Sara Tavakoli, Kaveh Khalilpour, Alexey Voinov, Jonathan Paul Marshall. "Physical and Market Structure of Peer-to-Peer Trading Networks" Encyclopedia, (accessed April 21, 2024).
Sun, Z., Tavakoli, S., Khalilpour, K., Voinov, A., & Marshall, J.P. (2024, February 26). Physical and Market Structure of Peer-to-Peer Trading Networks. In Encyclopedia.
Sun, Zheyuan, et al. "Physical and Market Structure of Peer-to-Peer Trading Networks." Encyclopedia. Web. 26 February, 2024.
Physical and Market Structure of Peer-to-Peer Trading Networks

A peer-to-peer (P2P) network is a distributed self-organising network that does not need to have central nodes, and each node can act as either a server or a client at any given time. The evolution of DERs and the principles of peer-to-peer networks have given rise to interest in the concept of P2P energy trading networks. In a P2P energy trading network, there are no intermediate energy suppliers. People are encouraged to share their energy surplus directly with their local communities. The energy surplus will be sold at an export price, and the additional electricity demand can be encouraged by a cheaper-than-normal retail price.

community energy energy sharing barrier analysis tragedy of commons free rider effect

1. P2P Networks

Over recent decades, network management has progressed steadily. Several distribution methods, such as centralised, decentralised and fully distributed, have been investigated or implemented in response to the increased need for additional features such as scalability, security and flexibility in network management solutions. A peer-to-peer (P2P) network is a distributed self-organising network that does not need to have central nodes, and each node can act as either a server or a client at any given time [1]. Analogies to P2P networking have been shown in the history of evolution, when living beings benefit from the efficiency of collaboration with neighbours, or even internal parasites, for survival or performance improvement (symbiosis) [2]. Modern P2P, or the so-called “sharing economy” concept, goes back to the late 1990s, with the emergence of the internet and the consequent digital revolution [3]. The first large P2P scheme (which allowed users to share music files with each other) [4] was developed by Napster in 1999 and was quickly followed by the Gnutella protocol [5], resulting in a massive surge in internet traffic [6]. Both methods of sharing faced significant legal problems, from challenges by old industries and traditional modes of selling or commodification. P2P differs from traditional networks as every peer in the network has multiple roles, such as being a provider of data, collector of data, and maintainer of software. The fundamental objective of P2P technology is to share resources directly between ‘peers’. By combining the resources of many autonomous nodes, P2P systems can provide a low-cost platform for distributed computing. Because of the properties and special mechanisms that are used in the network, a P2P network is more robust [7] than traditional networks. P2P traffic on the internet has now surpassed HTTP traffic and is utilised in a number of sectors. There have been several P2P applications in telecommunication [8], energy trading [9], financial services [10], and file sharing [11][12], among other areas. Because of its high sharing efficiency and, thus, high resource utilisation performance, it has become even more popular in recent years [13] and has diffused into our daily lives. Another emerging P2P framework arises in the context of renewable energy sharing or trading.

2. Energy Network Decentralisation and P2P Energy Trading Emergence

Climate change is increasingly recognised as a civilisational threat arising from pollution and the destructive extraction of food and resources, which requires immediate global action. Traditional energy sources such as coal, oil, and natural gas are key sources of pollution [14]. Hence, using renewable resources such as wind and solar energy is often taken as a path to a better future. In recent years, distributed energy resources (DERs) have expanded rapidly because of their greater energy efficiency, lesser environmental impact, and wider range of energy sources [15][16]. DERs are typically composed of wind turbines and solar panels, which, in combination with an energy storage system, enable users to generate, store, and access energy onsite without reliance on centralised power plants. Renewable energy is not necessarily a DER as it can be centralised in large-scale wind and solar farms, but it has that potential, as solar, in particular, is cheap, environmentally friendly, modular, and hence easy to install locally in increments.
The rise in DERs is altering energy distribution networks and changing ways of producing and consuming, as well as changing the roles of energy consumers [17]. The connection and integration of various DERs to the energy grid have resulted in the emergence of new roles for grid and DER owners. Traditionally, the only role of end users in the electricity grid has been as a consumer. Transmission and distribution networks have been used to transport energy from large power plants to customers, involving only one-way transmission. With the development of DERs, end users can produce energy by themselves and transmit it back into the distribution network. Hence, the role of the end users has changed into becoming ‘prosumers’, and there can be a two-way information exchange and two-way energy flow between prosumers and other market agents [18]. There are other systems, such as virtual power plants (VPPs), which may look like P2P trading but are not. For instance, AGL, a large electricity company with more than 3.95 million customers in Australia [19], has released a VPP program based on its studies of DERs [20]. These VPP systems are intended to orchestrate the operation of the members’ home energy system to benefit multiple stakeholders, including the homeowners (through reduced energy bills), the retail company (reduced peak purchase from the pool market), and the network and society (reducing peak demand). Unlike P2P trading, there is no interaction between members in the VPPs and system control is carried out either by a third-party company known as a distributed network service provider (DNSP) or the retailer (e.g., AGL in this example).
One immediate consequence of widespread DER uptake is underutilisation of the asset through curtailment of the surplus energy of the user (when the electricity generation is higher than the current load requirement and the remaining capacity of the installed storage systems). This curtailment is a problem for centralised systems as well, but costs can be absorbed by the supplying company. Individual prosumers are more likely to resent not being paid when they could be, in theory, and are likely to seek a solution for the unrealised income. This resource underutilisation problem is similar to that of unused rooms in a house (which the concept of Airbnb came to utilise) or underused cars in the family (from which Uber emerged) [21]. Hence, right from the early stages of DER uptake in some countries over the last decade, the need for sharing economy business solutions has been raised and investigated (e.g., as with Continental Power Exchange CPEX) [22]. In summary, the evolution of DERs and the principles of peer-to-peer networks have given rise to interest in the concept of P2P energy trading networks.

3. The Physical and Market Structure of P2P Trading Networks

In general, P2P energy trading involves both new technology and commercial energy transferring models on the demand side of power networks, allowing prosumers to freely select their energy trading parameters, such as the trading price per unit or amount of energy sharing, so as to enhance their overall energy performance, engagement with others, and economic benefits [23]. In a P2P energy trading network, there are no intermediate energy suppliers. People are encouraged to share their energy surplus directly with their local communities. The energy surplus will be sold at an export price, and the additional electricity demand can be encouraged by a cheaper-than-normal retail price [24]. P2P energy appears to have various advantages, including a decrease in power outages, an improvement in power system efficiency, an enhancement of local energy supplies, possible local application of those supplies, some independence from utility providers and a choice of multiple energy sources to go with user preferences [9][25]. In addition, P2P energy trading can also meet community requirements, such as reducing power bills [26], encouraging clean energy, and distributing surplus energy to those in need in a way decided by the community [27]. However, there is a possible problem for traditional energy suppliers as they can lose control over the markets and pricing, hence lose profit and start to work against the sharing system. Figure 1 illustrates the differences between a traditional centralised energy network and the emerging decentralised network with prosumers building demand-side P2P energy sharing networks.
Figure 1. Demand-side electricity trade: (A) Traditional system, (B) P2P-enabled energy network.
Soto et al. [24] provided a general overview of P2P energy trading. They mention that the change of roles from consumer to prosumer enables prosumers to gain benefits. Azim et al. [28] have demonstrated that both small sellers and buyers can gain economic benefits in a typical day. Based on their simulation results, the authors demonstrate that “the more prosumers participate in P2P trading, the more they can gain financial benefits”.
Tushar et al. [29][30] provided a detailed background discussion of P2P energy trading. They divided the P2P energy system into two elements: the virtual layer and the physical layer. The virtual layer offers participants a safe computerised link through which they may select the settings for their energy trading. The physical layer is the physical network that enables electricity to be moved from sellers to buyers. According to Tushar et al. [29], the key components in the virtual layer are information systems, market operations, pricing mechanisms, and energy management systems. In the physical layer, the key components are grid connection, metering, and communication infrastructure. In what we might call the social and political layers, regulations are another influential element, affecting the ease of action such as connection, payment and change.
The information system is the core of the virtual layer as it supports bidirectional communication between peers and helps them decide the energy parameters they will use, and it enables each market participant’s usage to be monitored in real time [31]. The ‘smart contract’ (self-executing programs that have the capability to observe and modify the ledger based on rules defined by the user) is an example of such an information system. Han et al. [32] designed a smart contract model as a partial blockchain platform. The results show that their blockchain model implemented the whole trading process successfully as the smart contract strictly executes the trading and payment regulations, so the safety and fairness of electricity trading are greatly improved.
Market operations refer to the bidding strategies and market clearing methodologies that match real-time buying and selling orders. Muhsen et al. [33] reviewed different types of current bidding strategies as well as market clearing approaches from various business perspectives. Pricing mechanisms (also known as ‘pricing schemes’) can also help balance the demand and supply of energy [29]. A study by Lee et al. [34] has provided a theoretical analysis of pricing where the authors suggest a strategy for community microgrids in which individual prosumers with solar and storage can engage in a P2P system to trade with other residents (if the social and political layers including regulations allow them) and create dynamic power prices. An energy management system (EMS) is supposed to secure the energy supply of prosumers. Akter et al. [35] provided a hierarchical transactive energy management system for a residential microgrid. Using their generalised cost-benefit analysis framework, the authors concluded that prosumers and those residents without renewable energy sources and energy storage systems could benefit through their proposed energy management scheme. According to Khalilpour and Vassallo’s study [21], cooperation-based pricing mechanisms in P2P markets improved the resilience of the network and provided the fairest financial incentives to all members.
Grid connection, metering, and communication infrastructure are the main elements in physical layers. The terms ‘grid-connected’ and ‘grid-disconnected’ (or ‘off-grid’) define the relationship of the user’s premises with a circumferent electricity grid, if available. Other features in relation to grid connection are the flow directions of energy, which can be referred to as ‘one-directional’ or ‘bidirectional’. One-directional connections allow either energy export or energy import, while bidirectional connections allow both. Azim et al. [36] conducted a thorough analysis of the physical layer to investigate how P2P trading may affect network energy losses. Since there may not always be a direct transfer of electricity from the same prosumer to the target customers, the study states that energy trading in the physical layers can be transferred in watts and negawatts (the amount of energy saved by lowering electricity demand or consumption for a certain period) [37].


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