Network-constrained local energy market clearing for peer-to-peer trading with bilateral power losses

Recently, local energy trading in smart grids has gained substantial attention, enabling producers and consumers to trade energy privately in local energy markets (LEM). A comprehensive market clearing mechanism with an efficient energy pricing scheme is required for realistic, fair, and practical LEM operations, as there are various aspects related to the grid to consider. Therefore, this paper presents a network-constrained LEM clearing algorithm through peer-to-peer (P2P) negotiation between the producers and consumers. In this paper, a market-clearing optimization problem is formulated based on social welfare maximization, and we propose a distributed scheme based on dual decomposition to solve the problem that ensures optimality compared to the centralized approach. The proposed market-clearing approach considers power losses in the physical network for each bilateral trade using power transfer distribution factors. Since producers and consumers are bound to pay for third-party networks, an electrical distance-based network utilization charge (NUC) is designed, which may facilitate the reduction of power losses in P2P energy trading. The proposed NUC provides 2%–4% efficient operation compared to the NUCs in the existing literature. The effectiveness of the proposed approach is justified through the simulation with IEEE 14-, 33-, 39-, and 141-bus systems that converge in 1–5 s for those test systems.