As more households install solar panels, batteries and other distributed energy resources, they increasingly become prosumers – both producing and consuming electricity. When they generate more electricity than they need, local energy markets can allow them to sell this surplus directly to other members of their energy community.
But what happens when there are not enough buyers and sellers active at the same time?
A new scientific paper by researchers from the University of Cologne (UoC), a partner in the INTELLIGENT project, explores a new approach to making local peer-to-peer (P2P) energy markets more stable, fair and efficient – while also ensuring that energy trades respect the physical limits of the electricity grid.
The paper, “An incentivized automated market maker-based batch auction mechanism for network-aware local energy markets with loss allocation,” was authored by Hossein Saber, Tom Celig, Saber Talari, Wolfgang Ketter and Detlef Schoder and published in Applied Energy.
P2P energy trading can benefit both sides of an energy community: prosumers can receive more for their surplus electricity than through traditional feed-in tariffs, while consumers can access locally produced energy at prices below standard retail rates.
However, small local energy markets often have limited liquidity – meaning that there may not always be enough buyers and sellers trading at the same time. In such “thin” markets, conventional auction mechanisms can lead to unstable prices or unsuccessful trades.
The researchers therefore asked a practical question: Can local energy trading remain efficient and fair even when market participation is limited?
To address this challenge, the researchers developed an Automated Market Maker-based Batch Auction (AMMBA) mechanism.
Instead of directly matching each seller with an individual buyer, the mechanism temporarily brings together the energy offered by sellers and the money provided by buyers in a shared liquidity pool. Once the trading window closes, an automated pricing function determines a single market price based on overall supply and demand and distributes the available energy and payments among participants.
The pricing mechanism is designed to balance the interests of both buyers and sellers, while keeping prices between the feed-in tariff received by producers and the retail electricity price paid by consumers.
Importantly, the approach also takes the physical electricity grid into account. The system checks whether the planned energy exchanges respect network limits and, where necessary, makes minimal adjustments to consumption or generation.
It also considers electricity losses in the network. Rather than distributing these costs equally, the mechanism identifies how individual participants contribute to increasing or reducing losses and reflects this in their final trading prices.
The entire process – from energy trading and grid-feasibility checks to loss allocation and settlement – is automated through blockchain smart contracts, supporting transparent and reliable operation.
The proposed mechanism was tested using real-world household data and compared with two traditional approaches: a Double Auction and a Uniform Price Auction.
The results showed that AMMBA consistently enabled communities to use more of the renewable electricity generated locally. Community self-consumption increased by around 20% on average compared with the two benchmark mechanisms.
The approach also produced more stable prices and higher overall benefits for the community, while distributing these benefits more evenly among participants. In the simulations, all prosumers benefited financially from participating in the AMMBA market.
At the same time, the mechanism successfully respected grid security constraints with only minimal adjustments to participants’ planned consumption or generation and fairly allocated network losses according to their actual contribution.
The research directly supports one of the central technological developments of the INTELLIGENT project: creating a grid-aware, transparent and automated platform where members of local energy communities can trade energy directly with one another.
By developing AMM-based trading mechanism and comparing it with established auction mechanisms, the research provides valuable insights into how local P2P energy markets can achieve more stable pricing, greater use of locally generated renewable energy and fairer benefits for community members, while respecting the physical constraints of the electricity grid.
In this way, the research contributes to INTELLIGENT’s broader goal of making P2P energy trading more efficient, fair and suitable for real-world energy communities.
Interested in the full research? Read the scientific paper here:
An incentivized automated market maker-based batch auction mechanism for network-aware local energy markets with loss allocation
