Peer to Peer Energy Trading Offers An Innovative Market Structure for Grid Modernization

By: 2025 Virtual PT/MT Fellow Xochitl Menchaca

The electric grid delicately balances production and consumption to ensure assets operate safely and consumers can have their power demands met without interruption, wait times, or outages. When our grid architecture had few, centralized power plants, the role of energy producers and consumers was well-defined. Producers could fairly easily estimate consumer needs each day, and could plan their operations to meet this need.

Now, our electric grids are more complex than ever — it is expected that 187 GW of distributed energy resources (DERs) will be installed in the US between 2022 and 2027. With energy consumers owning DERs such as solar photovoltaic (PV) systems, energy storage, and demand response assets, their role as net energy consumers or producers can change on a minute by minute basis — becoming a new term often referred to as prosumers. Utilities and grid operators struggle to predict the production and consumption of thousands of distributed systems of just a few kilowatts that alone don’t significantly alter load and production profiles they rely upon, but all together meaningfully alter the needs of the grid.

As we innovate solutions to a growing need of operating and market strategy to balance these assets, we must consider not only how to monitor them to keep the grid reliable, resilient, and stable, but also how to distribute the energy and market benefits to the individuals that invested in the assets.

Peer-to-peer (P2P) energy trading offers a solution by allowing energy producers in a community to directly sell excess energy to individuals that need it at an agreed price, rather than selling production to an intermediary (i.e. utility) who then sells it back to energy users. Already, examples of P2P market structures are popping up in an early form all over the world.

A P2P market must have a physical layer and virtual layer — the virtual layer provides a connection between participants to match purchase and sale orders, while the physical layer allows the transfer of electrons from a seller to a buyer once the transaction is settled.

The structure offers a win-win scenario for both buyers and sellers, where sellers can gain higher compensation than what is traditionally offered from utilities, and buyers can purchase energy at a cheaper rate than what is offered in the rate tariff. Adoption of a P2P trading benefits the US grid as it grows and modernizes to have enhanced proliferation of distributed generation resources. This trading model can help offer enhanced energy access for those in energy constrained areas, increased availability of ancillary services to power and stabilize the grid, and decreased congestion as distributed resources generate power closer to where that power is used.

To integrate a P2P model in markets in the US, there first must be an adequate number of DERs, including generating and demand response assets so that there are ample prosumers to create an active marketplace. Key mechanisms empowering proliferation of DERs include subsidies and incentives from utilities and government for install of new systems and the removal of barriers to market participation with DERs. To help enable P2P trading in a distinct market place, the creation of a reliable and user friendly trading platform is critical. Efforts to develop this layer — the virtual layer — is fairly distributed and nascent. This platform must integrate with the prosumer asset energy management systems (EMS), the physical grid, and have connectivity to reliably process and execute transactions.

Since our energy grid has traditionally been a one-way grid, with centralized energy producers selling to consumers, the regulations were designed for a one-way market and must be addressed to encourage P2P trading. In many areas of the US, utilities have monopolistic control over the energy grid, creating high barriers for small-scale producers to enter the market in the form of disproportionate fees, tariffs, or restricted grid access. These fees can be related to entering as a market participant, grid infrastructure access, or trading fees.

Even though a prosumer is generating energy they own and selling to a consumer, to transfer that energy across power lines they must still use resources that may be owned by the utility or others and communicate with other power systems. Because of this, a P2P framework must accurately characterize the proportional use and wear on these systems by prosumers, rather than disproportionately charging for fees traditionally used by large scale centralized power facilities.

Implementation of a P2P energy market can help to modernize the US grid as DER proliferation alters our grid architecture from centralized generation with producers and consumers to a complex, distributed network of prosumers. This market structure will also aid utilities by reducing the import and export from the grid and keeping energy localized, relieving capacity constraints and reducing infrastructure expansions. While it would take some cooperation from utilities, policymakers, consumers, and DER providers, preparing for a changing grid can help all Americans enjoy cheap, reliable power in the future.