Incentive-compatible and budget balanced AGV mechanism for peer-to-peer energy trading in smart grids

Peer-to-peer (P2P) energy trading refers to a type of decentralized transaction, where the energy from distributed energy resources is directly traded between peers. A key challenge in peer-to-peer energy trading is designing a safe, efficient, and transparent trading model and operating mechanism. In this study, we consider a P2P trading environment based on blockchain technology, where prosumers can submit bids or offers without knowing the reports of others. We propose an Arrow-d'Aspremont-Gerard-Varet (AGV)-based mechanism to encourage prosumers to submit their real reserve price and determine the P2P transaction price. We demonstrate that the AGV mechanism can achieve Bayesian incentive compatibility and budget balance. Kernel density estimation (KDE) is used to derive the prior distribution from the historical bid/offer information of the agents. Case studies are carried out to analyze and evaluate the proposed mechanism. Simulation results verify the effectiveness of the proposed mechanism in guiding agents to report the true reserve price while maximizing social welfare. Moreover, we discuss the advantages of budget balance for decentralized trading by comparing the Vickrey-Clarke-Groves (VCG) and AGV mechanisms.