A BLOCKCHAIN-ENABLED DECENTRALIZED ENERGY TRADING MECHANISM FOR INTERCONNECTED MICROGRIDS

CHAPTER 1
INTRODUCTION
1.1 Introduction
The power grid is transitioning from a centralised grid, where electric power plants
were connected to the transmission system, to a decentralised grid, where dispersed
renewable generating units were directly connected to distribution networks close to
demand consumption. Applications for microgrids have grown dramatically over the
past few years, and they may soon be implemented more extensively, according to
predictions. This deployment was made possible by the growing interest in smart grid
technology, which may be conceptualised as a network of connected smart microgrids.
It has been demonstrated that the network's dependability, resiliency, and
sustainability are all greatly improved when the main power grids are represented by a
collection of linked microgrids. Consequently, the networked microgrid operation has
received a lot of attention recently. Different energy profiles may cause some
microgrids to experience energy deficits while others experience surpluses. Therefore,
it becomes crucial to construct coalition-building and energy-trading negotiating
methods when the utility grid tie is unavailable to assure enough power sharing across
networked microgrids to balance local power generation and demand.
One of the primary motivations behind this work is this. For many different
businesses, centralised energy trading methods are difficult to expand, and the
centralised system is vulnerable to cyberattacks. Additionally, a lot of people are
interested in utilising blockchain technology inside the information infrastructure to
ensure secure and decentralised energy trade as a result of the introduction of the
technology and the attention it has received. This fact is regarded as a secondary
motivator for this work. The Brooklyn Microgrid project is an illustration of a first
successful peer-to-peer (P2P) blockchain system running through smart metres, where
prosumers are able to exchange energy based on a set bid price.
The blockchain concept, which may be summed up as a chain made up of
numerous blocks that each carry information, was initially put forth in 2008 [34]. So
that every peer (node in the network) maintains a record of the same ledger, all
information is then updated synchronously across the entire network. Without the
involvement of a third authority, its consensus method can guarantee the integrity of

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the data recorded in the ledger. The development of several consensus algorithms has
included PoW, PoS, Delegated Proof of Stake (DPoS), Ripple Protocol Consensus
Algorithm (RPCA), and AlgoRand. Because the effectiveness of the consensus
algorithm directly affects the performance of the blockchain, it is the most crucial
component of the entire system.
This technology's key feature is its ability to keep track of every linked block
that is generated, making it impossible to remove or alter any blocks. With no need for
a reliable third party, this makes blockchain technology a particularly secure and
reliable decentralised method for exchanging money and contracts. The immutability
of the blockchain record and the consensus techniques used to approve information
added to the chain make the blockchain a popular choice for safe transactions in
decentralised networks. The identify of the parties involved in the transaction, the value
of the items being transacted, the timestamp of the transaction's execution, and an
alphanumeric string known as a hash are all included in a block's contents.
The blocks are chained together by these individually produced hashes since
each block in the chain contains its own hash. A chained block will be broken if any of
the data in the block is changed, as the hash associated with that block will change and
no longer match the hash used in the following block. A smart contract is a
computerised transaction mechanism that carries out a contract's terms. By encoding
contractual terms as code and embedding them into a piece of property, trusted
transactions and agreements between various anonymous nodes can self-execute
without the need for a centralised authority. Smart contracts are scripts that are hashed
uniquely and saved on the blockchain for use in blockchain applications.

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CHAPTER 2
LITERATURE SURVEY
2.1 Introduction
This chapter chronicles about the different literature reviews about decentralized
energy trading mechanism for interconnected microgrids.
2.2 Literature Survey
T. M. Masaud and J. Warner[1] has proposed that among other blockchain energy
applications, Transactive Grid has recently drawn a lot of interest. This article presents
a two-layer protected smart contract-based energy trading system that enables
microgrids to collaborate, alter the price at which electricity is exchanged, and carry
out transparent and decentralised secure transactions without the aid of a third party.
Because reliability advantages are the main criteria that drive islanded microgrid
operation, a new decentralised energy trading model based on smart contracts is
proposed in the first layer for islanded networked microgrids with the aim of attaining
demand generation balance.
S. Maharjan [2] integrating blockchain techniques in energy trading for
networked microgrids is relatively a new area that has gained lots of interest recently.
In the literature, numerous models have been developed for P2P energy trading without
integrating blockchain technology, the following section will shed the light on the most
related work. An energy trading model for community-based microgrid in the presence
of the utility grid was proposed in [2], in which a market operator determines the spot
price by intersecting the demand and the ascending plot of the submitted bids where all
offered bids are compared with utility price.
Authors in [4] developed a two-stage bidding strategy for P2P trading of
Nanogrid. In the first stage, a two-step price predictor with an objective to promote the
utilization of local renewable energy is developed for transaction adjustment; whereas
a game theoretic technique is developed in stage two to increase the social welfare.
The trading model in [3] is designed as an auction game to trade energy between
energy demanders and producer within a grid connected community based DC
microgird. In this case, the demander submits bits to complete for DC power packets.

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W. Tushar, T. K. Saha [5] proposed a modified auction-based mechanism for a

smart community that relies on the interactions between a shared facility controllers
(SFCs) and the residential units using a central auctioneer where the auction price is
determined using a Stackelberg game. A Stackelberg game to model the interaction
between producers and consumers is also adopted as a noncooperative game for
developing a P2P energy trading model in virtual microgrids. A nonconvex
optimization problem derived from the Stackelberg game-theoretic approach and
backward induction is solved by developing a decentralized bilevel iterative algorithm.
However, trading models for islanded microgrids in the literature assume that islanded
microgrids have sufficient local power sources, that is, demand-generation balance can
be always assured locally. Besides, P2P-based auction models are designed assuming
the presence of aggregator or auctioneer that facilitates the trading and pricing
mechanisms. In terms of integration blockchain technology, few studies have focused
on developing decentralized energy trading using blockchain technology. For instance,
a two layers algorithm for blockchain based-energy trading negotiation and transaction
settlement among grid connected networked prosumers.
In [6], a smart contract method based on energy tokens, where the energy token
represents a unit of power at a fixed price is proposed. Authors also extends the energy
token method by using a linear time-based value depreciation model for the energy
tokens. This method stimulates energy trading by incentivizing the buying and selling
of tokens within a time limit. An incentivizing method utilizing Nash bargaining theory
is presented. The impact of applying load management on reducing the energy cost
bought from a blockchain based P2P energy trading market is studied. Proof of Work
(PoW) as the blockchain consensus method is used in this work. The system security
and privacy are crucial to the successful operation of interconnected energy trading
systems, and recently proposed models have turned to blockchain technology to address
these concerns.
A blockchain model for detecting data corruption produced by third-part
intrusion is proposed in [7]. A modified blockchain approach including a data
restoration technique for the event of corruption is presented. A unified energy
blockchain based on consortium blockchain for secure P2P energy trading in industrial
internet of things is presented. To increase the system security and privacy,
differentially private energy trading auction using consortium blockchain for
microgrids systems is proposed.

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The use of practical Byzantine Fault Tolerance (pBFT) as an alternative to

inefficient consensus algorithms is proposed in [8]. Energy trading based on blockchain
implementation using Hyperledger Fabric considering different energy transaction
scenarios and crowdsources is presented. A secure and efficient Vehicle-to-Grid (V2G)
energy trading model by combining blockchain, edge computing, and contract theory
is proposed. In this model, a Stackelberg game-theory is used to determine the optimal
pricing strategy of edge computing service.
Similarly, a model for Internet of electric vehicles (IoEV)-based demand
response (DR) using consortium blockchain, contract theoretical modeling, and
computational intelligence is proposed in [9]. In this work, all transactions are created,
propagated, and verified by authorized local energy aggregators (LEAGs) with
moderate cost, and PoW consensus protocol is adopted by for verifying all created
blocks. In the context of using pBFT method, a Tendermint consensus algorithm based
on pBFT and Proof of Stake (PoS) is utilized for developing Ethereum smart-contract
blockchain node, named ‘‘Hyperledger Burrow’’ [9].
In [10], two auction schemes are developed for a smart multi-energy system
considering the day-ahead and real time markets. A multi-agent system manager sells
electricity, gas, and heat to users and also trades energy with external systems. On the
contrary, in islanded interconnected microgrids, when the grid backup is absent, the
objective of each microgrid is to achieve a reliable power supply by balancing power
demand and generation.
Similarly, the model proposed in [11] is formulated as a Stackelberg game, in
which a central operator of the microgrid is the leader of the game setting internal
buying and selling prices, while, PV prosumers are the followers of the game adjusting
their energy sharing profiles in response to the developed internal prices. The main
objective of each peer in most of the models in the literature is to maximize economic
benefits considering grid connected mode, where the connection with the power grid
guarantees demand-generation balance. Hence, the main incentive mechanism for peers
to participate in the trading process is maximizing their economic benefits, where each
microgrids will only interact with other microgrids if such interactions lead to
additional economic benefits. There is a need for developing innovative decentralized
P2P energy trading mechanisms for islanded networked microgrid system with an
appropriate pricing schemes that can incentivize the participation of all microgrids with
an objective of maintaining local demand-generation balance. In addition, energy

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transactions are required to be securely executed without intervention of a third trusted

party. Few trading models for islanded microgrids are available in the literature. For
instance, the work in [11] proposes a double sided-auction implemented by an
aggregator considering approximate price anticipation process.
In [13], a distributed iterative method for P2P trading between PV prosumers
within a microgrid system is developed, where an energy-sharing model with price-
based demand response is proposed. A dynamical internal pricing model is formulated
based on the supply and demand ratio (SDR) of exchanged PV energy. Developing the
pricing and negotiation mechanism of P2P energy trading models is mainly affected by
the objective of the energy trading, thus, it must be clearly defined [14]. P2P trading
can be utilized for both grid-connected and islanded microgrid networks. In the grid-
connected mode, the objective of each microgrid is to minimize its operation cost [15].
2.3 Summary
Based on a fore mentioned review, it was found that the following two aspects must be
tackled for developing innovative blockchain-enabled P2P energy trading models: (i)
How to determine the energy trading price and amount, especially for isolated
networked microgrids when the utility tie and its retail price is unavailable (ii) Once a
trading transaction is completed, there is a need to develop more secure, energy and
time efficiency consensus algorithms to settle those transactions in the blockchain.
Besides, existence of malicious nodes that might invalidate the voting process of the
consensus mechanism, and manipulate the recorded data need to be considered in the
algorithm’s development. Otherwise, the blockchain system may become insecure,
unreliable, and inefficient.

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CHAPTER 3
PLANNED PROPOSED WORK
3.1 Introduction
This chapter discusses about the software description and design of micro grid energy
trading mechanism using blockchain. The software description involves studying the
flowchart used in software building and block diagram analysis of the system
model. Design part talks about architecture building and software analogy.
3.2 Description of System Model
Each agent (MG) is a node in the distributed multi-agent network model of the
interconnected islanded microgrids system. A multi-agent coalition is a mechanism for
agents to work together to finish a job when none of them can do so on their own. This
definition was used to make the assumption that each MG (agent) only consists of
distributed renewable generation and electricity demand. Since the electrical grid is not
connected to any MGs, there is no grid backup because all MGs are connected to one
another. To balance local renewable generation and demand, all MG's operators in the
islanded system must therefore work together. Therefore, reaching zero net load is
utilized to gauge how satisfied each P2P trading participant is. It should be remembered
that demand is determined by subtracting renewable generation from the total load. Due
to their shared interest in completing their net load, all MGs in the islanded system have
decided to cooperate in order to complete their net load. Additionally, it was thought
that each MG lacked enough non-renewable local resources (e.g., dispatchable units,
storage, controllable loads). Fig. 1 indicates the proposed flow chart.
Each MG is therefore strongly encouraged to engage in P2P trade in order to
balance their net load. Based on the fact that reliability advantages are one of the key
factors influencing microgrid operation, this incentive mechanism can be justified.
Local resources' limited capacity can only be used as a backup if the power traded
during peer-to-peer trading is inadequate to balance their net load. Therefore, since
dispatchable units, storage, and controllable loads are not largely used to balance the
net load, it is not necessary to design a scheduling optimization issue. According to the
model's architecture, each node represents a microgrid made up of layered architectures
of renewable generators, power demand, local controllers, and trade controllers. The
physical resource layer is where renewable distributed generation and electricity

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demand are found. Additionally, the local controller (LC), whose responsibility it is to
handle demand and renewable generation data (forecasting hourly net load), is present.
When there is an energy shortage or excess, the local controller notifies the trade
controller (TC), whose job it is to buy or sell energy to meet the microgrid's hourly net
load for the next 24 hours fig. 2 provides a graphic representation of the system model.

Fig. 1 : A Flowchart of the proposed model

3.3 Price Adjustment and Contract Matching Mechanism

The trade controller receives the energy surplus or deficit from the local controller. In
a nearby energy trading market, the trade controllers for each microgrid interact with

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one another. Peers who are willing to participate in trading frequently use the
marketplace concept for contract matching, especially on significant stock exchanges
like the NYSE. Energy selling smart contracts with predetermined prices are provided
by microgrids with surplus power for each round r in the time interval t (hourly time
interval) in the 24-hour day ahead scenario, and energy buying contracts with fixed
prices are offered by microgrids with power deficit. Since there is no grid backup, both
sellers and buyers strive to have their contracts matched and carried through in order to
satisfy their net loads.

Fig. 2 : A proposed diagram of the proposed system model

The price adjustment procedure is based on the idea that if customers did not
purchase power, they would be forced to use backup dispatchable units and implement
load shedding to make up for the deficit in their net load. After every round, the buyer
will revisit and revise (raise) its purchase price in an effort to match and execute its
contract. Therefore, during the contract's matching procedure, prices shouldn't be
disclosed to both buyers and sellers. This is accomplished by encrypting the contract's
data prior to its dissemination to the market. For instance, where the buyer and seller
have contracts that contain pricing and other sensitive information, the confidential
transactions technique outlined can be used. The price adjustment process in (6) is
developed based on the fact that sellers would tend to charge and curtail surplus power

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to satisfy its net load if they did not sell their excess power. This is a reasonable
adjustment since the microgrid will have to pay these costs if the trading scheme is
unavail able. The seller will go back and adjust its selling price after each round until
it gets its contract matched and executed.
3.4 Two-phase Blockchain Consensus Protocol
To enable a trusted settlement of electricity trading transactions, a smart blockchain
based-contracts protocol for transaction settlement is developed. The proposed
blockchain method uses a traditional distributed ledger consisting of blocks of data that
are connected in a single chain. These blocks of data contain the details of the finalized
contract from the trading marketplace, including the network address of the buyer and
seller, the amount of energy being trading, the price per kilowatt of the contract, the
timestamp when the contract was executed, the hash from the previous block, and a
new hash generated using the SHA-256 hashing algorithm. Because this ledger chain
is a distributed ledger, each node of the network maintains a copy of the ledger.
Additionally, for a variety of microgrids in the network, the average
computation time needed to finish discrete actions (price adjustment, contract offering
for potential matching) necessary to execute a final contract is documented. In the
example of 20 microgrids, the average computation time to complete all contracts is
determined to be less than one second (about 15.25ms), demonstrating the effectiveness
of the suggested trading methodology. Additionally, it should be emphasised that there
is a nearly linear relationship between the average contract matching time and the
number of microgrids in the network.

Fig. 3: The proposed pBFT messaging protocol

Before a block is appended to the ledger chain, it must be validated using a

consensus method. A two-phase consensus process method is proposed. In the first

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phase, a pBFT is adopted. pBFT has been proposed in recent years as a viable
alternative to popular consensus methods such as PoW and PoS. Byzantine Fault
Tolerance (BFT) refers to the ability for a distributed network to reach an assured
consensus despite the presence of faulty or malicious nodes that propagate false data.
The consensus process developed in this work is shown in Fig.3.
3.5 Summary
In this chapter we have discussed about the block diagram of microgrid system along
with the software description and the specifications of the software used while
designing the system model. The software development cycle consisted of blockchain.

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CHAPTER 4
CONCLUSION
4.1 Conclusion
A two-layer energy trading algorithm for a collection of disconnected yet connected
microgrids is suggested in this research. The first layer of the two-layer algorithm
creates a preconditioned smart contract-based energy trading system, and the second
layer creates a model two-phase blockchain-based contract settlement protocol. In
order to ensure system dependability when the grid backup is unavailable, it was
discovered that the proposed electricity trading mechanism can effectively promote
energy trading between isolated networked microgrids. It also provides a mechanism
for price fairness negotiation for all peers in the network. Additionally, it encourages
the usage of clean energy. Additionally, the network's microgrids privacy will be
preserved because the proposed smart contract trading mechanism operates in a local
energy market where peers do not exchange data. Results have also demonstrated that,
when compared to conventional peer-to-peer price negotiation protocols found in the
literature, the suggested strategy is more time-effective. A revolutionary two-phase
consensus mechanism is also used to verify the transactions before they are added to
the blockchain.

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