Transactive Energy Management Systems Mathematical Models

Received: 5 July 2022 Revised: 22 November 2022 Accepted: 7 January 2023 Energy Conversion and Economics
DOI: 10.1049/enc2.12076
REVIEW
Transactive energy management systems: Mathematical models

and formulations
Vidyamani Thangavelu Shanti Swarup K
Department of Electrical Engineering, Indian Abstract

Institute of Technology Madras, Chennai,
Tamilnadu, India
Restructuring the power system with higher penetration of distributed energy resources
(DERs) and intelligent devices offers the potential for more efficient, reliable, and better
Correspondence resource utilisation of power systems through the transactive energy framework (TEF).
Vidyamani Thangavelu, Department of Electrical This article provides a general overview of the mathematical models and formulations of
Engineering, Indian Institute of Technology Madras,
the TEF reported in the literature. TEF concepts can be applied to various levels of the
Chennai, Tamilnadu, India.
E-mail: ee16d015@ee.iitm.acin power system. Here, the TEF-related literature is divided into individual DER-, building-,
microgrid-, and macrogrid-level TEF. The mathematical models of transactive agents cor-
responding to each level and power system network models are presented. Furthermore,
TEF models for energy management and trading of integrated multi-energy systems are
analysed. Finally, the potential challenges and future research directions for transactive
energy are discussed.
KEYWORDS
bidding models, network models, performance assessment, transactive energy
1 INTRODUCTION of DERs at the distribution level brings benefits and challenges.

Benefits to end-users include bill savings, high reliability, and
According to the GridWise Architecture Council (GWAC), energy independence. New operational challenges for power
transactive energy (TE) is a system of economic and control system operators include bidirectional power flow, congestion,
mechanisms that allows the dynamic balance of supply and voltage stability limits, phase imbalance, reactive power issues,
demand across the entire electrical infrastructure using value and transformer capacity limits [3, 4]. The flexibility of DERs
as a key operational parameter. Architecture, extent, transacting can contribute to both local network and system-level balanc-
parties, transaction, transacted commodities, temporal variabil- ing. By applying TE concepts/market-based control, we can
ity, interoperability, value discovery mechanism, assignment of utilise the inherent flexibility of DERs to meet the power sys-
value, alignment of objectives, and assuring stability are the tem objectives. With DERs, residential and industrial buildings
key dimensions of TE systems [1]. With end-users equipped are now becoming smart by actively managing their energy
with intelligent devices, distributed energy resources (DERs), and information flows with the main grid. Smart buildings
and smart energy management systems, the TE framework are energy prosumers that can meet their own energy needs
(TEF) has expanded the wholesale market transaction con- and share their surplus energy locally through a network [5,
cepts established in the mid-1990s into retail markets [2]. DERs 6]. A microgrid (MG) is a collection of interconnected loads
include distributed storage, distributed generation (DG) (e.g. and DERs that operates in both grid-connected and island
rooftop solar photovoltaic, wind, and combined heat and power modes having well-defined electrical boundaries [7]. An energy
systems), and elastic loads (e.g. heating, ventilation, and air hub (EH) is defined as a framework in which the produc-
conditioning units (HVAC); refrigerators; dishwashers; water tion, conversion, storage, and consumption of multi-energy
heaters; and electric vehicles [EV]). The increasing penetration systems are performed [8]. Consumers may be motivated to be
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© 2023 The Authors. Energy Conversion and Economics published by John Wiley & Sons Ltd on behalf of The Institution of Engineering and Technology and the State Grid Economic &
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2 THANGAVELU AND K
involved in the local energy market (LEM) because of factors All the literature surveys mentioned above have reviewed
such as financial advantages, chosen comfort levels, and pre- and summarised the concepts, architectures, implementation
ferred energy sources. In distribution-level TE systems, small- methods, market structure, pilot projects, integrated operation,
to medium-sized DERs [9], smart buildings [10], MGs [11], software simulators, and co-simulation of TE systems. On the
and multi-carrier EHs [12] can trade their flexibility and energy other hand, this study focuses on the mathematical models
among themselves or with the LEM based on predefined con- and formulations of TE systems. The architecture presented in
tracts and market rules. A distribution system operator (DSO) Figure 1 shows the implementation of a TEF at various lev-
is a non-profit independent entity responsible for managing els of the power system. It is based on the infographics that
distribution-level TE systems. A virtual power plant (VPP) is GWAC developed and adopted from reference [30]. In this arti-
similar to an MG in many aspects but differs in that it does cle, we follow a hierarchical structure similar to that in [29, 30]
not have geographical limitations and can work only in grid- and present a detailed review of mathematical formulations and
connected mode. VPPs can create a bridge to the wholesale bidding/offering strategies for transactive agents at various lev-
market, whereas MGs are often traded through retail distri- els of the smart grid. The following is a brief explanation of
bution [13]. A transmission-level TE system, managed by a these levels:
transmission system operator (TSO), collects bids from bulk
power-generating plants, grid-scale renewable units, large loads, ∙ Level-1 (DER level): Bidding/offering strategy of DERs in
VPPs, and DSOs, and determines the price and dispatch level buildings.
through a double auction market. Thus, the DSO is the mar- ∙ Level-2 (smart building level): Energy management and
ket operator in the LEM and can also be a market player in trading among multiple smart buildings in the MG.
the transmission-level wholesale market. TSO–DSO coordi- ∙ Level-3 (MG level): Energy management and trading among
nation is essential for efficient market operation and reliable multiple MGs managed by the DSO.
power system operation. The TEF can engage in centralised ∙ Level-4 (macrogrid level): Energy management and trading
or decentralised energy trading. Participants send their energy among multiple DSOs managed by the TSO.
bids to market operators in centralised energy trading. The
market operator aggregates all bids to determine the clearing Thus, the transactive agent may be a DER, residential house,
price and quantity while satisfying the network constraints. The industrial or commercial building, MG, demand response aggre-
cleared market price is sent back to the participants to initiate gator, MG aggregator, VPP, multicarrier EH, renewable farm
transactions [14]. The main disadvantages of centralised energy etc. The TEF can be applied to all levels of the power system,
trading are scalability and cyber-attack risks. With more active from residential to transmission, and it facilitates the integration
DERs nowadays, decentralised market trading is gaining more of the LEM and wholesale energy market. Figure 2 illus-
attention. trates a schematic of transactive agents, including consumers,
There are many review articles in the literature on TE sys- prosumers, local generations, industrial loads, and large-scale
tems. In [15], the concepts, types, and industry practices on generators.
demand response and TE were reviewed. Theoretical concepts, The main contributions of this study are as follows:
implementation methods, applications of TE in smart grids, and
demonstration projects were discussed in [16–19]. The authors ∙ Analysis of mathematical models and formulation of transac-
in [20] presented a detailed review of TE-based network man- tive agents at various power system levels.
agement and concepts. The work discussed in [4] evaluated ∙ Presentation of the application of TE to the integrated
various strategies for encouraging DER integration into power operation of energy systems.
networks and addressed uncoordinated, coordinated, and peer- ∙ Comparative analysis of the reviewed literature works in
to-peer (P2P) energy trading strategies. A comprehensive review terms of the objective function, trading floor, uncertainty
of the potential of distributed ledger technologies for P2P TE characterisation, consideration of risk measures, and network
exchanges in LEMs was presented in [21]. Energy management constraints.
of MGs based on TE concepts was discussed in [3, 22]. ∙ Analysis of performance assessment factors for the TEF.
The authors in [23] presented an overview of the cyber- ∙ Identification of the current TEF issues and suggesting
physical infrastructure and optimal scheduling objectives of future research directions.
transactive agents. The work presented in [24] discussed cen-
tralised and decentralised market structures and distributional The rest of this article is structured as follows: Section 2
locational marginal price concepts. In [25], an overview of explains the bidding/offering strategies and general framework
TSO–DSO coordination models and solution techniques was model of the DER. Section 3 provides the models and per-
provided. A detailed review of the LEM at the power dis- formance assessment factors for prosumers. Power network
tribution level was presented in [26–28]. In [29], the authors modelling is described in Section 4. The MG energy manage-
reviewed different control strategies, architectures, and soft- ment models are discussed in Section 5. Section 6 explains
ware simulator technologies for TE systems. They discussed the integrated energy systems. Section 7 presents the level-4
the TE control strategies using a hierarchical structure con- TSO-managed models. Section 8 discusses the performance
sisting of four different levels: residential, MG, DSO, and assessment factors of the TEF. Section 9 describes the potential
TSO. areas for further research, and Section 10 concludes the study.
THANGAVELU AND K 3
FIGURE 1 Overview of TEF implementation at various levels of a smart grid
∙ Transaction-based framework: This explains the hardware,

communication network, and digital infrastructure that per-
mits trading of products and services between the involved
agents.
∙ Transactive nodes (software agents): Connection points in
the electrical network for power flow (data flow).
∙ Transactive incentive signal: A representation of the delivery
cost of electric energy at a transactive node.
∙ Transactive feedback signal: A representation of the net
electric load at a transactive node.
∙ Transactive energy market: Forward market (for longer-term
bilateral contracts), day-ahead market (trading for delivery on
the next day starting from midnight), and real-time market
(trading for immediate delivery from 5 min to 1 h).
2 LEVEL 1: DER
The level-1 transactive agents are smart appliances and DERs.

FIGURE 2 Schematic diagram of the interactions among various To participate in market interaction, they must be equipped with
transactive agents (adopted from [31]) intelligent automated controllers, advanced meters, and a two-
way communication infrastructure. They should have the ability
to perform the following tasks [34]:
1.1 Key terminology 1. Determining the price it is willing to pay for electricity.
2. Bidding the demand it needs.
Refs. [32, 33] explain the important terms related to transactive 3. Adjusting the demand in accordance with the market-
concepts. clearing price.
∙ Transaction-based energy: A structure to support energy-

based transactions and the integration of data, information, 2.1 DER bidding functions
and energy infrastructure.
∙ Transaction-based control: Executing transactions by auto- The DER can bid/offer for its power demand and supply, and
matically changing the operating state of participating agents the price is determined through the market process. In most of
in response to data and values. the reviewed literature, the DER bidding model was a function
4 THANGAVELU AND K
TABLE 1 Summary of level-1 transactive agents The bid price model for the cooling mode operation of the
buy
Ref Transactive agent HVAC is presented in (2) [35]. The HVAC’s bid price 𝜆HVAC is a
function of the current room temperature Tcurrent , desired tem-
[33] General framework
perature Tdesired , and the maximum and minimum temperature
[32, 34–43] HVAC (Consumer)
limits Tlimit . To increase the winning possibility, the bid price of
[38] Refrigerator (Consumer) the transactive HVAC controller should be higher when the cur-
[35, 44–47] Water heater (Consumer) rent room temperature is greater than the required temperature.
[48–50] EV (Prosumer) It is difficult to calculate the bid quantity of HVAC because it
[51–54] Energy storage devices (Prosumer) depends on many factors. The previous power demand of the
HVAC was stored in the controller and used for the bidding pro-
[55, 56] DG units (Producer)
cess in [34]. In [36], the rated power of the air conditioning (AC)
loads was set as the bid quantity. When the market is cleared, the
temperature set point of HVAC is adjusted based on the market
of the mean and standard deviation price parameters over the clearing price (MCP) as follows [35]:
prior t hour market window/estimation over a future time win-
dow, and other factors. Price-based scheduling models of DER (𝜆clear − 𝜆) × |Tlimit − Tdesired | ⎫
were developed in previous papers to take advantage of the low Tadjusted = Tdesired + ⎪
(k × 𝜎) ⎬ (3)
cost and to reduce customer bills. Table 1 presents a summary ⎪
Tt ,minimum ≤ Tt ≤ Tt ,maximum
of the level-1 transactive agents in previous literature. ⎭
Tadjusted is the adjusted HVAC temperature. Tt ,minimum and

2.1.1 General framework Tt ,maximum are the minimum and maximum temperature limits
at time t . If the MCP is less than the HVAC bid price, the cool-
The modelling of the DER, decision-making, and market inter- ing set point is lowered further to take advantage of the low
actions with other participants is important for the coordination market prices; however, it is within the user-specified tempera-
and control of the DER. The DER is typically viewed as a sys- ture limits. In [37, 38], the authors modelled the bid price of the
tem of automated agents that can interact with other market AC as (4):
players and coordinators. The general objective of the DER is
√
𝜆HVAC = 𝜆̄ + 2erf−1 (1 − 2ΔHVAC ) × 𝜎⎫
to maximise its local payoff function, subject to local constraints buy
[19]. Each consumer has known preferences that can be cap- ⎪
tured by a utility function that depends only on the consumer Tcurrent − Tlower
HVAC
⎬ (4)
ΔHVAC = HVAC ⎪
consumption. Tupper − Tlower
HVAC ⎭
}
Max U (P, 𝜆; 𝜃 )
(1) erf−1 is the inverse error function. For the cooling mode of
s.t. h (P; 𝜃 ) ≤ 0 operation, when the room temperature approaches the lower
bound value (T → Tlower ), the HVAC submits a bid less than the
U (P, 𝜆; 𝜃) is the utility function of the controllable load for estimated mean value. The HVAC will bid at a price higher than
its consumption P under the price λ. θ is the private informa- the estimated mean value as the room temperature approaches
tion like their preferences and h(P; 𝜃) is the local constraint. the upper bound value (T → Tupper ), and there is increased pres-
Modelling the DER is difficult because of its complicated char- sure on the HVAC to be in the ON condition. If the MCP is
acteristics and dynamics in power system applications [33]. less than the HVAC bid price after the market-clearing process,
Numerous studies have been conducted on the modelling of the HVAC will be in an ON state. Otherwise, it will be in an off
DER, some of which are described below. condition. The authors of [39] developed a comfort-constrained
HVAC model to optimise the temperature set-points Tset-point of
HVAC, as presented below:
2.1.2 HVAC bidding model
∑
time
(Tset-point (t ) − Tdesired (t ))2
HVAC and water heaters are thermostatically controlled resi- min (𝜆(t ) × PHVAC (t )) + (5)
t =1
Tlimit
dential appliances that use a large proportion of a building’s
energy. They can be modelled as price-responsive loads and
offer great operational flexibility. where λ and PHVAC are the price and HVAC’s power con-
sumption estimate. In [32, 40], the TEF concept was applied
to control the HVAC system in a commercial building. Market
𝜆HVAC = 𝜆̄ + (𝜎 × k × ΔHVAC )⎫
buy
⎪ operations were defined within a building. Based on the ther-
Tcurrent − Tdesired ⎬ (2) mal requirements of the zones, the variable-air-volume (VAV)
ΔHVAC = ⎪
|Tlimit − Tdesired | ⎭ agents represent the zones’ bid for cool air in the ‘air market’,
THANGAVELU AND K 5
2.1.4 Electric water-heater bidding model
The water heater control was modelled using the normal prob-
ability distribution function in [35]. The energy band in the
hot water storage tank can be adjusted in accordance with the
electricity price to utilise low-price periods and feeder loading
conditions/voltages to take advantage of low-demand periods.
The state of energy (SOE) and price-based adaptive SOE limits
were modelled as follows [44]:
Einitial + EIN − EOUT − ELoss

SOEt = (7)
EFC
where Einitial is the initial energy in the hot water storage tank,
EIN is the input energy to the tank, EOUT is the hot water
drawn from the tank, ELOSS is the energy loss due to the
temperature difference, and EFC is the energy capacity of the
tank.
FIGURE 3 Transactive market structure for commercial building [40] ( )
Up Up
SOEmax − SOEmin ⎫
(𝜆 (t ) − 𝜆max )⎪
Up Up
SOEP = SOEmin − ⎪
(𝜆max − 𝜆min )
( ) ⎬
and the air handling unit (AHU) chiller agent, which requires SOE Lw
max − SOE Lw
min
⎪
electricity to generate the cool air, bids for electricity in the SOELw = SOELw
min −
(𝜆 (t ) − 𝜆max ) ⎪
P (𝜆max − 𝜆min ) ⎭
‘electricity market’. Figure 3 shows a commercial building mar- (8)
ket system with both the natural gas and electricity markets.
A reinforcement-learning-based bidding strategy for HVAC in Up∕Lw
TE markets was developed in [41]. Model-based and model- where SOEP are the adjustable SOE limits per price, and
Up∕Lw
free control strategies for HVAC systems were proposed in SOEmin∕max represents the predefined limit values. By replac-
[42]. The authors analysed the developed approaches through ing the price with feeder loading conditions or voltages in
simulations and claimed that the computation speed of the (8), the above-mentioned water heater model can be modi-
data-driven approach was faster than that of the model-based fied to provide technical grid support. A model for estimating
method. To accelerate the simulation of the TE systems, the the state of the heat energy inside a hot water tank in the
authors in [43] developed a reduced-order model of HVAC units presence of measurement errors and imperfect system knowl-
based on recurrent neural networks (RNN) and long short-term edge was developed in [45]. Other water heater models for TE
memory units (LSTM). applications can be found in [46, 47].
2.1.3 Refrigerator bidding model 2.1.5 EV bidding model

buy
The bid price model of the refrigerator 𝜆refrigerator considering Compared to vehicles powered by fossil fuels, EVs have sig-
the user specified temperature limits is presented below [38]: nificant benefits such as reduced carbon emissions, peak load
shaving, and balancing the power fluctuations of intermit-
√ ( ) ⎫ tent renewable energy resources. EVs are a great source of
𝜆refrigerator = 𝜆̄ + 2erf−1 2Δrefrigerator − 1 × 𝜎⎪
buy
flexibility because they can buy and sell energy in the mar-
refrigerator ⎪ buy
ket. In [48], the bid price of an EV 𝜆EV was modelled as
Tcurrent − Tlower ⎬ (6)
Δrefrigerator = refrigerator refrigerator ⎪ follows:
Tupper − Tlower ⎪
⎭ ⎫
𝜆EV = 𝜆̄ + (𝜎 × k × ΔEV )
buy
⎪
If the temperature of the refrigerator is close to the lower ( )⎪
bound value (T → Tlower ), it bids at a lower price than the pre- Time required to fully charge trequired ⎪
ΔEV = ⎪
dicted mean value. If the temperature approaches the upper Available time (tavailable ) ⎬ (9)
bound value (T → Tupper ), the refrigerator bids at a price higher (SOCdesired − SOCcurrent ) × Emax ⎪
than the predicted mean value. After the market-clearing pro- trequired = ⎪
Prated ⎪
cess, the refrigerator will be in an ON state if the MCP is lower ⎪
tavailable = tdeparture − tcurrent ⎭
than its bid price. Otherwise, it is off.
6 THANGAVELU AND K
where SOCdesired is the desired level of state-of-charge (SOC), 2.1.6 Energy storage device bidding model
SOCcurrent is the current level of SOC, Emax is the energy capac-
ity of EV, and Prated is the charging rate. tdeparture and tcurrent are Residential energy-storage devices (ESD) include battery
the EV’s departure time and current time. A customer with a energy-storage systems (BESS) and EVs. The basic difference
higher k value is more likely to leave a fully charged vehicle than between BESS and EVs is their availability. BESS are avail-
one with a lower comfort factor. Another bid price model for able at home all the time, whereas EVs are used for travelling
EV with an electricity price factor was derived in [49] as follows: and are mostly available only during the night for trading pur-
[ ] poses. Few studies have proposed common bidding strategies
trequired ( ) for energy-storage devices.
̄ × 3𝜎⎫
buy
𝜆EV =𝜆 + k + (1 − k ) 1 − 2ΔEV
tavailable ⎪ The day-ahead (DA) bidding model of the ESD was pro-
̄𝜆 − 𝜆̄ min ⎬ (10) posed in [51]. It is a bi-level optimisation problem with the
ΔEV = ⎪
𝜆̄ max − 𝜆̄ min ⎭ objective of profit maximisation at the upper level and schedul-
ing of ESD at the lower level. The authors of [52] proposed a
where 𝜆̄ min and 𝜆̄ max are the minimum and maximum value of flexible DA bidding strategy for the ESD, with the objective of
electricity price in the available time. profit maximisation. The optimum schedules were computed by
According to (10), the EV will bid at a higher price, boosting considering the battery characteristics and DA electricity price
the likelihood of charging when the current SOC level is lower forecast 𝜆DA as:
than its target level, and vice versa. The offer price model 𝜆EV
sell
∑
time
( ) ( )
of the EV considering the battery ageing factor γ and battery max 𝜆tDA EdtDA − EctDA − Φ EdtDA + EctDA
capital cost x in $/kWh was modelled as below in [48], t =1 (15)
( )2
( ) −𝛽 EdtDA + EctDA
trequired +Δt
𝜆̄ + 𝜎 × k ×
tavailale −Δt 0.001x
𝜆EV
sell
= + where Ed DA and Ec DA are the discharging and charging energy
𝜂2 𝛾 (SOCcurrent + 0.4) 2
bid in kWh. Φ accounts for the battery degradation, and β is the
market price sensitivity factor. Through simulations, the authors
(11)
claimed that in contrast to point bidding, the proposed flexible
bidding results in a higher profit (>50%).
The offer price model of the EV considering the battery wear
The ESD model considering both DA and real-time (RT)
price ωp was modelled as follows [49]:
market prices was developed in [53] as follows:
( )
⎫ ∑
24
( ) ∑
12
( RT ( RT ))
𝜆̄ 𝜔p
⎪ max 𝜆tDA PdtDA − PctDA + 𝜆t ,𝜏 Pdt ,𝜏 − Pct ,𝜏
RT
𝜆EV
sell
= ch dis + 2 × dis
𝜂 𝜂 𝜂 ⎪ t =1 𝜏=1
{ }⎬ (12)
rated 1 − SOCcurrent × Emax ⎪
( )
buy
PEV = min PEV , − 𝜔𝜎r (16)
𝜂ch Δt ⎪
⎭
{ } where PdtDA and PctDA are the DA discharging and charging
rated 𝜂
dis (SOCcurrent × Emax − Emin ) power at hour t . PdtRT RT
PEV = min PEV ,
sell
(13) ,𝜏 and Pct ,𝜏 represents the RT discharging
Δt and charging power at the RT interval 𝜏 of hour t . 𝜆RT is the
RT forecasted price and omega is the weighting factor for the
variance component 𝜎.
where 𝜂ch and 𝜂dis are the charging and discharging efficiency of
buy This was a mean-variance optimisation-based scheduling of
EV. Equation (13) presents the EV bid power quantity PEV and the ESD. The objective was to maximise the expected revenue.
sell
sell power quantity PEV [50]. Emin is the minimum allowable The second term in Equation (16) is the revenue’s standard devi-
rated
SOC level and PEV is the rated power of EV. ation to hedge the risk from the DA and RT price forecast
uncertainties. The authors of [54] used a simulated annealing-
based Q-learning algorithm to formulate a bidding strategy for
1
𝜂ch P ch − × Δt ESD.
𝜂 dis P dis
SOCnew = SOCold + (14)
Emax
2.1.7 DG units bidding model
Equation (14) defines the SOC level of the EV at each time
step. SOCold is the previous hour SOC level and SOCnew is the In most studies, it is assumed that power generation from DG
updated current hour SOC level. The EV is charged if the MCP units is forecasted with acceptable accuracy before the bidding
is less than the bid price and discharged if the MCP is higher window. The power output of DG units is not fully dispatched,
than the selling price; otherwise, it will remain in the idle mode and hence, they are generally accompanied by storage units to
until the next time slot. restore their excess generation. The trading strategy of DG is
THANGAVELU AND K 7
that it sells power only when it exceeds its self-consumption. If ∙ Electricity from other users via P2P energy trading
the MCP is greater than the expected selling price, the DG sells ∙ Electricity from the central facility managed by a separate
power. Otherwise, it is stored for later use [55]. The authors entity/third-party agent inside the MG.
of [56] developed two different RT local market structures for ∙ Electricity from aggregators
prosumers with DG: the P2P market and discrete double auc-
tion market. They analysed the behaviour of DG photo voltaic Buying electricity from the grid is the costliest option. The
(PV) systems with and without intelligent bidding behaviour. cost of power generation from PV and wind power is regarded
The DG bid quantity ranged from 5 to 7.5 kWh. Because pro- as zero because there is no fuel cost. The P2P energy trading
sumers cannot accept a price below the feed-in-tariff (FIT) price price is between the FIT price and import price from the grid
and consumers would not be prepared to pay more than the grid [63, 64].
power price, the zero-intelligence agent’s bid price was arbitrar- Each prosumer has a set of appliances that are either control-
ily assumed between the FIT price (12.31 c€/kWh) and grid lable or non-controllable. Controllable devices such as HVAC,
electricity price (28.69 c€/kWh). In contrast, intelligent agents EV, ESD, washing machines, refrigerators, and dishwashers par-
adjust their trading prices based on past trading actions and ticipate in the TE market to achieve local objectives. The DA
results. stage is the scheduling phase, where prosumers try to minimise
the operating cost by scheduling controllable appliances based
on their preferences, comfort, forecasted renewable genera-
2.2 Uncertainty modelling tion, and forecasted market prices. The RT stage is the trading
phase, where the prosumers with excess energy trade energy
The exact modelling of TE systems should consider the uncer- with those with an energy deficit and with the grid [65]. Stud-
tainties from the market electricity price, PV generation, wind ies have considered trading in both the DA and RT stages. The
power generation, EV driving patterns, and loads. In the general objectives of prosumers at this level are the minimisa-
literature, the uncertainty was modelled using Monte Carlo sim- tion of operating costs, maximisation of energy sharing with
ulation [57], robust optimisation [58], distributionally robust neighbours and profit, maximisation of self-utilisation from
optimisation [59], scenario-based stochastic optimisation [60], renewables and BESS, and power loss minimisation.
a hybrid of stochastic and robust optimisation methods [11], The DA energy scheduling problem of a prosumer with bat-
the autoregressive integrated moving average (ARIMA) method tery and HVAC as flexible devices was modelled as a cost
[61], and the information gap decision theory [62]. As this minimization problem as expressed below [66]:
article focuses on reviewing the trading strategy models of trans-
active agents, the detailed modelling of uncertainty handling
techniques is not described here. Min Costschedule = Costgrid + Costbattery + CostHVAC ⎫
⎪
where ⎪
⎪
2.3 Implementation methods Costgrid = Payment to the grid ⎪
⎪
time (
∑ ) ⎪
Various methods for the implementation of TEFs have been grid,buy ⎪
= 𝜆t × Pt
presented in the literature. These include centralised optimisa-
t =1
⎪
tion, decomposition methods, networked optimisation, game ⎪
Costbattery = Operating cost of battery ⎬
theory-based methods, agent-based methods, auction-based ⎪
methods, multi-level optimisation, and meta-heuristic optimi- ∑(
time
) ⎪
sation methods. As many review papers have discussed the = 𝛼b Pt + Pt
dis ch
⎪
t =1 ⎪
methods mentioned above in detail, we do not present them ⎪
CostHVAC = Discomfort cost
in this article. ⎪
∑
time
( t ) ⎪
= 𝛼h Tcurrent − Tdesired
t ⎪
3 LEVEL 2: SMART BUILDINGS ⎪
t =1 ⎭
(17)
The level-2 transactive agents are smart buildings (prosumers).
TEF can be applied to the energy management of prosumers in grid,buy
Pt is the amount of electricity purchased from the grid, 𝛼b
the MG, energy trading between prosumers, upstream networks, is the cost coefficient of the battery, and 𝛼h is the prosumer’s
and local markets. Prosumers can trade energy among them- sensitivity to temperature.
selves through P2P decentralised trading schemes and negotiate If P2P energy trading happens between the prosumers, then
the market price and trade energy with the grid at a fixed price. the corresponding payment term must be considered along with
The variety of power source options available for prosumers is other operating costs in (17) [66].
as follows:
∙ Electricity from the main grid ∑

time
p2p p2p
CostP2P = 𝜆t Pt (18)
∙ Own green energy via renewable generators t =1
8 THANGAVELU AND K
p2p and the proposed algorithm considers the privacy of prosumers

Pt is the total amount of energy purchased by the prosumer
through the P2P energy trading. For a prosumer located at and can be scalable to large systems.
node i, the active power loss during P2P energy trading can be Further research on the modelling of P2P energy trading
calculated as follows [67]: among smart homes is presented in [83, 84]. Table 2 presents
a comparison between the level-2 reviewed literature works
∑ ∑ rik ( p2p )2 r p2p according to the formulation of the objective function, consid-
Ploss = 2
Pi j + 2 ik2 Pi j Pik (19) eration of risk measures in the objective function, the type of
∏ V V
j ∈B∕i k∈ i i
ij market in which the transactive agent (smart buildings) partic-
∏ ipated, trading with peers or with the grid, and the modelling
where i j is the set of nodes on the path from the pro- of uncertain parameters such as price, load, and uncontrollable
sumer located at node i to the prosumer located at node j. DG generation. From a network perspective, the comparison
p2p
Vi is the voltage at node i. Pi j is the amount of power pur- is based on the consideration of the network power loss and
chased by the prosumer at node i from the prosumer at node j network constraints in the model.
through the P2P energy trading. Few studies have considered
the wheeling charges/service fee for using a power line cor-
ridor to transfer energy. The DSO charges wheeling costs to 3.1 Prosumer’s cost function
recover the investment and operational maintenance costs of
the grid infrastructure. The seller and buyer can share the net- A prosumer may function as a seller or buyer during market
work utilization charge (NUC) towards using the power network operations. The behaviour of the prosumer can be modelled
to transfer energy. In [68] and [69], the NUC was calculated using a cost function. If he acts as a seller, the function indi-
using the power transfer distribution factor (PTDF) as: cates the generation cost, and if he acts as a buyer, the function
indicates his eagerness to spend energy.
L PTDFl × d
∑ ij l The cost function of the prosumer was modelled in [65] as
NUCi j = (20)
Pl follows:
l =1
dl is the utilisation fee, and Pl is the total power flow in the

( ) 1
line. In [70], the authors developed a model for the energy CostPro Ppro = Xpro Ppro
2
+ Zpro Ppro (21)
management of a residential microgrid with various houses, 2
namely traditional, proactive, and enthusiastic. The houses were
divided based on the inclusion of renewables and BESS. The Ppro is the net power traded in the market and Xpro > 0 and
authors in [71] proposed a transactive real-time EV charging Zpro < 0 are the prosumer preference parameters. In [85], the
scheme for the building energy management system of com- authors formulated a local energy-trading model for prosumers,
mercial buildings to address the uncertainties of onsite PV a central storage facility, and a power grid. The cost function of
generation. A transactive vehicle-to-vehicle power exchange the prosumer is modelled as follows:
model based on a hierarchical bipartite graph matching method
was proposed in [72], in which the distribution system was
divided into several subsystems of EV based on their locations. ⎧ −𝜎 P 2 + 𝜏 P ; 𝜏pro
Ppro ≤
Each subsystem trades energy with neighbouring subsystems ( ) ⎪ pro pro pro pro 2𝜎pro
and the utility grid to maximise revenue and energy efficiency. CostPro Ppro = ⎨ 𝜏pro
2
⎪ 2𝜎 ; otherwise
Prosumers can also participate in the flexibility market to pro- ⎩ pro
vide downward/upward flexibility when requested by the grid (22)
operator in the case of network overloading/under-loading
by changing their traded power with the grid [65]. A hybrid where σ and τ are constants.
interval stochastic optimisation-based control strategy for pro-
sumers was developed in [73]. A game-theoretic model for P2P
energy trading among smart houses was proposed in [74], with 3.2 Constraints
the objective of maximising social welfare. The risk analysis
tool VaR was considered in the P2P model to mitigate the The general constraints of level-2 TE modelling are the power
risk of trading failure in [75]. The value of the lost load and balance at each node, limits on the maximum power exchange
spillage cost of renewable generation were included in the pro- with the main grid and neighbours, distribution transformer
sumer’s energy trading model developed in [76, 77]. The bidding overloading constraint, local renewable energy capacity con-
strategy of prosumers based on deep reinforcement learning straint, individual appliance constraints (such as maximum and
[78], ant colony optimisation [79], distributed neurodynamic minimum power limits and preferred operating times), binary
algorithms [80], and multiagent-based models [81] have been logic constraint for the charging and discharging operation of
developed in the literature. P2P energy trading based on multi- the ESD, and dynamic behavioural constraint of flexible loads
actor-attention-critic (MAAC) algorithms was developed in [82], such as HVAC and ESD.
THANGAVELU AND K 9
TABLE 2 Comparison of level-2 reviewed literature
Power
P2P Network Loss Risk
Ref Transactive agent trading Objective function Trading floor constraints model Uncertainty model measure
[65] Smart apartment buildings ✓ Min of cost DA and RT ✓ ✗ Scenario based approach ✗
[66] Smart homes ✓ Min of cost DA ✗ ✗ ✗ ✗
[69] Prosumers ✓ Max of Social welfare RT ✓ ✗ ✗ ✗
[73] Smart homes ✓ Max of profit and energy DA and RT ✓ ✗ Hybrid interval-stochastic ✗
transacted approach
[74] Smart homes ✓ Max of Social welfare DA ✗ ✗ ✗ ✓
[76] Smart homes ✗ Max of expected profit DA and RT ✗ ✗ Scenario based approach ✗
[77] Smart homes ✗ Max of profit DA ✗ ✗ Scenario based approach ✓
[81] Smart homes ✓ Min of cost DA and RT ✗ ✗ ✗ ✗
[85] Prosumers and central ✓ Min of cost DA ✗ ✗ ✗ ✗
storage unit
3.3 Performance assessment of prosumers the proportion of the overall electric load provided by renewable
energy sources and the energy drawn from the batteries.
Few studies have proposed performance assessment crite-
ria for prosumers to analyse their interactions with the grid,
participation in the market, and renewable installation rates. 3.3.3 Economic analysis of renewables
installation [86]
3.3.1 Grid interaction The profitability of the renewable integration can be analysed
by calculating the net cash flow, payback period, and net present
For a community with N prosumers, the annual imported value.
electricity Eimported and exported electricity Eexported can be
calculated as follows [63]: ∙ Net cash flow (NCF)
∑ ∑
N 8760 ⎫ This represents the overall profit generated using renewable
Eimported = n
Pimported,t ⎪ energy each year.
n=1 t =1 ⎪
⎬ (23)
∑ ∑
N 8760
⎪
Eexported = n
Pexported,t ⎪
n=1 t =1 ⎭ NCF = 𝜆FIT Egen − CostOM − Costinverter (24)
where Pexported and Pimported are the exported and imported

power. where Egen is the amount of renewable generation, CostOM is
The net equivalent CO2 emission (CE) can be calculated by, the operational and maintenance cost, Costinverter is the cost of
( ) inverter replacement for every five years.
CE = CEF × Eimport − Eexport
∙ Payback period (PP)
where CEF is the equivalent CO2 emissions factor of the grid.
A negative CE value means that the community helps reduce This is the period needed to generate cash flows to cover the
carbon emissions. initial investment.
3.3.2 Renewable penetration rate and grid Installation cost

independence [63] PP = (25)
Yearly savings
The self-consumption ratio (SCR) and self-sufficiency ratio

(SSR) are used to quantitatively analyse local renewable pen- ∙ Net present value (NPV)
etration and grid independence. SCR represents the ratio of
renewable generation used by the prosumer community to the The value of future revenue from the integration of
total power generation from the renewables. The SSR indicates renewable energy is determined using the NPV.
10 THANGAVELU AND K
4 NETWORK MODELLING 4.3 Linearisation and Convexification
Electric network constraints such as real and reactive power The power network modelling equations are nonlinear and non-
flow, line capacities, maximum line current magnitude lim- convex. Techniques, such as linearisation or convexification, can
its, and voltage magnitude limits need to be considered for be used to solve these equations with less computational effort.
the detailed modelling of TEF and to analyse the flexible The BIM non-linear equations can be linearised using piece-
operation of transactive agents. Power networks can be mod- wise linear approximation techniques as in [49, 98].
elled using the bus injection method (BIM) or branch flow [ ] [ ] }
method (BFM). Both BIM and BFM formulations are equiv- Pi j = Gi j Vi − V j − wi j + 1 − Bi j 𝛿i − 𝛿 j
[ ] [ ] (28)
alent; however, based on the structure of the network and Qi j = −Bi j Vi − V j − wi j + 1 − Gi j 𝛿i − 𝛿 j
application, one might prefer one model over the other [87].
This section describes the two power flow models and the With a proper range of the voltage angle |𝛿i − 𝛿 j |, wi j
relaxations of these models. represents the piece-wise linear approximations of cos(𝛿i − 𝛿 j ).
[ ]
wi j = di j 𝛿i − 𝛿 j + ei j
4.1 Bus injection model [88]
The values of di j and ei j are chosen such that wi j and
BIM focuses on nodal variables, such as voltage (V), current cos(𝛿i − 𝛿 j ) intersect at the break points.
(I), and power injections. It can be expressed in several equiv- The linearised BFM equations are obtained by substituting Ii j
alent forms, depending on the representation of the voltages = 0 in (27) [94].
and admittance matrix elements. The most common form of ( ) ∑
Pjk ⎫
g
the model uses the polar form for voltage Ṽi = Vi ∠𝛿i and Pi j = Pjd − Pj +
˜ ⎪
rectangular form for admittance Y i j = Gi j + jBi j ( ) k∶
∑
j →k
⎪
g
Qi j = Q dj − Q j + Q jk ⎬ (29)
→k ⎪
( ) ( k∶ j )
Pi j = Gi j Vi 2 − Gi j Vi V j cos 𝛿i − 𝛿 j ⎫ V j 2 = Vi 2 − 2 ri j Pi j + xi j Qi j ⎪ ⎭
( ) ⎪
− Bi j Vi V j sin 𝛿i − 𝛿 j ⎪
( )⎬ (26) The most applied convexification techniques in the literature
Qi j = −Bi j Vi + Bi j Vi V j cos 𝛿i − 𝛿 j ⎪
2
are second-order cone programming (SOCP) and semi-definite
( )
− Gi j Vi V j sin 𝛿i − 𝛿 j ⎪ programming (SDP). In [87], the convex relaxations for the
⎭
BIM equations were based on the SDP method and the BFM
equations were based on the SOCP method. The detailed mod-
Research papers on TE that consider BIM-based network- elling of convex relaxation techniques for power flow models
constrained modelling include [49, 60, 89–91]. and their exactness can be found in [99, 100].
4.2 Branch flow model [92] 5 LEVEL 3: MICROGRIDS

The BFM represents the power network by a directed graph and In this study, level-3 transactive agents were MGs and
specifies a set of equations in terms of the branch variables. distribution-level aggregators. TEF can be applied for the bid
modelling of aggregators, energy management of an MG or
( ) ∑ networked MGs, and energy trading control among multiple
g
Pi j = Pjd − Pj + ri j Ii2j + Pjk ⎫ MGs and with the main grid. The energy management between
→k
⎪
( ) k∶ j
∑ ⎪ the MGs and wholesale energy market (WEM) is operated
g
Qi j = Q dj − Q j + xi j Ii2j + Q jk ⎪ by the DSO. Energy trading between the MGs is encouraged
k∶ j →k ⎪ to increase the cost savings of the MG and reduce the grid
( ) ( )⎬ (27)
V j = Vi + ri j + xi j Ii j − 2 ri j Pi j + xi j Qi j ⎪
2 2 2 2 2 dependency.
⎪ From an MG perspective, the main goal is to reduce the
Pi2j + Qi2j ⎪
Ii j =
2 overall energy and operating costs. In [57], it was formulated
2 ⎪
Vi ⎭ in terms of the cost of energy purchased from the main grid
and the revenue of the energy sold to the main grid.
g
where Pjd and Pj are the real power demand and generation ∑
time
grid,buy grid,buy grid,sell grid,sell
g Min Cost = Pt 𝜆t − Pt 𝜆t (30)
at node j . Q dj and are the reactive power demand and
Qj
t =1
generation at node j .
Research papers on TE that consider BFM based network- The other cost terms that can be included in the cost min-
constrained modelling include [93–97]. imisation formulation of the MG are the operational cost of the
THANGAVELU AND K 11
DG [59], load interruption cost [101], and discomfort cost of ij is the same in the time interval t−1 and t; and otherwise,
flexible loads [96, 102]. the value is one. A game theory model for P2P TE trading
The generation cost function of controllable DG (e.g. micro- among multi microgrids considering network reconfiguration
turbines) can be modelled as a quadratic function of the active was proposed in [89].
power output. TEF-based coordinated energy management of networked
( ) microgrids was presented in [59, 60, 106]. MGs may be involved
Cost Pg = 𝛼g Pg2 + 𝛽g Pg + 𝛾g (31) in P2P trading or through DSO. In DSO centred trading, opti-
mal energy is allocated to buyer MGs based on the priority
α, β, and γ are constant coefficients. The generation costs of PV index/rank. In [107], the authors proposed a model to calcu-
and wind power are usually considered to be zero. The trans- late the priority index based on past contributions of the MG
mission cost can be imposed on the seller MG or Buyer MG, or and local load demand.
in some cases, it can be shared equally among buyer and seller
MGs. In [103], an energy trading service fee was imposed on the No. of past contributionMG LoadMG
Priority indexMG = +
seller MG. No. of contributiontotal Loadtotal
(36)
Costservice
MG = cPMG 𝜃MG (32)
By considering the past contributions of the MG to cal-
where PMG is the surplus electricity of the seller MG, 𝜃MG is the culate the priority, they are encouraged to share their surplus
percentage of PMG that the MG plans to sell to the market and c energy with other MGs. It will receive incentives in terms of
is the electricity trading service fee. In [104], the energy transfer preference when energy is required to meet its local demand
cost between two MGs was imposed on the buyer MG, and the in the future. In [108], four factors, namely, the ratio of sell-
energy transfer cost between the MG and grid was formulated ing/buying, forecasting accuracy, contribution of supply, and
as a quadratic function as follows: historical performance, were considered for prioritising the
( ) seller/buyer MG for a sustainable energy scheduling frame-
MG,grid PMG,grid = aPMG,grid + bPMG,grid
Costtransfer 2 work. The parallel multidimensional willingness-based bidding
(33)
strategy of the MG was proposed in [109]. The willingness
PMG,grid is the amount of power purchased by the MG from (WN) of the MG in bidding run m was modelled as follows:
grid. a and b are constant coefficients. ( )
The quadratic term accounts for the power loss across the WNmMG = HTRMG × CBBW × TPmMG + MDmMG × SDRMG
line, whereas the linear term accounts for the construction and
(37)
maintenance fees of the line. In [105], the MG trading cost
was imposed on the buyer MG, and it depended on the trad-
Detailed modelling of historical trading records (HTR),
ing amount and distance between the trading MGs. If Ppur,xy is
counter behaviour to the bidding window (CB), time pressure
the amount of power purchased by MG x from MG y and dxy is
(TP), matching degree of the bidding quantity (MD), and real-
the equivalent electrical distance between them, and the power
time supply–demand relationship (SDR) can be found in [109].
transfer cost is given by:
In some cases, the MG may be disconnected from the main grid
( ) ( ) 2 owing to extreme fault events. During this time, local resources
Costtransfer
xy Ppur,xy = 𝜎xy Φ2 + 1 Ppur,xy dxy (34)
and power purchases from other MGs can be used to meet local
In addition to the purchasing of active power, the amount demand. The DA scheduling model of an MG that considers
of reactive power imported was also considered in the above the possibility of main grid disconnection for several hours was
model, Qpur,xy = ΦPpur,xy . 𝜙 is the reactive and real power ratio. proposed in [110]. Unregulated trading among MGs may result
𝜎 is used to estimate the delivery cost. in congestion/overloading of power lines, which affects the
In reconfigurable power networks, the distances between stable operation of the power system. The congestion manage-
MGs are different for different network topologies, resulting ment for P2P energy trading among MGs was analysed in [111].
in different trading decisions. For MG energy trading in recon- Reinforcement-based energy trading among MGs was proposed
figurable networks, in addition to costs such as the generation in [112]. An aggregator is an entity between the energy mar-
cost of DG (31), power purchase cost from WEM/DSO, and ket and prosumers. Small-scale prosumers cannot participate
delivery cost of the purchasing power from other MGs, other directly in the electricity market owing to their energy capac-
cost functions, such as the cost of the switching action, must ity. Hence, aggregators negotiate the market for energy services
be included in the formulation. The cost of switching actions in on behalf of a group of prosumers. TEF models based on the
reconfigurable networks is modelled as follows [95]: interactions between EV aggregators and DSO were developed
in [113, 114]. The demand response aggregator model was dis-
∑ ∑
Costswitching = Csw BVt ,i j (35) cussed in [115] and the model-free load aggregator formulation
t ∈time i j ∈Ntb was presented in [116]. Table 3 presents a comparison between
the level-3 reviewed literature works according to the way
where CSW is the cost of the switching action. BVt ,i j is the they formulated the objective function, consideration of risk
binary variable, its value is zero if the status of the tie-line branch measures in the objective function, the type of market in which
12 THANGAVELU AND K
TABLE 3 Comparison of level-3 reviewed literature
Uncertainty model/risk Network Network

Ref MG trading Formulation Trading floor measure reconfiguration constraints
[57] ✓ Min of cost - Scenario based approach ✗ ✓

[60] ✓ Max of social welfare DA Scenario based approach ✗ ✓
[95] ✓ Min of cost DA ✗ ✓ ✓
[105] ✓ Min of cost - ✗ ✓ ✓
[106] ✓ Max of benefit - Scenario based ✗ ✓
approach/Cvar
[107] ✓ Max of social welfare RT ✗ ✗ ✗
[108] ✓ Min of cost RT ✗ ✗ ✗
[110] ✓ Min of cost DA Hybrid robust and ✗ ✗
stochastic
the MG participated, and how uncertain parameters such as purchasing gas from the wholesale gas market and gas utility
the price, load, and uncontrollable DG generation were mod- companies and buying water from the upstream network will
elled. From a network perspective, the comparison is based on also be considered, along with the electricity purchasing cost.
the consideration of the network reconfiguration and network The cost function of the combined heat and power (CHP) units,
constraints in the model. which can provide both electric and heat energy for the EH, is
given below [119]:
5.1 Constraints CostCHP = 𝛼 + 𝛽PCHP + 𝛾PCHP

2
+ 𝛿HCHP
In level-2 TEF, detailed network modelling constraints are usu- + 𝜁HCHP

2
+ 𝜏HCHP PCHP (38)
ally not considered because smart homes are generally located
close to each other. However, in level-3, although the microgrids where α, β, γ, δ, ζ, and τ are the fuel cost coefficients of the
are geographically close, they cover a larger part of the net- CHP units. PCHP and HCHP are the power and heat generation
work. Hence, the proper modelling framework of level-3 should of the CHP, respectively. The DA bidding strategy for the CHP
consider network constraints. Network modelling is briefly units was developed in [120]. In [121], the optimal scheduling of
explained in Section 4. The other constraints include power bal- interconnected multiple EHs was proposed with the objective
ance, maximum power exchange with the local electricity market of minimising the energy cost and reducing CO2 emissions, as
and grid, uncertainty modelling constraints, controllable DG given below:
power generation constraints, and load flexibility constraints.
∑ ∑ ( grid,buy grid,buy
NEH time
grid,sell grid,sell
)
Min Cost = PEH ,t 𝜆t − PEH ,t 𝜆t
EH =1 t =1
6 INTEGRATED ENERGY SYSTEMS + Costem + Costop&m + CostDR + Costex + Costwater
(39)
The TEF concept can be applied to the optimal energy schedul-
ing of an EH or multiple EHs and energy trading among them. The CO2 emission cost (Costem ) was calculated based on
An EH is a transactive agent, which may be a single residen- the CO2 emissions produced by purchased electricity and nat-
tial building energy system or a microgrid. However, EH differs ural gas. In multiple EHs, the operation and maintenance costs
from other transactive agents because it is a multi-input and (Costop&m ) include the costs of renewable energy generation,
multi-output energy system and does not have a size limita- CHP, gas boilers, gas turbines, heat exchangers, and storage
tion. The presence of these multiple energy systems in the units. CostDR is the electrical demand response cost. Costex
network increases the number of coupling devices and inter- accounts for the maintenance cost of physical exchange net-
actions between them at various levels of the network. Energy works such as gas pipelines and power transmission lines. The
systems include electric power systems, natural gas networks, water purchasing cost from the upstream grid is given by:
heating and cooling systems, hydrogen production and trans-
portation, and electrified transportation. Figure 4 shows the
∑ ∑
NEH time
possible interactions between the multienergy sectors (CCGT = Costwater = 𝜆water PEH
water
(40)
,t
combined cycle gas turbines, P2G = power-to-gas equipment, EH =1 t =1
SNG = synthetic natural gas, ESS = energy storage system [117,
118]). The primary objective of an EH is to minimise its oper- where 𝜆water is the price of the water and PEH
water
,t is the total water
ating cost. For electric, gas, and water networks, the cost of demand of EH in hour t .
THANGAVELU AND K 13
FIGURE 4 Multi-energy systems (adopted from [117, 118])
Energy loss may occur owing to energy trading among EHs imisation. The water network consisted of water storage, water
located at different network nodes. In [122], the energy loss desalination units, and water wells.
was modelled by multiplying the transferred energy Exy with
lxy , which was a small factor ranging from 2% to 6%, depending
on the distances between the two interacting EH systems. OF = min (Cost,water ) ⎫
⎪
loss
Exy = Exy lxy (41) ∑
time
⎬ (44)
Water = t
Consumptionwellwater ⎪
t =1 ⎭
In [123], for reconfigurable networks, the cost of the power
loss was formulated as a quadratic function of the transferred
power. In (44), the term ‘Water’ is the amount of water extracted
from the well. Consumptiontwellwater is the amount of water
( t ) ∑time
( t )2 consumed from well at time t . With the co-optimising goal
Costloss
xy Ppur,xy = 𝛽dxy
t
Ppur,xy (42)
t =1
of reducing the cost of MG and improving traffic conditions
by reducing rush-hour traffic and uneven utilisation of fast-
β indicates the relationship between the exchange cost and charging stations, a multi-agent-based TEF for the coupled
transferred power. MGs are cyber-interconnected via com- system of MG and urban transportation networks was proposed
munication lines. The TEF for multi-energy trading and in [126]. The optimal bidding strategy of an EH considering
communication trading among interconnected MGs is pro- the uncertainties from renewable energy resources, DA market
posed in [124]. The communication cost Costcomm function price, and RT market price was modelled in [127]. The TEF for
is included along with other cost terms in the minimisation the scheduling and trading operations of coupled electric and
objective. thermal systems was discussed in [128–130]. Further research
on the modelling of P2P energy trading among EHs can be
2
Costcomm = 𝜇1 yn + 𝜇2 (yn ) (43) found in [131, 132]. Table 4 presents a comparison between the
integrated energy systems reviewed in the literature according
The first term represents the service cost, whereas the sec- to formulation of the objective function, consideration of risk
ond term represents the penalty cost for the overutilisation of measures in the objective function, the type of market in which
cloudlet resources. Where 𝜇1 is the unit communication cost, 𝜇2 the transactive agent (EH) participated, components of EH,
is the penalty cost, and yn is the utilisation rate of an individual solution methods, and the modelling of uncertain parameters
cloudlet. A TEF for the multi-objective optimisation of energy such as the price, load, and uncontrollable DG generation. From
and water management in multi-EHs was proposed in [125]. a network perspective, the comparison is based on the consid-
The minimisation of freshwater extraction from the well was eration of the network reconfiguration and network constraints
considered in the objective function (OF) along with cost min- in the model.
14 THANGAVELU AND K
TABLE 4 Comparison of integrated energy systems related literature
Trading Uncertainty Network Network

Ref Transactive agents floor Formulation model/risk measure reconfiguration constraints Method
[119] CHP RT Min of cost ✗ ✗ ✗ Distributed

[121] Power, heat, gas and water - Min of cost and CO2 emission Robust optimization ✗ ✗ Centralized
network
[124] Power, heat, gas-energy and - Min of cost ✗ ✗ ✗ Distributed
communication resources
[123] Power, heat, gas DA Min of cost ✗ ✓ ✓ Centralized
[125] Power, heat, gas and water - Min of cost and fresh water ✗ ✗ ✗ Centralized
network extraction from well
[126] MG and transportation - Min of cost and improving ✗ ✗ ✓ Distributed
network traffic conditions
[128] CHP DA&RT Min of worst case demand Robust optimization ✗ ✓ Distributed
procurement
[129] Power, heat, gas DA&RT Min of cost Robust optimization ✗ ✓ Centralized
6.1 Constraints The first term in Equation (47) is the thermal unit dispatch,
and the second term is the DSO payoff of the DSO based on
General constraints in EH modelling include limits on import- accepted DSO bids. G and Zgen are sets of Gencos and thermal
ing natural gas, electricity, and water; exchange limits between units, respectively. SUC and SDC are the start-up and shut-down
the hubs and grid; electricity storage and heat storage con- costs of the thermal units, respectively. BV is a binary variable
straints; energy balance constraints; EH network constraints; that shows the on-off status of the thermal units. 𝜆buy,DSOX and
maximum generation; and flexible load constraints. P buy,DSOX are the price bid and power bid of DSO X . A two-
stage stochastic model for the coupled operation of the WEM
and LEM was proposed in [135]. The DA bidding strategy of
7 LEVEL 4: MACROGRID the DSO in the coupled LEM and WEM with energy and down-
ward and upward reserve bids was developed in [136]. Strategic
At the TSO level, transactive agents include traditional bulk bidding of the DSO based on the multivariate linear regression
power generation, grid-scale renewables, large loads, aggre- method was proposed in [137].
gators, VPPs, and DSOs. The WEM collects bids from A downside risk constraint-based offering strategy for wind-
participants and solves standard economic dispatch procedures, photovoltaic-thermal Genco was developed in [138]. As regards
such as ACOPF or simplified DCOPF, to determine the price the profit maximisation objective, the formulation of the
and quantity. The problem formulation with a set of generators downside risk constraints can be expressed as follows:
and price-responsive loads was modelled in [133] as follows: {
Targetprofit − profit𝜔 ; profit𝜔 < Targetprofit
∑
G
( ) ∑F
( ) Risk𝜔 =
Min Cgen Pggen − U f Pl f (45) 0; profit𝜔 > Targetprofit
gen=1 f =1 (48)
The utility function of a flexible load is given as: Equation (48) can be reformulated as:
( ) ( )
U f Pl f = −𝛼Pl f2 + 𝛽Pl f (46) 0 ≤ Risk𝜔 − Targetprofit − profit𝜔 ≤ M1 × (1 − U𝜔 ) (49)
where α and β ≥ 0 are the flexible load parameters. The 0 ≤ Risk𝜔 ≤ M2 × U𝜔 (50)
DA transactive energy market with DSOs as the participating
transactive agents is given as follows [134]: 𝜔 and S are the index and set of scenarios and 𝜋𝜔 is the
probability of each scenario. Targetprofit is the predetermined
G time Zgen
∑ ∑∑ { } expected profit, Profit𝜔 is the expected profit at each scenario,
gen gen gen
OF = min BVz,t Cgen (Pggen ) + SUCz,t + SDCz,t Profitnorisk is the expected profit in the risk neutral strategy and
𝜔
gen=1 t =1 z=1
Risk𝜔 is the profit risk for each scenario. M1 and M2 are large
positive constants, and U𝜔 is the binary number, which is equal
∑ ∑
time NDSO
buy,DSOX buy,DSOX to one when the profit that is obtained is less than the target
+ 𝜆t pt (47)
t =1 x=1 profit.
THANGAVELU AND K 15
TABLE 5 Comparison of prior studies on level-4 transactive agents
Trading Network
Ref Transactive agent Formulation floor constraints Risk and uncertainty analysis
[133] GENCOs, loads, DSOs. TSO—Social welfare RT ✗ -

maximisation
[134] GENCOs, loads, DSOs TSO—Min of cost DA ✓ Robust optimisation
[136] GENCOs, loads, DSOs. TSO—Min of cost DA ✓ Scenario-based approach and robust
risk-averse approach
[137] GENCOs, loads, DSOs TSO—Min of cost RT ✓ -
[138] GENCO (wind, photovoltaic, GENCO—Max of profit - ✗ Downside risk constraints and
thermal) stochastic optimisation
[140] Wind producer Wind producer—Max of DA and RT ✗ Second-order stochastic dominance
expected profit constraints and ARIMA models
[142] Wind-PV coordinated model Max of profit DA ✗ Stochastic approach
[143] VPP Max of profit DA ✓ Value-at-risk
[145] Prosumer aggregator Max of profit DA ✓ Scenario-based approach
[147] GENCOs, loads, wind GENCO—Max of profit DA and RT ✓ Cvar and scenario-based approach
generator
[148] Independent power producer IPP—Max of revenue DA and RT ✗ Cvar and hybrid stochastic
(IPP) (Concentration solar information gap approach
power plant)
Thus, the expected downside risk (EDR) can be calculated as: agent participated, consideration of risk measures in the objec-
tive function, and the modelling of uncertain parameters such
∑
S
as price, load, and uncontrollable DG generation. From the net-
𝜋𝜔 × Risk𝜔 ≤ 𝛼 × EDR (51) work perspective, the comparison is based on the consideration
𝜔=1
of the network constraints in the model.
∑
S
( )
EDR = 𝜋𝜔 × ProfitNorisk
𝜔 − Targetprofit (52)
𝜔=1
7.1 Constraints
Here, α is the risk control [139]. In stochastic dominance
constraint-based risk management, the benchmark selection is The general constraints of the level-4 TEF include the power
the most important. In [140], an optimisation-based benchmark balance constraint, limits on power generation and flexible
selection method that can be applied to any stochastic pro- loads, transactive agent operational constraints, constraints on
gramming problem with a second-order stochastic dominance bidding capacity and energy exchange of transactive agents in
constraint was proposed and applied to the bidding strate- the energy/reserve markets, power network, and risk factor
gies of wind power producers. A co-simulation platform for model constraints.
the implementation of the integrated operation of WEM and
LEM operations was developed in [141]. The simulation soft-
ware, MATPOWER and GridLab-D, were used to replicate the
WEM and LEM operations. The coordinated bidding model of 8 PERFORMANCE ASSESSMENT OF
wind-PV systems was formulated in [142] and compared with TRANSACTIVE ENERGY SYSTEMS (TES)
the uncoordinated approach. A graph computing framework
(GraphVPP)-based bidding strategy for VPP was proposed in The performance metrics were proposed in [149] for the quan-
[143]. The proposed framework considers both the economic titative and qualitative assessment of TES. The quantitative
aspects of the DER and technical factors of the power network. performance metrics from the financial perspective include the
More research on the modelling of the trading strategy of the following:
VPP can be found in [144].
The authors in [145] proposed a bidding strategy for pro- ∙ Social welfare ($), which quantifies the optimality of the
sumer aggregators. Risk-constrained modelling of microgrid derived control actions in each market cycle.
aggregators was developed in [146]. Table 5 presents a com- ∙ Total social welfare ($), which represents the social welfare
parison between the level-4 reviewed works in the literature over an extended period.
based on the type of transactive agent, the formulation of the ∙ The price volatility index ($/kWh), which represents the
objective function, the type of market in which the transactive degree of fluctuations in the MCP.
16 THANGAVELU AND K
Quantitative performance metrics from the control perspec- the power balance caused by intermittent DER and prosumer
tive include, loads/generation at the distribution level. The implementation
of ICT-enabled systems is a key driver for overcoming these
∙ Violation level: This measures the severity of the violation of challenges, and paves the way for significant automation and
global constraints. speed. This enables prosumers to track their real-time power
∙ Algorithmic complexity: This quantifies the resources used generation and consumption profiles and respond to price sig-
by the underlying algorithm of the market design to nals based on their comfort and settings. Numerous studies are
determine the MCP. underway in RT markets with a clearing time period between 5
∙ Load synchronisation index (kW): This reflects and 15 min. The fast and efficient transfer of data and infor-
mation depends on the performance of ICT infrastructure.
the degree of fluctuation in the aggregated responses of Therefore, more reliable and efficient ICT technologies need to
controllable loads. be developed.
Qualitative metrics include scalability and robustness.
Detailed explanations and models of the metrics can be found
in [149]. The authors in [150] proposed performance metrics for 9.2 Privacy
the design and valuation of retail TES. The five categories of the
market performance and the developed quantitative metrics for Increased dependence on data and information for the imple-
each category are explained below. mentation of trading mechanisms has raised threats and risks
to the privacy and security of transactive agents. During market
∙ Market efficiency refers to the competitive equilibrium of interactions, there is a chance of information leakage from indi-
the market. The metrics that quantify the efficiency of a vidual market participants to others. Data such as participants’
retail TES include the market operational efficiency index, energy usage patterns, availability, and economic conditions
structural efficiency index, market spread index, and hedge should be preserved and not shared with other participants.
ratio. In the future, more privacy-preserving TE market structures
∙ Market power refers to the ability of the market participants should be developed.
to affect market prices. The metrics that quantify the market
power of participants in retail TES include the Herfindahl-
Hirschman index, Lerner, and residual supply indices. 9.3 Scalability
∙ Market volatility refers to the price fluctuations over time.
The metrics that quantify the volatile nature of retail TES The TE market structure should be scalable and have no com-
include the market price deviation index, the adjusted market putational difficulty in determining optimal values owing to the
price deviation index, and the price velocity index. large number of transactive agents that want to participate in
∙ Market fairness is fair treatment for the market participants. market transactions. A market structure that can be adaptable
The market fairness metrics include the fair price index and and scalable to large systems is highly necessary, and similar
Jain’s fairness index. algorithms must be developed.
∙ Market reliability involves sufficient resources to restore the
system after any fault. The metrics that quantify the reliabil-
ity of a retail TES include the resource availability index and 9.4 Cyber security issues
market resiliency index.
As autonomous transactive agents participate in the energy
Detailed explanations and models of the metrics can be market and a large amount of data is transferred over com-
found in [150]. A simulation-based performance assessment of munication channels, TEF are susceptible to significant cyber
the TES was developed in [151]. threats. Manipulating data in TEF affects operations and
financial gains. Many studies have concentrated on adopt-
ing blockchain technology and smart contracts to protect
9 FUTURE RESEARCH DIRECTIONS devices, networks, and data. Electricity trading platforms based
on the blockchain inherit certain desired properties such as
The challenges of implementing TEF are discussed here, along decentralisation, resilience, and security. Some attacks that are
with potential areas for further research. possible in centralised systems cannot occur in blockchain-
based systems owing to their distributed architecture. For
instance, false data-injection attacks that manipulate price sig-
9.1 Information and communication nals may be unsuccessful because the devices can confirm such
technologies (ICT) information from multiple blockchain nodes. Blockchain-based
P2P energy trading and crowdsourcing are more trustwor-
The application of TEF is well established at the transmission thy. Thus, the blockchain-based cyber security side of TEF
level and in the development stage at the distribution level. The needs to be explored further, and efficient methods must be
main challenges include integrating more DER and maintaining developed.
THANGAVELU AND K 17
9.5 Forecasting 9.9 Learning-based trading strategies
Uncertainty modelling is a significant factor in the successful It is difficult to derive the optimal bid of a transactive agent
implementation of a TEF. Uncertain parameters are not known because of the complexity of the market process and many
in advance and need to be forecasted. Forecasting is an impor- uncertain factors such as environmental parameters and incom-
tant tool for incorporating DER into power networks. DER plete bidding information of other agents. In such cases, the
forecasting affects many system operations, including dispatch, problem can be formulated using model-free, data-driven, and
scheduling, and real-time balancing. Therefore, forecasting must learning-based approaches. The model learns from its envi-
be accurate. The accuracy of the price forecasting significantly ronment through interactions and evaluates what is known
influences the market participant profits. Moreover, forecast- in real time. Learning-based algorithms include supervised,
ing methods should also consider the amount of data involved unsupervised, and reinforcement learning. More learning-based
and the associated computational speed. Thus, research and trading strategies must be developed in the future for a better
development of more forecasting tools and accurate uncertain implementation of the TEF.
models must be carried out.
9.10 Payment allocation

9.6 Risk management
Prosumers can trade energy in complete P2P markets, where
Energy markets are unpredictable, with more uncertain vari- peers deal directly with one another; in community-based mar-
ables; therefore, risk management is essential for better control. kets, where the community manager oversees trading activity; or
Risk-based decision making can significantly influence the in hybrid P2P markets, which combine the features of the first
scheduling and dispatching decisions of transactive agents. For two. In the aggregator-based model, the aggregator receives a
instance, in stochastic programming, random variables are char- net payment from the market and must be distributed among
acterised by their probability distribution, and risk control the participants. Fair payment allocation is an active area of
is essential for mitigating undesirable properties. A few risk research on the aforementioned trading methods.
measures include variance, shortfall probability, Var, and Cvar.
9.7 Aggregator modelling 9.11 Market regulatory systems
The involvement of small-scale prosumers will play an impor- The rules and regulations of today’s competitive market must
tant role in the future promotion of TES. However, in some differ from those of traditional vertically integrated systems.
markets, small-scale prosumers cannot participate because of The regulatory framework plays a vital role in encouraging con-
their low energy levels, and aggregators/retailers participate in sumer participation through attractive incentive programs, and
such markets on behalf of the prosumers. From the utility per- is needed in the transactive energy framework for market power
spective, the flexibility offered by the large transactive agents control, market performance assessment etc. Successful TEF
is greater than that of the smaller ones, and the participation implementation requires coordinated planning and operation
of the aggregator has a positive impact on the economy, relia- among various stack holders, and rules for using the power
bility, and sustainability of the system operation. Many studies network should be well defined. Thus, more research and devel-
have focused on the modelling of individual transactive agents, opment must be conducted on the market rules and regulation
and thus, there is a higher working scope to work on modelling sector of TEF.
aggregators at various levels of TEF.
9.12 TSO-DSO coordination

9.8 Integrated energy systems
Proper coordination and interactions between the TSO, DSO,
Previously, different energy systems, such as electricity net- DER owners, and aggregators are necessary for stable power
works, heating and cooling networks, and gas networks, were system operation, including supply and demand balancing, net-
operated independently. However, with TEF, the integrated work congestion management, and voltage control, as more
operation of multiple energy systems is possible. Integrated DER are integrated at both the transmission and distribu-
energy systems help deal with current energy crises and offer tion levels. With advanced ICT and more exposure to the
energy independence, economic competitiveness, flexibility, markets, the number of transactive agents participating in
better utilisation of resources, and cost-effectiveness. There WEM and LEM will increase over time. Thus, more mar-
is scope for the development of multi-energy models in the ket operator coordination models must be developed in the
context of TEF. future.
18 THANGAVELU AND K
10 CONCLUSION E Energy
η Efficiency
The increasing penetration of DER in the grid has altered the k Comfort setting factor
operation of the power system. The evolution of the electricity T Temperature
market from the transmission to distribution level requires new t Time/hour
market structures. The transactive energy framework (TEF) is Δt Market clearing time step
a price-based framework for the economic and technical ben- Vi is the voltage magnitude at node i
efits of networks. This article presented a general overview of 𝛿i is the voltage phase at node i
the mathematical models and formulations of the TEF and Ii j is the current flow between nodes i and j
its implementations at various levels: (1) Individual DER, (2) ri j Resistance between the nodes i and j
prosumer/smart buildings, (3) microgrid, and (4) macrogrid- xi j Reactance between the nodes i and j
level TEF. The transactive agent can be an end-use prosumer’s Gi j Conductance between the nodes i and j
smart load or a grid-scale conventional large power plant. The Bi j Susceptance between the nodes i and j
most common objective of a transactive agent is cost minimisa- Pi j Active power flow between the nodes i and
tion or profit maximisation. Network constraints are generally j
not considered at the prosumer level because they are close Qi j Reactive power flow between the nodes i
to each other. However, they are important in microgrid- and and j
macrogrid-level operations. The models of integrated energy Ntb Number of tie-line branches
systems, which are an extension of the electrical energy TEF, are
discussed. Future research areas will include information and
communication technologies, privacy, scalability, cyber secu- CONFLICT OF INTEREST
rity issues, forecasting, risk management, aggregator modelling, The authors have declared no conflict of interest.
integrated energy systems, learning-based trading strategies,
payment allocation, market regulatory systems, and TSO-DSO ORCID
coordination. Vidyamani Thangavelu https://orcid.org/0000-0002-5102-
4665
NOMENCLATURE
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Received: 5 July 2022 Revised: 22 November 2022 Accepted: 7 January 2023 Energy Conversion and Economics

Transactive energy management systems: Mathematical models

Vidyamani Thangavelu Shanti Swarup K

Department of Electrical Engineering, Indian Abstract

1 INTRODUCTION of DERs at the distribution level brings benefits and challenges.

Energy Convers. Econ. 2023;4:1–22. wileyonlinelibrary.com/iet-ece 1

FIGURE 1 Overview of TEF implementation at various levels of a smart grid

∙ Transaction-based framework: This explains the hardware,

The level-1 transactive agents are smart appliances and DERs.

∙ Transaction-based energy: A structure to support energy-

Tadjusted is the adjusted HVAC temperature. Tt ,minimum and

2.1.4 Electric water-heater bidding model

Einitial + EIN − EOUT − ELoss

2.1.3 Refrigerator bidding model 2.1.5 EV bidding model

∙ Electricity from the main grid ∑

p2p and the proposed algorithm considers the privacy of prosumers

dl is the utilisation fee, and Pl is the total power flow in the

TABLE 2 Comparison of level-2 reviewed literature

where Pexported and Pimported are the exported and imported

3.3.2 Renewable penetration rate and grid Installation cost

The self-consumption ratio (SCR) and self-sufficiency ratio

4 NETWORK MODELLING 4.3 Linearisation and Convexification

4.2 Branch flow model [92] 5 LEVEL 3: MICROGRIDS

TABLE 3 Comparison of level-3 reviewed literature

Uncertainty model/risk Network Network

[57] ✓ Min of cost - Scenario based approach ✗ ✓

5.1 Constraints CostCHP = 𝛼 + 𝛽PCHP + 𝛾PCHP

In level-2 TEF, detailed network modelling constraints are usu- + 𝜁HCHP

FIGURE 4 Multi-energy systems (adopted from [117, 118])

TABLE 4 Comparison of integrated energy systems related literature

Trading Uncertainty Network Network

[119] CHP RT Min of cost ✗ ✗ ✗ Distributed

TABLE 5 Comparison of prior studies on level-4 transactive agents

[133] GENCOs, loads, DSOs. TSO—Social welfare RT ✗ -

9.5 Forecasting 9.9 Learning-based trading strategies

9.10 Payment allocation

9.7 Aggregator modelling 9.11 Market regulatory systems

9.12 TSO-DSO coordination

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