Summary In this paper, a multi-agent-based locally administrated power distribution hub (PDH) for social welfare is proposed that optimizes energy consumption, allocation, and management of battery energy storage systems (ESSs) for a smart community. Initially, formulation regarding optimum selection of a power storage system for a home (in terms of storage capacity) is presented. Afterwards, the concept of sharing economy is inducted in the community by demonstrating PDH. PDH is composed of multiple small-scale battery ESSs (each owned by community users), which are connected together to form a unified-ESS. Proposed PDH offers a localized switching mechanism that takes decision of whether to buy electricity from utility or use unified-ESS. This decision is based on the price of electricity at ‘time of use’ and ‘state of charge’ of unified-ESS. In response to power use or share, electricity bills are created for individual smart homes by incrementing or decrementing respective submeters. There is no buying or selling of power from PDH; there is power sharing with the concept of ‘no profit, no loss’. The objective of the proposed PDH is to limit the purchase of electricity on ‘high priced’ hours from the utility. This not only benefits the utility at crucial hours but also provides effective use of power at the demand side. The proposed multi-agent system depicts the concept of sharing power economy within a community. Finally, the proposed model is analyzed analytically, considering on-peak, off-peak, and mid-level (mid-peak) prices of a real-time price signal during 24 h of a day. Results clearly show vital financial benefits of ‘sharing power economy’ for end users and efficient use of power within the smart community. Copyright © 2017 John Wiley & Sons, Ltd.