Transactive Energy 101: DERs drive real-time market dynamics to the distribution system—are we ready?

“Transactive energy” is one of those vague bits of industry jargon that has been cropping up with increasing frequency in conference agendas, industry white papers and marketing ads. And depending on who’s talking about it, it’s either a “next big thing” that will revolutionize relationships between customers, utilities and the grid; or extremely old news.

As a matter of fact, it’s both.  Wholesale markets have been operating on transactive principles for decades; that is, reacting in real-time to demand and price fluctuations via a spot market. It’s just that no one ever put a special name on it.

What’s new here is the potential application of these principles to utility distribution systems and business models — and utility-customer relations — all triggered by the growth of distributed energy resources (DERs). An even vaguer bit of industry jargon, DERs encompass distribution-level technologies and programs such as rooftop solar and storage,  demand response, electric vehicles (EVs) and smart thermostats.

In this context, transactive energy allows customers, either as individuals or in aggregate, to actively engage in energy markets by negotiating and responding to “value signals,” based on demand, price, time of day or other considerations.

In other words, it’s disruptive and very complex, and utilities, regulators and other industry stakeholders need to start preparing for it now, for a number of reasons.

The U.S. electricity system is driving toward a future full of DERs, physically located everywhere, in all shapes and sizes, both behind and in front of the meter.  This transition is, in turn, creating customers who are both savvy producers and consumers of electricity.

DERs, on their own and in various combinations, also have the potential to help the grid run more efficiently, cost-effectively and resiliently. Transactive energy is one of the ways now being explored to tap that value so that it provides benefits for customers, utilities and the grid.

How it works

So, how is transactive energy different from the way the grid works now, and has worked for most of the last century?  The distinguishing characteristic of transactive energy is its use of value signals to incentivize the behavior of a customer device. By comparison, today’s grid operates via explicit commands aimed at controlling specific behaviors. Efficient, safe and reliable operation of the grid requires maintaining a fine balance, and tension, between these two concepts.

Both are needed because the grid is a high-speed system that  transmits electrical energy at close to the speed of light (yes, really). It also must remain stable at all times — supply must equal demand — which  doesn’t leave much time for negotiation. Consequently,  control is, and will remain, a critical aspect of grid operations.

Transactive energy and markets, on the other hand, enable independently owned and operated resources to grow and flourish on the grid by providing tangible benefits for grid participation. Applying both — controlled and transactive energy —  in balance can yield stability and growth.

The grid’s traditional “command and control” paradigm relies on a “do this now” relationship between a controller and controlled device, such as the on-off switches in the traditional air conditioner cycling equipment. However, as technological innovation and numbers of DERs on the grid continue to grow, these devices are becoming “smarter” and better able to adjust to specific locational cues or conditions. As a result, they are increasingly capable of more complex and sophisticated responses to any value or pricing signals they receive.

Thus, when a smart device receives a value signal, it can determine an optimal response by weighing multiple, often conflicting goals and objectives. For example, a smart building controller receiving a pricing signal could adjust temperatures in different parts of the building, based on outside weather and the number of occupants and their locations within the building.

Transactive energy also allows for aggregation of resources,  consolidating a group of individual resources into a firm resource with energy output or consumption that can be modeled, understood and dispatched. Today’s third-party demand response aggregators already use this concept to bid event-based — that is, non-transactive — demand reduction into wholesale markets.

Where we are right now

At present, real-world examples of transactive energy can be found in some smart-thermostat demand response programs with dynamic pricing, and a handful of small pilots. Two early programs — the GridWise Olympic Peninsula Project (2006) in Washington State, and PowerCentsDC in Washington, D.C. (2008-2009) — provided successful demonstrations of dynamic pricing and double auctions to create flexible load. Double auction here means that customers were able to submit bids to buy or sell power, based on real-time price signals sent to smart home appliances.

The Retail Automated Transactive Energy System (RATES) pilot is now in the early stages of roll-out in California. Developed by energy industry veteran Ed Cazalet, the pilot is testing out a unique transactive energy platform that will allow customers to react to real-time electricity prices.

Another emerging trend in the field are microgrid testbeds such as the Brooklyn microgrid in New York and sonnenCommunity being planned in Arizona. These projects highlight the potential for peer-to-peer energy trading within communities, using emerging technologies such as blockchain for keeping track of energy transactions. As these techniques and technologies evolve and mature they can be extended and integrated with new utility business models and the grid.

These pilots have, in different ways, demonstrated transactive energy’s enormous potential to provide customer-grid solutions that benefit utilities and customers, while increasing clean energy and improving efficiency and resiliency on the grid.

The caveat here is that transactive energy is just one — and far from the only — option needed to move the U.S. energy transition forward. Not all DER systems and devices are capable of “learning” customer preferences and then making decisions to optimize performance on behalf of the customer. Not all customers may be interested in or willing to learn these new, more complex systems. Finally, grid upgrades for these programs — such as adding power state monitoring — may be very expensive, at least in the immediate short-term.

Still another barrier to transactive energy is the variable, slow-ramping spread of DERs themselves in different markets.  With the exception of a few high-profile states — such as California, Hawaii and New York — the distributed grid, and all the devices connected to it are still what the industry calls nascent — just emerging.

While solar continues to rack up strong growth in markets across the country, the amount of solar energy on the grid overall is still under 2 percent nationwide, according to the Solar Energy Industries Association (SEIA). Similarly, while the number of electric vehicle continues to increase — and prices drop — EVs constitute only .2 percent of passenger cars and light-duty vehicles on the road worldwide, according to a recent report from the International Energy Agency.

But now is not the time for complacency. Large investments are fueling distributed energy innovation, driving costs down and capabilities up. SEIA is projecting that gigawatts of solar on the grid will triple over the next six years. The pace of innovation in the field continues on a wild S-curve where a slow ramp is followed by growth must faster and larger than predicted.

SEPA’s Transactive Energy Working Group is focusing on the barriers to adoption of these new technologies, rates and programs — and the innovative business models, regulations and system designs that will be needed moving forward.

• Utility business models will need to be creative and adapt to solutions that initially target a subset of customers, recognizing that subset will grow over time. This approach requires upfront infrastructure investment with associated risks.
• Regulatory bodies will need to permit efficient and flexible market designs, and ensure appropriate oversight. The goal should be to to maximize reliability, affordability, sustainability and resilience, while minimizing unintended consequences.
• Finally, transactive systems will have to incorporate highly secure and efficient technical platforms that allow machine-to-machine transactions through standard interfaces.  The development of such standards could be a lengthy process.

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