Transactive energy – the future is already here
A picture often used to describe transactive energy is one of liquid real-time electricity markets where consumers buy and sell electricity continuously.
Author(s): Mark Knight ; Tom Sloan ; Carl Zichella
Transactive energy has been touted as the next big thing and a way to create energy markets for large numbers of consumers with home generation and smart devices but it is not the first time this type of approach has been proposed. Homeostatic control, in 1981, was an early attempt to use economics to coordinate system operation and even before that it was predicted that the energy marketplace of the future would change the basic nature of control strategies. Transactive energy systems will play a big part of the electricity future and indeed are already a part of it today. The systems used by independent system operators for managing regional markets are transactive in nature but as more and more changes occur at the edge of the grid, how will the system create the flexibility to manage the increasing variability in both loads and generation? Transactive energy systems promote grid resiliency by fostering investments in customer-owned generation, aggregated demand management, and economic benefits to participating parties. Regulatory, utility, policy-maker, and customer behaviour will be modified by the confluence of technological capabilities and economic opportunities.
A picture often used to describe transactive energy is one of liquid real-time electricity markets where consumers buy and sell electricity continuously. While this fits within the scope of what transactive energy systems can do, it may not be typical of what we will see as transactive energy systems become more commonplace. For one thing, while many customers may be interested in self-generation and power trading, there are far many more that are happy with flat rates and just want appliances to work when they are switched on.
The concept of transactive energy has in fact been around since 1981 when Schweppe et al.  at MIT proposed a concept known as Homeostatic Control. While the concept itself has been around for a long time, the technology has not truly been around to fully enable it until recently. The MIT authors stated that Homeostatic Control represented a structured evolution of the electric power system driven by advances in communications and computing capabilities and growing experience in customer load management, at a time where there were uncertainties in electricity demand (which was flattening out) and operating costs. The same description applies just as well today  in 2015 as it did then back in 1981 but while the overall situation may seem similar there are some important differences.
Schweppe's earlier 1978 vision  saw utilities and customer as equals who would deal with each other through an energy marketplace by 2000 that would require sophisticated control-communications systems to work and that decentralisation with more automated decision making would be required to support the flexibility and uncertainty envisioned in the future.
Transactive energy: historical concept enabled by modern technology
While electricity delivery control systems were in place when the report on Homeostatic Control was published, there have been many advances since then and the level of instrumentation, especially on the transmission system, has grown enormously thanks to microelectronics embedded in grid devices, advances in communications, notably the implementation of fibre backbones and cellular deployment, and the passing of regulations to open the transmission system for energy trading.
The opening of access to the transmission system led to the need to coordinate resources across regional markets and to optimise systems with multiple participants. Arguably, the first transactive energy systems were the central market systems such as those operated today by independent system operators (ISOs)/regional transmission organisations (RTOs). These markets have proven their worth as large amounts of variable renewable power have been introduced into the nation's electrical system, and transaction flexibility, scheduling and dispatch speeds have increased, and system coordination has become a high priority.
The markets operated by ISOs for day-ahead and day-of markets are transactive in nature, and while the term transactive energy may not have been around when those markets were conceived and implemented, they still fit within the scope and definition of transactive energy systems. A transactive energy system as defined by the GridWise Architecture Council (GWAC) is ‘a system of economic and control mechanisms that allows the dynamic balance of supply and demand across the entire electrical infrastructure using value as a key operational parameter’. The fact that ISO systems do not have a transactive nomenclature is important. They were built to serve operational control and market requirements and they do so by creating environments where participants can come together to exchange goods and services. Using technology and policy to solve business and operational challenges is what we need to focus on, not what a system is called.
With the evolution of wholesale energy markets and retail aggregators, the industry has had a chance to come to terms with how these systems work and to recognise and accept that where multiple participants come together to trade goods and services (electricity, ancillary services, and demand management) there has to be a way to optimise the system. Optimisation and control are important concepts in transactive energy. The existence of optimisation as part of a transactive energy system implies that coordination is also a part of the system. Control does not have to be a part of every transactive energy system, as a transactive energy system could exist behind the meter of a large building or be implemented in a campus environment but where public utility wires are involved and where reliability and/or safety is a requirement there needs to be an element of control incorporated into the transactive energy system, enabled by coordination of the various participants. This control requires an understanding of the grid that can identify values for services provided at various locations throughout the system, facilitating transactive signals to market participants of all sizes.
The aspects of control envisioned for Homeostatic Control were real time and involved the utility controlling not only its own operations but also potentially controlling customer loads. The type of direct load control available then was characterised by binary options, yet Schweppe et al. also proposed the use of sophisticated signalling to devices using customer specified priority logic. However, they recognised that a major disadvantage of their concept was that the control actions were initiated without knowledge of customer priorities, needs, or costs at a given time. This ability to incorporate participant values (customer policy preference and/or price) through a value discovery mechanism is the process by which transacting parties come to an agreement on value in transactive energy systems. The ability to incorporate customer priorities is an important aspect of transactive energy systems so that the entire system can achieve an optimum balance necessary to meet objectives, variables, and constraints. Optimising the whole system changes the very processes themselves and it moves the paradigm from one of dispatchable centralised control to one of non-dispatchable coordination where each device makes its own decisions based on available information and where devices coordinate their activities. We believe the shift to more variable resources and the need to manage the changing generation and load profiles brought forward by renewable power coupled with the rise of prosumers in the distribution system create a big difference today from what was happening in the 1980s.
Technology and policy converge when monetisation opportunities exist
Already there are platforms and products in development employing the transactive energy label. The establishment of businesses designed to profit from Transactive Energy demonstrates the growing acceptance of the concept and stimulates further innovation in the Transactive Energy space. These new enterprises will help provide the mechanisms by which goods and services can be traded using transactive energy techniques.
It is already happening today and it will happen on a broader scale tomorrow. One big difference is that in the future we will see the platforms for these markets developing within the distribution systems around the country, not just at the transmission level. The distribution systems are on the front lines of the changes that are occurring in the industry.
Transactive energy: the ‘marriage’ of electricity, technology and communications
Transactive Energy is not simply hardware or software systems that can be bought and installed, it is a model in which generation, storage, and loads enabled by intelligent communications capabilities create the ability for customers and utilities to buy and sell commodities (including energy) and services between themselves based on mutual economic benefits.
Transactive Energy is a label that describes the collision of the electricity grid with the Internet of things. Some systems will be transactive and some will not. As this article is being written, the GWAC is working on a tool to help decision makers ask questions about proposed initiatives to determine whether they should be transactive energy systems or not, and more pointedly whether transactive energy systems are a good solution for the challenges that they face. The basis for that work and for this paper is the Transactive Energy Framework  published by the GWAC.
In a previous paper, we discussed how historically the electricity industry has focused very narrowly on capturing value along the traditional electricity production-to-consumption value chain. Transactive Energy systems allow the extension of revenue streams beyond core values, we argued, and result in an alignment of value streams for all interested parties. In that paper  we also pointed out that if this sounds like a vision of the future, the recent New York ‘Reforming the Electricity Vision’ Order  directly heads in that direction by requiring that ‘Distribution System Platform providers’ will provide or sell a set of products and services to customers and service providers.
While distribution systems were originally designed assuming power flow from bulk power generation to end-use load points at the edges of the distribution system, incorporation of variably operating Distributed Energy Resources (DERs) increasingly violates that assumption, with significant consequences for grid operations. The great advances made in personal digital equipment, communications, and the empowerment of consumers and the general population through the ‘app culture’ is transforming our way of life and will also impact the electricity system (e.g. smart meters and programmable home appliances) as social networks begin interacting with power and control networks. This change can already be seen as we start talking more about an energy value network as opposed to an energy value chain.
In a traditional energy supply diagram, as shown in Fig 1, you might see bulk generation on the left with power flowing through the transmission system, into the distribution system, and finally to end-use customers on the right. More recently we have seen a move from a linear one-dimensional (1D) diagram to a 2D diagram, required in order to adequately show networking at the distribution level so as to include distributed generation, storage, and the use of self-healing techniques. We typically hear about these changes happening at the edge of the grid and that edge is the end-use customers. However, in a situation in the future where many customers can self-generate and where device intelligence and responsiveness to signals is becoming ubiquitous where is the edge of the grid anymore? We note that consumers can also be generators and that they may also sell power (prosumers) but we tend to forget that traditional generators are also consumers and always have been. Now what we have is an energy continuum. Everything is connected but in a continuum where is the edge? This of course depends on more networked distribution systems but the authors believe we are already starting to see this through utility initiatives to improve resilience and reduce customer outage times through increased distribution switching capability.
Fig 1: Reproduced courtesy of the energy efficiency exchange
Until we see a true continuum we will have what we see developing today, where the edge of the grid is where many changes are happening. Trends suggest a continuing increase in technology at the edge of the grid and a likelihood of increasing interactions occurring between devices as social networks and energy networks converge. The variability of the generation resource has resulted in a new problem that involves the presence of somewhat predictable variability in both generation and loads. This makes renewables a strong catalyst for increasing transactive energy adoption and enabling a general understanding of the topic.
At the edge of the grid, there is also growing interest in high-performance and net-zero buildings as well as building-to-grid integration. These considerations of end-uses of electric power are among the issues that have significant ability to influence the extent to which devices, people, and organisations interact with each other to meet personal goals and to influence future grid operations, value creation, and realisation. Transactive energy approaches present an opportunity for utilities, in addition to third parties, to provide value-added services to customers and extend their business models beyond the regulated sphere. Viable transactive approaches, however, should introduce the opportunity to create and align value streams for all participating entities not only for energy but also for capacity, congestion, regulation, and other energy related products, some of which are already implemented transactively by ISOs today.
When everything is connected, everyone plays a role if they make, move, or use electricity whether they are utilities, customers, or third parties. For those that want flat rates, we expect that service providers will develop those offerings. For those that want more, the opportunities will be there. Fig 2 shows some of the opportunities and benefits that transactive energy systems can provide.
Fig 2: Transactive energy infographic [ 7 ] from GWAC
Technological capabilities, combined with entrepreneurial creativity, drive regulatory, and policy-making decisions
We know this will happen because customer actions are already moving in that direction and policy-makers and regulators are taking note. Technological opportunities for customers to control their energy production, energy use, need for ancillary services, energy storage, and more have been developed and are becoming increasingly cost-effective and simple to use. Just as wireless communications devices have become ubiquitous and, for many people, made the landline phone superfluous, and Uber has changed transportation within urban areas, so too are technological capabilities enabling broader transactive energy systems that will change utility–customer and customer–customer relations. The systems used by ISOs today are transactive and the OASIS eMIX TC  is an example of work to define standards for exchanging energy characteristics, availability, and schedules to support the free and effective exchange of information. There have also been transactive energy projects such as the Olympic Peninsula Project to create and observe a futuristic energy-pricing experiment to test whether automated two-way communication between the grid and distributed resources would enable resources to be dispatched based on the energy and demand price signals that they received, and more recent projects in the Pacific Northwest by PNNL, in the Mid-West by American Electric Power and overseas by Alliander in the Netherlands.
Statutory and regulatory changes generally follow technological capabilities, so legislators and regulators are trying to understand transactive energy and its impact on all parties – especially the lower income and technologically challenged who will remain ‘captive’ customers of the traditional electric utility or those who are unwilling to actively engage in a transactive paradigm These customers will have to continue to be served regardless of the changes in the delivery model.
Corporate boards of directors, business customers, the U.S. Congress, and many American and European electric customers support energy self-sufficiency (self-generation), renewable energy, and the ability to jointly participate in projects with their neighbours. Smart apps on phones, smart grid investments by utilities, and the increasingly technologically sophisticated youth make it possible for customers to buy and sell energy, demand management, energy storage, voltage and frequency regulation, and other services with the traditional utility. Policy-makers, system operators and regulators must sit down with utility executives and determine how utilities can monetise transactive energy opportunities (e.g. frequency regulation, back-up power, power quality, ownership, and management of rooftop solar) so that the electric grid remains reliable, resilient, and affordable.
Some transactions by customers to buy and sell energy and services between each other may not be visible to the utility or regulators but safeguards must be in place to support grid operations and to resolve inevitable conflicts between customers and between customers and utilities when the customers do not meet their obligations (e.g. to reduce demand). As mentioned above, the interests of lower income and customers not participating in transactive energy transactions must also be protected. So too must the financial interests of the utilities and their shareholders be protected though their roles will undoubtedly evolve from what they are today. It serves no one's best interests to have the utility fail and therefore not be available to provide energy, back-up energy, grid stability operations, and ensure the grid's resiliency.
Throughout the country environmental concern and regulation is driving rapid adoption of variable DER. Along with this rapid adoption have followed advancements in DER's ability to provide essential grid services such as frequency response, voltage control, and even reactive power to the grid. Creating value for the owners of DERs to provide these services is a major opportunity for transactive energy. The potential was made evident in February of 2015 when Enphase, a microinverter company based in Petaluma, California remotely activated the voltage support capabilities on 800,000 microinverters  installed across its service territory in Hawaii in one day. Hawaiian Electric Company (HECO) had become so worried about solar systems suddenly shutting down en masse during voltage collapse and low-voltage events that they actually placed a moratorium on new solar interconnections in what has become the hottest solar market in the nation, fuelled by high electricity costs and a desire to move beyond oil-fired generation. HECO's problem was greatly reduced in one day.
For those trying to understand more about transactive energy systems, the Transactive Energy Framework developed by GWAC uses four ways to characterise or describe transactive energy systems and these classifications provide different values to different audiences. This is important because as we have seen the scope of these systems can have broad applications and there are many different audiences that may wish to learn more. These categorisations are:
- Principles: These are, in effect, statements of high-level requirements. They describe how a TE system should work and can be applied before designing a system, during design, or after as validation that the key principles have been adhered to. As such they are well suited to application at the high-level design stage of planning a system.
- Guiding architectural principles: Are suggested as starting points for the architectural foundation and describe how to build a TE system. This makes these a good checklist for people assessing existing systems or designing TE systems.
- Attributes: Represent qualities or characteristics that describe significant dimensions of TE and assist in understanding the boundaries of TE systems and as such they focus more on what to build. These are more suited to less technical audiences.
- Layers: Emphasise the pragmatic aspects of interoperation by applying the GWAC Context Setting Interoperability Framework and the set of principles described therein to Transactive Energy. These apply across the areas of cyber-physical architecture, conceptual architecture, business models and value realisation, and policy and market designs. These provide a good overview of all aspects of TE systems but provide a more detailed discussion on business and policy topics than any of the other categories.
If we look at the changes that have happened in the time between Homeostatic Control and Transactive Energy Systems, the consolidation of bulk system operation into ISOs and RTOs and divestment of generation from distribution into wholesale markets constitute the most widespread deviations from the traditional, vertically integrated utility business model; however, for the most part the distribution of electricity and the relationship between utility and customer remains largely intact vis-à-vis the model that emerged after World War II. However, while regulatory models have remained relatively constant, technology advancement and the corresponding demand for new services have challenged the prudency of the conventional cost-of-service regulatory model. Technological advancements offer customers more control [ 9 ] over their energy use and challenge the notion that everyone is better off having a regulated utility be the sole provider of electricity services.
The U.S. electric industry evolved from small, often competing, companies that provided electricity in addition to other services to non-competitive providers within defined territories. Utility ownership became either publicly owned, e.g. municipal and rural electric cooperative, or investor-owned. Regulation evolved from protecting against predatory retail pricing to ensuring market access for alternative generation suppliers and, in some states, access to retail customers for these independent power producers and/or aggregators. Market forces, rather than regulatory actions, are presumed to protect customers from predatory wholesale electricity prices.
However, there are bound to be as yet unanticipated regulatory/legislative actions that will be required as the industry undergoes further changes. We cannot know what these will be but we will need to find ways to strike a balance between regulation and market forces, between choice and control, and between cost and reliability. Some of the things that may need to be considered are:
- Alternative pricing structures for energy, demand management, and ancillary services provided by the utility and customers.
- Rules governing utility price transparency, customer entry/exit from energy and demand management options, and terms of participation.
- Rules by which customers participating in energy and/or demand management options may be held accountable for failure to meet contractual obligations.
- Rules to protect customers unable or unwilling to enter into energy and/or demand management options. Protections could include price of energy/affordability, reliability guarantees, and other factors.
- Rules and accountability to ensure system reliability as utility–customer and customer–customer transactions occur.
- Rules related to any ‘provider of last resort’ and the ability to recover the cost of providing this role, balancing and voltage support, and other services necessary to ensure the customer self-generation capabilities do not adversely impact the grid.
Customers have always had the option to generate their own electricity, and while a few businesses have historically done so, most have remained tied to their local electric supplier for convenience, reliability, and cost considerations. Three factors are changing that reliance on the local utility for all customer classes are:
- (a) Decreasing costs of self-generation (e.g. wind and solar) technologies and the corresponding increase in performance and reliability.
- (b) Environmental considerations that are changing customer and government preferences for the source of their electricity.
- (c) Increasing costs to the utilities of transitioning to new generation technologies, participating in regional/national markets, and installing ‘smart’ technologies to improve system efficiency and facilitate customer preferences.
Regulation is again transforming itself to accommodate the new technological revolutions. What had been de facto ‘guaranteed’ rates of return for utilities are now ‘caps’ on allowed rates of return that are increasingly dependent on utilities becoming more efficient and even more customer oriented. Retention of customers was not an issue in the 1970s; it is today with increasing retail costs not seen since the 1970s, and competitive markets for electricity to the customer and between suppliers of technologies that permit customers to reliably self-generate. Federal and state regulators are confronting utility responsibilities (e.g. Clean Air Regulations), customer capabilities (e.g. banding together to create customer-owned micro-grids), and affordability of electricity by lower income customers. How the regulatory community balances those competing interests will largely determine the quality and affordability of electric service as we move into the 2020s.
Renewable power, moreover, is now big business and here to stay. Renewable energy, particularly from solar and wind, could eventually become the largest generation source in many places. The solar and wind industries employ large numbers of workers in nearly every state. For example, the wind industry now employs 75,000 U.S. workers, supporting jobs at more than 400 manufacturing plants in 44 states. With over 195,000 installations in 2014, nearly 645,000 U.S. homes and businesses have now gone solar. In 2014, a new solar project was installed every 2.5 min. According to The Solar Foundation, there are now nearly 174,000 solar workers in the U.S., a more than 20% increase over employment totals in 2013.
Prices and capital costs have also declined dramatically (Solar power has declined 73% since 2006; wind by 40% since 2008.) and the performance and potential of these technologies, principally wind and solar, have shown that enormous benefits can be reaped under the right circumstances. Transactive Energy can provide the platform that establishes the values of the services possible from this equipment, and facilitates their timely introduction into the system.
Homeostatic control was ahead of its time but its time is now. The techniques described by GWAC and embodied in transactive energy systems are already an active part of our delivery system in regional markets. Energy costs and the increasing prevalence of renewable DERs in many markets is driving change as the grid evolves to accommodate them. Soon, more specialised markets will develop at the distribution level and beyond utility wires. There are many challenges to address and we will need multidisciplinary teams to resolve them but expect significant changes to happen much more quickly than the pace of change we have seen over the last century.
- Schweppe F. C. Tabors R. D. Kirtley J. L.: ‘.
- U.S. electricity sales have decreased in four of the past five years, US Energy Information Administration, December 2013. Available at http://www.eia.gov/todayinenergy/detail.cfm?id=14291.
- Power systems ‘2000’: hierarchical control strategies, Feed Schweppe, MIT, IEEE Spectrum July 1978.
- GridWise Transactive Energy Framework, Version 1.0, The GridWise Architecture Council, January 2015. Available athttp://www.gridwiseac.org/pdfs/te_framework_report_pnnl-22946.pdf.
- Knight M. Sloan T. Zichella C.: ‘Tipping point for transactive energy: a discussion of the evolving electric industry's policy and technical challenges’, May 2015. Available at http://www.gridwiseac.org/pdfs/workshop_051215/tipping_point_transactive_energy_gwac.pdf.
- 14-M-0101: Reforming the Energy Vision (REV), New York State Department of Public Service. Available at http://www3.dps.ny.gov/W/PSCWeb.nsf/All/26BE8A93967E604785257CC40066B91A?OpenDocument.
- Transactive Energy Infographic, GWAC, June 2014. Available at http://www.gridwiseac.org/pdfs/te_infographics_061014_pnnl_sa_103395.pdf.
- For more on the remote activation of Enphase microinverter capabilities. Available at http://www.bit.ly/1MCvKST.
- O'Boyle M.: ‘An adaptive approach to promote system optimization’.