After 120 years of relative stability, the way we make, store and use electricity is rapidly evolving and becoming more dynamic as end users push for renewable energy and embrace modern technology.   Just as other industries needed new tools to adapt to disruption, so too will the energy transformation require new and better tools.

Like any tool, it is helpful to know what you want to do before reaching out for the first thing that comes to hand. Would you use a wrench to drive a nail into a stud? Would you use a saw to measure a piece of wood? You could, and it might work, but you probably wouldn’t want to use them again. So, if Transactive Energy Systems (TES) are tools, what can they be used for?

Transactive Energy Systems provide a way for people, devices, entities, or agents that wouldn’t traditionally interact with each other to do exactly that. They provide a framework for customers and distributed energy resources to be integrated into the electricity system in non-traditional, more interactive ways.

The GridWise Architecture Council (GWAC) is a US Department of Energy sponsored team of industry leaders who are shaping the guiding principles and architecture of a highly intelligent and interactive electric system—one ripe with decision-making information exchange and market-based opportunities.

This Council provides architecture models and guidelines for interaction between participants and interoperability between technologies and systems.The Council is neither a design team nor a standards making body. Our role is to help identify areas for standardization that allow significant levels of interoperation between system components. We are helping to outline a philosophy of electric system operation that preserves the freedom to innovate, design, implement and maintain each organization's portion of the electrical system.

The term "transactive energy" refers to tools for coordinating the generation, consumption, storage and flow of electric power within an electric power system. Using constructs such as price signals while considering grid reliability constraints, the term "transactive" comes from considering that decisions are made based on a value. Just as imbalances in supply and demand will influence any market, TE enables cost effective operation of the power system through exchange of mutual benefit among two or more entities.

TE systems provide a way to maintain the reliability and security of the power system while increasing efficiency by coordinating the activity of the growing number of participants in energy supply, demand and grid services markets. The goals of increasingly diverse stakeholders carried out over a physics-based delivery system pose a both multi-objective optimization and physical controls challenges. This is one reason why TE embraces both economic and engineering considerations when envisioning power system operation.

The same considerations outlined for the electricity grid apply to building energy systems and other local energy systems such as microgrids. TE requires a high level of interoperability between participants so that information exchanged during operational time frames is well documented, understood, and actionable.

Currently, dynamic pricing is widely used in wholesale power markets. Balancing authorities and other operations such as hydro desks routinely trade in spot markets to buy or sell power for very near-term needs. Introducing dynamic pricing and other forms of value exchange in more distributed, retail energy markets is still a new and emerging practice.  Along with it comes increasing validation for TE as a means to address diverse aspects of energy transformation.

TE concepts are starting to make their way into policy and regulatory discussions. TE is a promising strategy to achieve rapid renewable energy integration, customer participation, and to ensure resilient local electrical supply and system reliability in an increasingly complex, distributed electrical system.

The current electrical grid is not well equipped to manage changes in societal demands, consumer choice, and disruptive technologies. TE provides tools to manage the increasingly dynamic, complex, and distributed nature of renewable energy and the energy system as a whole.

The electrical system was built on the idea of dispatching utility-scale supply resources to continuously meet inflexible but highly predictable demand. In the 20th century this concept manifested as a public utility system based on the dispatching of bulk generation (such as coal, gas and hydro plants) to meet customer electricity demands (loads). Regulations fostered and encouraged utilities to build more generation plants and extend and improve their transmission and distribution lines to support ever increasing load and economic growth.

The legacy system assumed bulk power would be generated in large power stations and that retail consumers were passive recipients of electricity with inflexible demand. This assumption of inflexible demand required excess capacity to ensure that even if there were only a few hours of peak system demand per year, there would be ample power generating capacity and grid infrastructure to meet that demand.

The traditional paradigm assumes that customers are not participants in the electrical system either by generating or storing their own power or controlling their loads in more efficient ways. Yet, as many communities try to meet climate, resilience and air quality goals, it is customer choice that has driven more diversity of assets and operating paradigms on the grid. Commercial, industrial and residential customers alike have increasingly demanded more renewable energy and turned to energy efficiency and behind-the-meter Distributed Energy Resources (DER) such as solar PV and batteries as a path to clean and resilient electricity.

As this heterogeneity increases, we are finding that the electrical grid is not currently designed for large scale deployment of variable source of generation such as renewable energy or distributed energy resources with potential power flows in multiple directions. The grid will need to change to manage societal demands, consumer preferences, constrained infrastructure and new disruptive technologies.

The combined effects of changes, often outside of regulatory and utility observation and control, require a more robust response to maintaining and enhancing safety, reliability, and resiliency. Transactive Energy provides the tools to utilities, regulators and customers to manage these changes, allowing transactions and shared value between participants that may not involve the utility, or that involve the utility in new, dynamic ways.

Stakeholders include those who currently influence and are responsible for generation, transmission, distribution and consumption of electrical power including environmental advocates. Decisions being made today by stakeholders will determine the availability of clean, cheap, reliable, electrical power for decades to come.

Increasing variability in both energy end uses and generation creates a far more dynamic grid with rapidly fluctuating imbalances in supply and demand. TE methods help bridge the gaps between bulk generation, transmission, distribution, buildings, DER and communities. Entities involved in the generation, transmission, distribution and use of electric power have a clear opportunity to align value streams by using incentives for participation in an actively managed TE system.

Regulatory, policy, business and consumer energy advocates need to shape and develop the framework, direction, adoption, and functional characteristics of Transactive Energy systems in a way that encourages innovation without sacrificing equity, affordability or reliability.

As the electrical grid transforms to a more distributed system, all stakeholders — grid operators, consumers, project developers, energy asset owners, building designers and owners, system integrators, and those providing energy services — will increasingly need to understand Transactive Energy. Stakeholders will need to understand new regulations, business models, and externalities and enable a TE framework that maximizes choice, safety and a stable electrical grid.

One of the major benefits of TE is that stakeholders can seamlessly integrate their capabilities and manage their preferences. Furthermore, TE incentivizes all consumers and producers of electricity allowing them to receive increased value (monetary, social or ecological) to proactively manage their power consumption and its characteristics

Since TE can integrate the capabilities and preferences of different participants, the value of TE can be perceived differently by each participant.  Such value can take the form of both quantitative value (e.g. $/kWh) or non-quantitative value such as comfort, reliability, resilience, peace of mind, or a minimum service level expectation.

Some of the stakeholders and anticipated values for each include:

• Consumers and Asset Owners:  End-use customers with their own DER capability could receive monetary incentives for the energy they produce or for flexibly reducing/increasing their energy consumption based on the grid’s condition when the grid is strained.

• The public at large. Broadly speaking, all residents and the environment as a whole would benefit from more integration of clean energy and reduction of carbon-emitting gasses from energy production.

• Building Designers and Owners: These stakeholders are interested in providing the required comfort to occupants while balancing operational costs and system reliability.  The value to them would include leveraging beneficial rates and reliable service to ensure peak operational performance and comfort while minimizing infrastructure upgrade costs by coordinating their operations with the grid.

• System Integrators and Energy Service Providers:  For each of these stakeholders, TE enables reduced installation, commissioning, time and cost for their projects and investments in renewable energy, storage, demand aggregation and leveraging those assets in coordination with the grid operator.

• Grid Operators: The primary goal of operators is to provide affordable, reliable service while planning for resiliency and quick restoration of service when the grid goes down.  For them, TE provides a mechanism to access resources (e.g. DER, storage, flexible loads) which could avoid investments such as peaker plants, infrastructure capacity upgrades, or provide greater local reliability and restoration speed in circumstances where outages or power shutoffs occur.

Regulators and Policy Makers would value the TE mechanisms and capabilities as policy/regulatory instruments to accelerate renewables integration, manage disruption, avoid over or underbuilding system capacity and safeguard consumer interests as the electrical industry transforms while ensuring and validating fair-use (access by all levels of users: low income, rural, disadvantaged, etc.) access to all consumers.

The value of TE will grow and solidify over time as more projects proving out the concepts are put into place. Like any tool or system, the success or failure of TE will be judged by the outcomes it produces with regards to choice, reliability, equity of service, cost and other values deemed important to stakeholders.

Increasing distributed energy resource adoption driven by customer choice and renewable energy policies requires a comprehensive re-imagining of the role of the distribution utility.  This includes rethinking functional responsibilities, revenue model, and regulatory framework.

The policies to enable TE start with redefining the purpose and core functions of electric distribution service for a high-DER electric power system in which end-use customers are active participants and not just consumers. This redefinition will guide a new regulatory framework for the high-DER distribution utility. The high-DER TE regulatory framework needs to include:

• Specific functions and activities the utility is responsible and accountable for in order to provide an electric distribution network that enables TE with high volumes of DERs, addressing real-time operation, interconnection, infrastructure planning and investment, coordination with the transmission system and wholesale market, and other key functional areas.

• A revenue model that compensates the distribution utility for its new TE-related and DER-related functions, as well as reliable operation of the distribution network, and compensates participating customers and DERs for the services they provide to the grid. The traditional revenue model, typically based on per-kWh distribution rates plus demand charges, was designed for the distribution utility as a predominantly one-way kWh delivery service and may not reflect cost-benefit and other fundamental cost allocation principles in a high-DER TE grid.

• Performance requirements, standards and metrics that measure the distribution utility’s performance, with mechanisms to link performance to the utility’s earnings. Performance metrics tied to earnings can incentivize optimal performance of distribution services that enable and facilitate DER adoption and TE activities, in contrast to the legacy 20^th century cost-of-service model which incentivizes the distribution utility to build and own more assets.

The traditional function of electric distribution service, which endures to this day in the NERC functional model, is to move energy from the bulk power system where it is produced to the end-use customer where it is consumed; i.e., a one-way kWh delivery service. This functional definition no longer suffices for an electricity system with high volumes of diverse DERs that may be electrically connected either on a customer’s premises (“behind-the-meter” or BTM) or directly on the utility’s distribution wires (“front-of-meter” or FOM).

With high volumes of DERs, many of which are active participants in a TE system, the distribution system can do more than move energy one way. The distribution utility can provide the electrical network that enables the participating DERs and customers to engage in transactions for energy and grid services, and can operate that network reliably while managing frequent reversal of power flows, less predictable customer loads, voltage and congestion issues arising from DER operation, and in some regions, DERs participating in the wholesale markets operated by the Regional Transmission Operators (RTOs).

These demands may require new and enhanced functional capabilities on the part of the distribution system and the distribution utility. And because distribution is typically a regulated monopoly service, we need an updated regulatory framework to govern the modernization of the network and the ongoing functioning of the distribution utility for a high-DER transactive grid. Moreover, because TE involves numerous diverse actors and energy asset owner-operators, the required framework must embody open-access principles, to ensure that all parties and all technologies that meet the technical requirements are able to participate fully without undue discrimination.

The high-level objective of these policy measures is to create the distribution-system analog of the open-access transmission framework created at the federal level in the 1990s to enable wholesale power markets. Reforming the distribution utility model in this manner will enable more rapid and cost-effective growth of both BTM and FOM DERs, will enable customers who install BTM DERs and other DER owner-operators to participate in TE systems, and as a result will allow us to maximize the value and benefits of DERs to the grid.  Doing so enables customer driven goals such as resiliency, integrating variable renewable power resources, accommodating customer choice and extending the benefits of clean electrification to society as a whole.

Misconception: TE only uses peer-to-peer transactions. Reality: A TE system may include peer-to-peer transactions, but need not be solely peer-to-peer in order to be considered transactive.
Misconception: TE is only run and dictated by a central authority. Reality: While a central authority could choose to administer a TE system, such central administration is not a necessary characteristic of TE.
Misconception: TE is the same thing as blockchain or uses blockchain. Reality: Blockchain is a tool which may or may not be included in a TE system.

Peer-to-peer Transactions

An electric power system is transactive when numerous autonomous actors, all electrically connected to the system as electricity users, suppliers or both: engage in economic transactions that are of value to the transacting parties; support the reliable functioning of the system; and further the overall societal goals of the system. The crucial distinction compared to the traditional integrated electric utility system is that the transactive system enables and integrates transactions among diverse autonomous owners of energy assets and electricity end-users, even in real-time system operations.

Transactions may take many forms of which peer-to-peer (P2P) is one type. The most cited example of P2P is two single-family. Party A has a large solar array with battery backup and an EV, while Party B has only an EV. One P2P transaction could be Party A selling mid-day energy to Party B to charge Party B’s EV. But an electric power system can be transactive without P2P. For example, the distribution utility could procure and pay for operational grid services (voltage support, congestion relief) from DER owners, or compensate them as a non-wires alternative (NWA) to a needed infrastructure upgrade. In this TE framework the autonomous actors would transact with the distribution utility rather than with each other.

Central Authority

A TE system, which operates on a physical electric distribution network, requires a structure of rules and procedures to ensure the ongoing integrity and operation of the network. This includes procedures for communication, data flows, metering and financial settlements, as well as interconnection standards and operating rules for transacting parties to ensure they are “good citizens” whose actions do not adversely impact the electrical network.

Such rules and procedures do not necessarily require a central authority. How centralized or decentralized the governing structure needs to be depends on the system architecture. Stated another way, the degree of centralization depends on how the essential roles and functional responsibilities are assigned to the key actors who comprise the system.

A current topic of debate in the power industry can illustrate how the degree of centralization depends on the grid architecture. Consider the electric power system in terms of three layers: (1) the customer or end-user of electricity, (2) the distribution system that brings power to the customer premises and also connects distributed energy resources (DER) to the power system, and (3) the bulk power system (BPS) consisting of large generating plants and high-voltage transmission lines that move power over long distances. Each of these layers is characterized by key actors: end-users of electricity in layer (1), the distribution utility and DER owner/operators in layer (2), and the transmission system operator (TSO), the wholesale market operator, generator owner/operators and transmission owners in layer (3). In a TE system, the end-use customers and the DER owner/operators could all be transacting parties.

The illustrative centralization question is the degree to which the TSO requires visibility to and control of the DERs whose activities have impacts on the Bulk Power System (BPS). There is no single definitive answer to the question. In simplified terms, the answer depends on how essential roles and responsibilities for coordinating the activities of the transacting parties (end-users and DERs) are assigned to the TSO and the distribution utility. A highly centralized structure would say that the TSO is ultimately responsible for scheduling and dispatching generating resources to balance end-use load at all times, and therefore the TSO needs real-time visibility to and control over all DERs above a certain size threshold, say, 100 kW. In contrast, a much less centralized or “layered” structure would say that the distribution utility is best suited to coordinate DER activity on its distribution network and must do so in a manner that maintains a reliable interface with the TSO at all transmission-distribution (T-D) substations. In this layered grid architecture, only the distribution utility would need visibility to and control over individual DERs; the TSO would not need such visibility and control as long as the distribution utility were capable and accountable for its assigned role to maintain reliable operation at all T-D interfaces.

This example illustrates the point that TE systems do not necessarily require centralized authority. They do require rules and procedures that govern the activities of the transacting parties and other key actors, but the degree of centralization of control depends on the grid architecture choices and other factors.

Blockchain

Blockchain is a relatively new class of technologies for improving the ease, security and record-keeping of financial transactions between two parties. A TE system may choose to use blockchain for executing and recording financial transactions or may choose to use a different technology. Blockchain however is fundamentally a ledger or database for recording transactions between participants and as such only a part of a complete TE system that includes requirements for balancing energy flows on the grid.

Interoperability is the mechanism by which different types of systems, parties and assets can interact and be understood by one another and the electrical system.   In order for a robust TE system to function efficiently parties must have a shared understanding of who, what, when and how value is to be transacted. Thus, without interoperability, TE becomes less valuable and more complex.

Since TE systems, by their nature engage two or more parties in one or many transactions, interoperability of the information between the parties is paramount. Understanding the transaction information in an agreed upon and consistent manner is critical. Interoperability context and semantic definitions of energy transaction data (including energy, price, time, date, location, duration, etc.) are emerging from a variety of committees, standards bodies, and agencies.

Key to understanding interoperability is understanding the applications that interact within a system. Typically, in the form of an API (Application Programming Interface), software programs exchange TE data between parties. Clear and accurate interpretation of both the data and the context of the data is critical.

Interoperability enables two systems that are purpose built for a TE process and having vastly different algorithms to fully communicate with each other without the need for translations or gateways. Market actors must have the opportunity to innovate and differentiate, while still being an active participant in a broader platform. Therefore, the scope of TE interoperability requires complete definition of the data flowing between actors and their systems, but not necessarily within the individual systems. Think of it as black-box model where what goes on inside the box is up to the innovator, but what goes in and out of the box is well defined.

GWAC, NIST, and other organizations have proposed several interoperability models to help industry achieve greater value from TE systems. Various trade associations, research labs, and industry players are developing the core interoperability definitions and requirements for TE systems. See the references section for more details.

National labs and the Department of Energy have validated TE methods and technology. Policy and standards organizations are working to keep pace and offer guidance for stakeholders who are moving forward to pilot. Industry projects are exemplifying the value and methodologies offered by TE as commercially viable.

Transactive energy systems are no longer purely conceptual. Various pilot projects around the world are adopting transactive energy concepts both in part and in whole when implementing broad scale projects. Their results show promise in using TE systems to enable decarbonization and enhance customer choice by providing structures and incentive signals that, when coupled with automation, show promise for: managing energy use; reducing distribution system circuit capacity needed to accommodate DERs and increased electrification of transportation and buildings; integrating variable energy resources such as wind and solar in the bulk power system; balancing all of the above use cases while still maintaining affordable monthly energy bills for customers.

Most pilots heretofore have been of limited size and scope, typically with fewer than 200 participating end users per project. Despite promising results from field application of TE, early and wide scale adoption faces the following barriers:

Poor understanding of value. While this is changing, most retail electric utilities have poor visibility into the kind of detailed, real-time and granular understanding of circuit capacity necessary in order to quantify, optimize and speed interconnection of DERs and enable customer choice and end use electrification. One pilot project is attempting to use TE systems to automate the estimation of distribution system value from DERs. Other distribution utilities are exploring more centralized methodologies to quantify the value of distribution capacity deferral and communicate it to outside entities that – in theory – could use this value to conceive of and deploy innovative and cost-effective solutions; however, this leads us to the second barrier to adoption.

Lack of ability to scale interfaces, transaction and communication of value. Interoperability of standards, definitions, practices and communication interfaces necessary for parties to transact value at scale are rare. While many interoperability standards have been developed and proposed, few are widely adopted. This is often or in part because even the largest utilities are regionally constrained and overseen by separate and distinct regulatory bodies with little coordination. Each distribution system interface and peer-to-peer interface has the potential to be completely unique, requiring solution providers and system integrators to custom code translators and workarounds that constantly break as new interfaces, protocols and standards enter the market. Limited and deficient implementations of interoperability significantly increase costs and barriers to entry for any market entrant wishing to participate – making TE systems inaccessible to all but the largest and most sophisticated solution providers and integrators.
Regulatory and market structures prohibit or slow competition. Few places allow retail competition for sale or trade of electric energy. Those that do seldom offer or have limited quantified implementations at scale that provide validation of the intended values transacted in the TE system.

With support of the Department of Energy, the Grid Wise Architecture Council is leading development of the architectural and interoperability discussions giving stakeholders the tools to implement TE. Federal and international labs along with private industry are working with communities and regulators to roll out TE projects. Standards and models from groups like NIST, IEEE PES, SEPA, ISO/IEC are offering guidance for industry policy, regulation, and adoption of TE tools and methods.

US Department of Energy (DOE) - The DOE is one of the key entities sponsoring and funding activities related to TE. Many of the US Laboratories have projects relating to aspects of TE systems for the North American power grid. Also, several standards bodies and industry associations/societies have active TE projects. For example, the objective of the Grid Modernization Laboratories Consortium is to harmonize and develop enhanced collaboration between the many National Labs’ initiatives focused on energy, grid, and power related projects.

NIST – The National Institute of Science and Technology sets standards and direction for industry and users to ensure baseline needs and future conservation, collaboration, and policy includes proven core technologies and standards. NIST is involved in many road-mapping and future state projects relating to the energy and electrical systems.

ASHRAE – The American Society of Heating Refrigeration and Airconditioning Engineers represents the designers, suppliers, specifiers, and integrators the largest electrical energy consuming set of systems for buildings. ASHRAE helps set the direction for building-to-grid interactions, supports legislative and codes with best practices and standards, and provides a forum for the exchange of ideas.

IEEE PES is now sponsoring the annual GWAC Transactive Energy Systems Conference (TESC). TESC is an annual conference of thought leaders sharing ideas, concepts, projects, and direction for the future of the electric power grid.

SEPA – Smart Electric Power Alliance - (formerly SGIP) includes TE in its programs.
NARUC is planning a section on TE in its annual meeting.
ISO/IEC has published the TE roadmap and framework along with other TE related documents.
Energy Blockchain Consortium has included programs on integration benefits of blockchain use to facilitate TE.