Tipping Point for Transactive Energy?

This is an abbreviated version of a longer article prepared with Mark Knight and Tom Sloan for Electricity Policy, magically edited by Larry Lackey to a single page for use by the Gridwise Architecture Council and Switchboard.

Policy and Technical Opportunities for the Evolving Electric Industry

by Larry Lackey, Coergon; Mark Knight, CGI; Tom Sloan, State Representative, State of Kansas; Carl Zichella, NRDC

It has been said that if Thomas Edison could see the electric industry today he would recognize it as being much the same as 100 years ago, but that may not be the case for much longer. The century old paradigm of large scale generation and distribution is starting to change as renewable resources make more of an impact. New devices, both personal and utility-owned, impact the grid directly and also interact with each other. Preparation to integrate these technological and policy changes and to make measured and effective choices has already started. The industry is undergoing a fundamental shift from a "load following" paradigm, where central generation adjusted to varying demand, to a "supply following" paradigm, where responsive demand absorbs variable generation such as solar and wind. During the transition, the industry can't afford to design purely for either extreme. That means we need an electric system that is flexible. Transactive energy is a model that provides that flexibility.

Transactive energy captures the future utility-customer interactions in which an increasing number of customers will self-generate and independently decide when to buy and sell power, and even without selling power, organizations with campus facilities or large buildings may want to utilize these techniques to focus on the elements that are of most value to them whether that be cost, power quality, or other criteria. Customers will also likely buy and sell power between themselves, independent of the utility and regulatory communities, in an environment that:

  • Empowers all customers to optimize their total energy bill according to their own varying priorities. Customer control, comfort, and cost are all important - self-optimization that for example might reduce usage of more expensive energy later in the day by pre-cooling their residence or charging electric vehicles when there is abundant, lower cost wind energy earlier in the day. New services may include automation and enhanced customer control.
  • Appropriately values distributed resources with transparent time and location based markets.
  • Benefits and protects customers without distributed resources such as renters and those with low income by providing protection through subscriptions for typical usage.
  • Stimulates innovative services and products with clear time and location economic value that can be contracted for future periods.

And if this sounds like a vision of the future, the recent NYREV Order states that Distributed System Platform Providers (DSP) will provide or sell a set of products and services to customers and service providers. The State Of New York Public Service Commission epitomized the start of the transition to a transactive energy-capable system with its Order adopting a new regulatory policy framework and implementation plan on February 26, 2015. In that Order the NYPSC states that the electric industry is in a period of momentous change and that the challenges that stimulate action also reveal tremendous opportunities to improve the century-old regulatory system. The NY Reforming the Energy Vision (REV), aims to reorient both the electric industry and the ratemaking paradigm toward a consumer-centered approach that harnesses technology and markets. This construct is ripe for the application of transactive energy.

Transactive energy systems are being driven by economic, technological and customer preference opportunities that were just beginning to exist five years ago. With today's enhanced performance and declining costs for many renewable energy sources entering the system today, these resources are here to stay. Distribution systems were not designed for large scale, frequent penetration of inputs from customers with potential power flows in multiple directions. Ad hoc arrangements have worked so far, but as the combined effects of changes often outside of regulatory and utility observation and control become significant, a more robust response to maintaining and enhancing safety, reliability, and resilience of distribution energy systems and markets is required. The response should be to create an increasingly flexible network at all levels of the electricity deliverability system. This is the challenge we face and the direction in which we are headed. Assuming something like New York's REV platform, would each utility orchestrate transactive energy systems and markets? The answer according to the NYPSC is "yes." In its recent Order the NYPSC states that the DSP core functions would be highly integrated with utility planning and system operations, and assigning them to an independent party would be redundant, inefficient and unnecessarily costly.

Accordingly, it is helpful to think of transactive energy not as some software or hardware that can be purchased and installed, but as a model in which generation, storage, and loads enabled by intelligent communications capabilities create the ability for customers and utilities to buy and sell between themselves based on mutual economic benefits. Regulators may take a conservative, phased approach to introducing transactive energy mechanisms in their jurisdictions by using familiar tariff constructs and testing the effectiveness of certain pricing and market designs in limited pilots to ensure participants are properly incentivized and aligned through these mechanisms.

GWAC members, in consultation with utility, regulatory, legislative and consumer interests, are developing a transactive energy decision-makers' guide to help frame discussions and decision-making in regulatory and legislative arenas.

About the Authors

The authors are supporters/members of the GridWise Architecture Council, and the perspectives guiding the writing of this article reflect the Transactive Energy Framework developed by the GridWise Architecture Council and the GridWise Architecture Council's Transactive Energy Infographic.