Guide to Transactive Energy: What Everyone Needs to Know

Energy efficiency is more important than ever before. High electricity demand, aging power grids, and climate disasters are straining our current energy system. As a result, more people are looking to optimize energy usage—and transactive energy may offer an answer.

A transactive energy framework can help everyone from consumers to corporations benefit from improved energy efficiency and profit in the process. Learn more about how this system works, its economic benefits, and more in this guide to transactive energy.


Pros and Cons of Transactive Energy

If you are unfamiliar with the term, you might ask what is transactive energy? Transactive energy systems make it easier for anyone to trade and sell energy, whether they are an individual consumer, a micro-grid, or a major power company. Although this system promotes energy efficiency, it also faces significant implementation challenges. But let’s go over the advantages first.

Advantages of Transactive Energy

Electrical grids distribute electricity from energy producers (large utility companies) to consumers using a traditional centralized infrastructure. Transactive energy enables decentralization, where multiple groups can produce their own energy at a local level, relying on a series of smaller devices and power grids instead of a central hub.

As the legacy grid framework ages, transactive energy systems may be the future of energy. And the benefits of distributed energy resources—a variety of small, system-connected devices and virtual assets that work to provide services to the energy grid—are far reaching.

  • Transactive energy enables everyone to participate in the energy economy. Homeowners can install small devices like rooftop solar panels to generate electricity and engage in bidirectional energy transactions.
  • The market has many devices ready to take advantage of transactional energy, such as smart fridges or outlets that are part of the Internet of Things (IoT) ecosystem. Many IoT-connected devices can be adjusted so that they consume energy at the most cost-efficient times.
  • Transactive energy promotes resilience. If one part of a centralized energy system suffers damage, the whole system could fail. With a decentralized framework, only the affected infrastructure suffers an outage. The length and frequency of power outages may decrease.
  • Transactive energy can enable a more efficient balance between supply and demand, ensuring that consumers use energy at optimal times and levels.

Transactive Energy Challenges

A decentralized energy infrastructure can unlock several important benefits. However, there are some implementation challenges that are important to understand.

  • Utility business models will need to evolve for transactive energy to work. Current systems rely on a centralized grid that supplies electricity to all consumers in a certain area. The utility primarily controls the excess energy and does not engage in two-way transactions. Evolving these systems will require significant effort, incentives, and consistent standards.
  • Security issues may arise. Cybercriminals can harm transactive energy systems by manipulating energy requests, siphoning excess power, and injecting false data that prevents successful transactions. Strong security protocols are necessary to prevent cybersecurity threats.
  • Transactive energy systems require distributed energy resources. Installing these resources requires time, money, and labor investments, which can pose barriers to adoption.
  • All devices in a transactive energy system must be able to perform autonomous computing functions and communicate with one another to exchange data. This can be difficult to accomplish in a decentralized environment. However, distributed ledger technologies, such as blockchain, can help enable these capabilities.


Layout of the Transactive Energy Framework

Now that you understand the benefits and challenges of transactive energy, let’s delve into the details. A transactive energy framework has a unique decentralized design that facilitates the bidirectional distributed generation of energy. This system stands in stark contrast to legacy infrastructure.

The Outdated Nature of Legacy Grid Systems

Over the past century, utility companies built electrical grid systems to serve as large generation hubs for certain geographies. These entities operate using a centralized model and are typically responsible for all aspects of managing and provisioning energy.

Legacy grid systems are inefficient and costly. Furthermore, it’s clear that our current power grid model is under a great deal of stress. Electrical grids operate using fragile, outage-prone lines that can fail when they take on too much power, or when disasters occur, such as floods and heavy storms.

Due to the centralized nature of a legacy system, if one component fails, the entire infrastructure can suffer. For example, the 2003 blackout in the northeastern United States occurred when a single power line brushed against overgrown trees and shut down. The utility’s alarm system failed, hampering operators who were trying to respond to the outage before other lines began to fail. These events caused 50 million people to lose power for two days.

Demand for electricity and renewable energy sources, like wind and solar, is also growing. High demand for electricity strains the electrical grid. Implementing renewables can result in network management challenges as renewable energy output often fluctuates based on environmental factors. For example, a solar panel generates less energy on a cloudy day, and wind turbines only generate power when the wind is blowing at a serviceable speed.

Legacy grid operators use strict processes to ensure that plants generate the right amount of electricity at the right time to meet demand. However, intermittent renewable output disrupts this planning process, making it difficult to incorporate sustainable energy.

In the past, the idea that someone could generate kilowatts of electricity using a device on their roof was unfathomable. However, these technologies are now a reality. To adapt to these changes, the energy sector requires a decentralized smart grid approach.

How the Transactive Energy Framework Operates

Transactive energy systems work by connecting commercial, residential, and industrial customers with energy storage systems, utility grids, renewable energy sources, and other technologies, such as smart meters.

A scalable transactive energy platform is crucial for integrating physical devices and virtual assets, like mobile energy management apps, in a decentralized ecosystem. Using these platforms, users can manage and track energy data, configure and control their appliances, and optimize their energy usage to become more efficient.

Each party in a transactive energy system will have devices that negotiate when excess power is available and complete transactions. Integrating smart contracts and energy platforms can facilitate energy trading. These solutions collect energy requests and compute prices according to market algorithms, completing transactions faster and more efficiently.

To support transactive energy management in the smart grid, clear standards are necessary. A transactive energy system could become messy if entities are using different protocols to design and develop their infrastructure.

As of 2021, there are no global standards to facilitate transactive energy. However, many working groups are developing frameworks, including IEEE’s P825. To move transactive energy capabilities forward, stakeholders across industries, institutions, and agencies will need to work together.

Key Technology Trends in Transactive Energy

Now that you know about distributed energy resources and other key components, let’s discuss key trends in transactive energy. In particular, it’s important to know how blockchain is being used in energy trading.

Blockchain facilitates communication across decentralized networks, eliminating the need for a central system or authority. Blockchain applications in energy transactions can be powerful. This technology can help devices speak to each other and with the power grid while devices assess the availability and usage of energy.

Blockchain use in microgrids may provide the level of efficiency and security necessary for transactive energy. Using blockchain opportunities (PDF, 3 MB), consumers and energy producers can calibrate their devices to ensure that they use power at the most efficient times. When excess power is available, the blockchain can help complete transactions.

To keep data secure, blockchain systems store information using cryptography, requiring keys and signatures from users in order for them to access data. These capabilities help meet the strict regulatory requirements of various geographies, facilitating a path to transactive systems.


Economic Impact of Transactive Energy

The transactive energy market benefits individual consumers, energy stakeholders, and businesses of all sizes. Consumers can become more resilient and efficient in their energy consumption, and businesses can unlock revenue opportunities and reduce costs through energy optimization. Under this power system, innovation potential is significant.

Gaining Prosumer Benefits through Energy Trading

Transactive energy systems can help enable energy democracy. By decentralizing energy infrastructure, individuals have the power to fully participate in the energy ecosystem, unlocking compensation and other benefits previously exclusive to utility companies.

The most obvious benefit of transactive energy for consumers is the cost savings. With optimized energy usage, individuals will likely see lower energy bills, especially during peak demand conditions.

The cost of electricity varies per minute according to demand. Peak demand times typically occur during the late afternoon and early evening, when people come home from work or school. As a result, electricity tends to cost more during these times versus low-demand periods.

Most consumers pay a flat rate based on the utility company’s seasonal average cost of providing electricity. However, transactive energy consumers follow a demand response model. Under this system, smart devices use less energy during high-demand periods and vice versa, reducing costs.

Transactive energy also enables energy trading. If a consumer has a solar panel, for example, they can sell excess energy back into the grid. This process puts money directly into an individual’s pocket, helping to democratize energy gains. The consumer then becomes a prosumer—an energy producer and consumer all in one.

How Businesses Benefit from Transactive Energy

As transactive energy becomes more advanced, technology will need to evolve. Businesses can gain a competitive edge by investing in transactive energy infrastructure and related ventures, from implementing IoT networks to engaging in smart-city projects. Through innovations in software, hardware, and connectivity, businesses can emerge as leaders in transactive energy.

Organizations can also become prosumers. Under a transactive energy system, businesses can install their own solar panels or microgrids, producing power for them to consume. Using transactive energy platforms, IoT-enabled devices, and other smart technologies, entities can tailor their energy usage according to price fluctuations, optimizing costs.

These companies can route these savings and earnings into innovative projects. As a result, transactive energy can help companies drive business value and unlock revenue, facilitating growth.


Transactive Energy Policy and Regulation Considerations

Transactive energy places power in the hands of everyone—quite literally. However, this energy system faces constraints from policy and governmental regulation.

The energy sector is highly regulated. Various governmental bodies oversee their operations, with laws sometimes varying between states, provinces, and regions. Global regulatory agencies are exploring ways to migrate from legacy energy systems to more efficient transactive ones.

However, freedom to fully engage in transactive energy varies between highly regulated vs. deregulated electricity markets. Take for example California’s Electric Rule 21. Under this policy, customers who install energy-generating equipment, such as a solar inverter, must ensure that their utility provider can access the equipment’s communication and control features.

As a result, California utility providers can dial back a customer’s energy use at their own convenience to stabilize the power grid. The owners of the infrastructure do not receive any payment. In a truly transactive energy ecosystem, the customer would receive compensation for moving energy back into the grid.

Governments will need to implement frameworks to encourage energy trading and deliver consumer benefits. Many pilot programs have explored the technologies and benefits of transactive energy, such as the Pacific Northwest Smart Grid Demonstration project in 2015.


Learn More about Transactive Energy

As seen in this guide to transactive energy, a decentralized energy framework holds value for individual consumers and business stakeholders alike. If you want to learn more about transactive energy, read this position paper from the IEEE Blockchain Initiative.

Interested in learning more about blockchain and transactive energy? Get involved with IEEE Blockchain-Enabled Transactive Energy (BCTE). This program is series of regionally diverse virtual forums addressing Blockchain-enabled transactive energy in the domain of electrical power and energy application development. To learn more about IEEE Blockchain, join the IEEE Blockchain Technical Community to stay informed of latest activities.