Transactive Energy Management in the Smart Grid

For more than one hundred years, the distribution of energy has been a one-way interaction. The power plant produces energy and delivers it to consumers through a system of wires, poles, and transformers—collectively, the electrical grid. Once a month, consumers receive a bill for their energy use. Power distribution remains centralized in a local utility, which serves as the grid operator.

The model is changing for a number of reasons. First, the emphasis on renewable energy changes how consumers are using electricity and how they are paying for it. Many end users own a renewable energy source, such as rooftop solar panels or wind turbines. They can generate their own electricity, inconceivable to the twentieth-century architects of the electrical grid.

Also, the proliferation of electrically powered digital devices that can communicate through the Internet of Things (IoT), or “smart” devices, puts unprecedented strain on power use. In fact, US energy consumption has nearly tripled since 1950, according to the US Energy Administration.

Just as smart devices can talk to each other, the smart grid uses digital communication to detect and react in real time to changes in electrical usage. The intricacy of the smart grid also is changing energy trading, the way people buy and sell energy. Real-time data-driven communication affects how the market negotiates electricity supply and consumption, timing, cost, and delivery. Transactive energy management in the smart grid will help shape the future of modern electricity consumption in the move toward an increasingly decentralized power system.


What Is Transactive Energy Management?

Rather than maintaining a one-way exchange from electric utility to customer, the smart grid involves power—and information—flowing in many directions. This adds complexity to both power supply and pricing, as some utilities actually pay consumers for the energy they supply back to the grid.

Decentralizing Energy Management

Emerging economic systems mirror the decentralization of energy as a commodity. The transactive energy concept incorporates economic principles that reject the traditional one-way flow of both energy and money between supplier and consumer.

The transactive energy market considers that network end users can generate their own energy, known as a distributed energy resource (DER). A DER refers to energy generated from a source near the point of use. In some cases, this energy goes back into the grid, running electrical meters “backward.”

Often, a DER is a renewable energy source, such as solar panels, wind generators, or electric vehicle batteries. The rapid rate of adoption of renewable energy strains the existing system, which isn’t designed to account for the proliferation of DERs.

Guiding the Emergence of an Interactive Grid

The changing energy model also has required new guidelines for those seeking to enter the market. For instance, the Department of Energy established the Gridwise Architecture Council (GWAC) in 2004 to help guide the emergence of a nationwide interactive electrical system. The GWAC, a team of industry leaders, works to establish philosophical principles that undergird interactions among energy consumers and providers.

The United States codified its commitment to energy modernization in 2007 with the Energy Independence and Security Act. In addition to an emphasis on security and performance, the Act recognized the urgency of developing sources of renewable energy.

Then, in 2009, the National Institute of Standards and Technology established the Smart Grid Interoperability Panel to help develop communication standards for the smart grid.


How Does Transactive Energy Management Work in the Smart Grid?

Smart meters are at the core of the smart grid. Digital technology enables two-way communication between the utility and the customer and has replaced the need for the electric company to check the meter manually. Instead, the smart meter transmits data and integrates it with billing and other information management systems to manage energy use.

Smart Meters

Smart meters provide the data that underpins energy use and billing. Plus, smart meters facilitate the expansion of the IoT. IoT devices feed the smart grid by collecting, transmitting, and analyzing large quantities of data from sensors embedded in energy endpoints.

In fact, smart meter installations have nearly tripled since 2012. According to a 2021 Edison Foundation report about smart meter deployments, users will install nearly 115 million devices by the end of 2021.

Smart Devices

Many utility companies are promoting programs to attract end users to the smart grid.

Michigan-based DTE Energy, for example, created an app that analyzes data from its customers’ smart meter installations. According to the Edison Foundation report, the app delivers usage data to customers with 99.8 percent accuracy. Plus, it generates 5 percent in energy savings for customers who use it more than twenty-five times in a year. Furthermore, the utility found that the connection rate for smart devices—such as thermostats, smart plugs, and light bulbs—increased 45 percent since March 2020.

Models for Transactive Energy Management

Pacific Northwest National Laboratory (PNNL) is leading two separate initiatives to test transactive energy management in the smart grid. One project, in Washington state, focuses on technology deployment, studying a shared-energy model among building owners and communities.

Spokane-based Avista Utilities created an “Eco-District” in which a centralized system serves the energy needs of a group of buildings. The buildings contain thousands of sensors that track conditions in real time, as well as solar panels, battery storage, and thermal storage. Each smart building can talk to the others and to the grid.

PNNL plans to test its transactive energy methods in the Eco-District, including:

  • Intelligent load control, which enables devices to reduce load consumption automatically in response to peak electricity use
  • Transactive energy coordination and control, which automatically negotiates electric power use and cost to facilitate communication among buildings, their smart devices, the grid, and power markets
  • Market-clearing mechanism, which coordinates energy supply and electricity requests
  • Automated fault detection and diagnosis, which identifies operational issues and corrects them to improve energy efficiency

The other PNNL project simulates the primary power grid in Texas and works in conjunction with the Energy Reliability Council of Texas (ERCOT). ERCOT manages the bulk power grid for more than twenty-six million customers. PNNL researchers hope that the ERCOT study will serve as a national model for the transactive energy concept.

The Texas project models a transactive energy management system that uses a Distribution System Operator (DSO). The DSO model uses smart meters to operate within a local electricity distribution area instead of from a centralized utility. A hyperlocal grid operator coordinates DERs, such as renewable energy production and energy storage. This decentralization helps minimize overloading and unbalancing of a more extensive grid.

PNNL researchers are analyzing the engineering and economic performance of the Texas model with the idea of expanding it nationally. Eventually, researchers hope to demonstrate the value that transactive energy management brings to energy cost and performance.


What Are the Benefits of Transactive Energy Management in the Smart Grid?

Electricity use involves the integration of an inverter, a device that changes direct current to alternating current and adjusts voltage appropriately. A traditional inverter runs power in one direction.

Integrating Smart Inverters

To help integrate DERs into the grid, smart inverters go beyond just feeding power into the grid. Instead, smart inverters have a digital infrastructure that allow them to share data with the utility and other points on the system. As a result, smart inverters can make autonomous decisions to keep the grid stable.

Providing Stability through Standards

To provide stability and uniformity for the integration of smart inverters, IEEE has published a series of standards known as IEEE 1547. The guidelines detail cybersecurity, storage provisions, and technical background. In 2018, IEEE made sweeping changes to its interconnectivity standards to account for the capabilities of modern smart inverters and other equipment.

Furthermore, the latest iteration of the standard creates national guidelines for how manufacturers will test their smart equipment. The standard paves the way for greater incorporation of DERs within the grid.

Addressing Potential Drawbacks

The IEEE standards are critical in addressing potential instability, a major factor for transactive energy management in the smart grid. One measure of the reliability of an energy resource is its capacity factor, and DERs generally lag behind fuel-based sources. The capacity factor measures how often a plant is producing at its maximum power.

The Energy Information Administration reports that nuclear energy has the highest capacity factor of any other energy source. Nuclear plants ran at capacity more than 92.5 percent of the time in 2020. By contrast, wind showed a capacity factor of just over 35 percent, while photovoltaic solar energy had a capacity factor of just 25 percent. This low capacity factor suggests that renewable energy works best when the sun or wind cooperates, illustrating other potential drawbacks:

  • Variability: Power plants that run on fuel can scale up and down on command. Renewable energy resources rely on the whims of nature, affecting grid reliability.
  • Location specificity: The sun and wind are more powerful in some places and weaker in others. The strength of the natural resources to generate energy doesn’t necessarily match the demand in the same area.


What Are Best Practices for Transactive Energy Management in the Smart Grid?

A transactive energy system could become dysfunctional if entities use different protocols to design and develop their infrastructure. As of 2021, there are no global standards that govern a transactive energy system. However, just as it published standards for smart inverters, IEEE is working to develop a framework for transactive energy.


In addition to establishing standards, stakeholders across industries, institutions, and agencies will need to work together to offset the variability of DERs. DERs can synchronize through hyperlocal electrical systems called microgrids. Microgrids can operate independently or in conjunction with the main grid.

To help level energy peaks, microgrids can exchange energy with the main grid to help meet demand. For example, microgrids can reserve energy to supplement dips in energy generation from the larger grid. Researchers are exploring new ways to optimize the microgrid, with an eye toward leveling energy peaks and keeping consumer costs down.

Day-Ahead Pricing

Real-time data collection and analysis also allow for the creation of a new kind of financial market that could help stabilize transactive energy management model pricing. The day-ahead market sets financially binding prices for the electricity market for the following day. This minimizes potentially wild daily fluctuations in DERs.

Virtual Power Plants

Developed by the Germany company Next Kraftwerke, the virtual power plant has begun to take hold in US markets. The virtual power plant incorporates decentralized power generating units such as wind farms and solar parks in a cloud-based repository. It then distributes energy through its aggregation software rather than requiring tangible infrastructure. By nature of its digital infrastructure, a virtual power plant has the grid flexibility to address peaks in electricity demand.

Oregon’s largest utility, Portland General Electric, linked 525 homes with solar storage to a virtual power plant in a five-year pilot study. The utility will be testing smart-grid control devices as part of a larger program that seeks to cut carbon emissions by 80 percent by 2050.


What Is the Future of Transactive Energy Management?

The updated IEEE standards provide greater clarity on interconnection requirements. Some states and utilities already have a head start. The state of Maryland and Hawaii Electric have updated the rules governing smart inverters, requiring them to meet IEEE standards by January of 2022. In fact, the National Association of Regulatory Utility Commissioners issued a resolution in 2020 recommending all state commissions implement the new standards. Every state now has a roadmap for best practices in implementing transactive energy management in smart grid applications.

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