Transactive Energy Market: The Future for Utilities

Transactive energy is an energy trading system in which anyone on the grid can participate. Using transactive energy, utility companies and consumers participate in the exchange of energy to create a more efficient and reliable power system. In the transactive energy market, traditional consumers can generate electricity through solar panels on a building’s roof and trade that energy on the grid. Another example of the use of transactive energy is consumers’ using smart devices to limit energy consumption during peak hours, when energy is more costly.

Transactive energy is beneficial because utility companies can predict a consumer’s power needs. As a result they can use more renewable energy assets, like energy generated by solar panels, to provide power. However, there are challenges with integrating transactive energy into the traditional power grid. As the transactive energy market expands in the United States, institutions are working to solve these challenges so that transactive energy can become a larger piece of the energy industry.


Current Growth in the Transactive Energy Market

Utility companies have historically generated electricity on demand as consumers need it. The problem with this strategy is that the demand for energy is variable. Depending on season or time of day, consumer demand can ebb and flow. As a result utility companies often rely on generation sources like natural gas that provide electricity quickly when demand peaks.

Transactive energy, on the other hand, allows utility companies to manage the variability of consumer demand across a larger infrastructure for a more efficient electricity grid. Instead of generating all required energy at a power plant, the utility company can use other energy sources in the community as needed.

Key Benefits of Transactive Energy

The following factors demonstrate some of the benefits of transactive energy:

  • Utility companies can use renewable energy sources that depend on variable resources such as the sun and wind but are better for the environment.
  • Internet of Things devices can communicate with the smart grid to use energy when it is cheapest. For example, consumers can program smart devices to run appliances like dishwashers overnight, when electricity is cheapest.
  • The smart grid funnels energy generated nearby, such as from a neighbor’s solar panel, to the consumer, which is cheaper than transporting energy from further away.
  • Utility companies are more resilient during inclement weather because energy isn’t coming from a single, centralized location.

Overall, transactive energy is more efficient, less costly, and more reliable for consumers. Because of these benefits, the transactive energy market is expanding in the United States. By 2030 the United States will increase its use of transactive energy to generate at least 20 percent of its power from renewable sources, according to a 2014 conference paper.

The National Institute of Standards and Technology (NIST) is leading the development of transactive energy in the United States. NIST is a government-funded organization that provides standards to support the development of technology. To further growth in the different markets for transactive energy, researchers at NIST engage with influencers at private companies. Their goal is to determine how best to apply transactive energy approaches to problems with the electric grid. In one of NIST’s initiatives, companies helping to transform the renewable energy sector participate in NIST’s Transactive Energy Challenge.


Expansion of the Transactive Energy Market in the United States

Since its emergence in 2016, the transactive energy market has expanded rapidly as institutions invest in more research and development. There are two key goals behind the recent focus on transactive energy: reducing the reliance on fossil fuels and investing in clean energy.

Reduction of Fossil Fuels

Oil, coal, and natural gas provided nearly 80 percent of the country’s energy in 2020, according to the United States Energy Information Administration. These fossil fuels impact the environment by emitting pollutants when they’re burned and requiring extensive infrastructure to mine. As a result the United States is working to reduce its reliance on fossil fuels.

Additionally, to mitigate the environmental impact, the United States is investing in carbon capture and storage. This process captures the carbon dioxide released by fuel-based power plants and industrial sources to prevent it from being released into the environment. However, if carbon capture fails, global warming will continue to have a widespread impact on the environment.

Investment in Clean Energy

Another reason the transactive energy market is expanding is because technologies such as electric vehicles are becoming more popular. It’s increasingly important to invest in clean energy to power electric vehicles effectively. According to Lazard’s Levelized Cost of Energy Analysis, that effort is worthwhile because the cost of generating electricity from alternative technology is declining. Now that costs are at or below the cost of conventional energy, companies can easily invest in clean energy to make it a cheap and abundant resource.

Expansion of Transactive Energy

Government entities and private organizations need to continue doing both visioning and real-world testing for transactive energy use to continue expanding across the country. To determine best practices for the future, the United States has two transactive energy projects underway, led by the Pacific Northwest National Laboratory (PNNL). As described in an article by Tim Ledbetter, these consist of the following:

  • Avista Utilities in Spokane, Washington, is testing techniques like intelligent load control in buildings to develop a standard that others can follow.
  • The Electric Reliability Council of Texas is using large-scale modeling, simulation, and analysis to determine how a distributed energy resource can be effectively integrated into the grid.

These projects are a major step in the continued expansion of transactive energy. With lessons learned from these two projects, the United States can develop infrastructure and strategies to use transactive energy effectively throughout the country. Other locales can model their systems after a tried-and-tested method. This expansion means that clean energy will be available to more consumers and energy production will be more efficient over time.


Challenges in the Transactive Energy Market

Even though the benefits of transactive energy are great, there are challenges to overcome before it can become more widespread. 

How to Address Supply and Demand Challenges

One challenge in the transactive energy market is matching energy suppliers with consumers. There are more parties involved in the exchange, and distributing energy efficiently is a complex process. Smart meters help determine a consumer’s energy demand, but transactive energy also needs a platform to track the transaction. That’s where distributed blockchain meets the need with a ledger technology that records transactions so all parties can see the details.

A blockchain platform helps manage problems, like congestion, power quality, and reliability, that arise when the transactive energy supply isn’t efficiently matched with demand. By providing a secure platform for transactions, blockchain platforms help traditional power distribution systems transition to include alternative energy sources.

How to Address Real-World Challenges

Based on real-world trials of transactive energy, researchers have also discovered trends in a few challenge areas. A study published in The Electricity Journal analyzed three field experiments of transactive energy systems. The study found the following challenges with integrating with existing software, hardware, appliances, and customer practices:

  • Systematic risk or the perception of risk: In one field experiment, users removed load control devices from hot water heaters early based on concerns about potential malfunctions. In another experiment the water department frequently used the override setting out of concern about water levels getting too low.
  • Lack of readiness of users and connected systems: Recruitment of participants took longer than anticipated. Some participants lacked basic knowledge about their equipment, such as whether an appliance was gas or electric.
  • Lack of competitiveness with existing demand-management systems and products: Sometimes costs outweighed benefits if a small number of participants were dispersed over a wide geographic area. Overhead cost also outweighed benefits if participants chose more conservative settings rather than the most economical options.

To address these risks, policy makers can create recommendations around when and how to use transactive energy strategies. For example, they can avoid high-risk sites, such as water-supply control systems; provide adequate user education; and prioritize large commercial sites where benefits outweigh costs. By putting these policies in place, institutions can empower consumers to participate in the electricity market. This mutual participation shares responsibility and helps balance energy supply and energy demand across more parties. Small transactions from individuals can add up to make a large difference in the overall market.


What to Expect for the Future of the Transactive Energy Market

The future of the transactive energy solution is still being determined as institutions analyze, test, and develop best practices. However, the futuristic vision imagines a transformation of utilities to more efficiently use energy resources with the power grid. To reach this vision, utility companies will likely need to use cloud computing and Internet of Things devices to predict energy needs and distribute energy effectively.

Transactive energy markets are evolving in Washington and Texas first, with ongoing transactive energy projects that are paving the way to the future system in the United States. The future of the transactive energy system will use smart grid technology to execute transactions on demand between the power grid, homes, and businesses. With the smart grid, consumers can access more renewable energy generation technologies because the distribution network can efficiently match supply with predicted demand.

To imagine what the future of transactive energy holds, let’s take a closer look at the two ongoing projects in Washington and Texas.

Shared Energy Model Example in Washington

As described by Tim Ledbetter, Avista Utilities in Spokane, Washington, is creating five smart blocks with buildings that have a shared-energy model. A centralized heating, cooling, and electrical system serves a group of buildings. The smart blocks have solar panels, battery and thermal storage, and sensors to track conditions and communicate with the grid. Automated fault detection and diagnostics technologies can identify issues early and often correct them automatically.

Transactive Energy Infrastructure in Texas

The Electricity Reliability Council of Texas manages the majority of the power grid for customers in Texas. As Ledbetter explains, the transactive energy project models the following two ideas, which aren’t commonly used in the energy industry yet:

  • Distribution system operator: This operator manages planning and operational functions for the electricity distribution system.
  • Transactive network: This network is designed to coordinate between the distributed energy resources and the distribution system operator.

Researchers for this project are looking at models that consider the current amount of renewable energy generation as well as much higher levels. This dual approach helps predict future impact if the trend toward higher energy generation continues. The researchers plan to propose a business framework for the distribution system operator and also design a transactive network that can be used for coordination. With this field-tested data, other locales can follow a similar structure.


Involvement in Transactive Energy

The energy sector in the United States is moving toward more renewable energy sources with the use of transactive energy. Transactive energy research has shown promising results for transforming the energy system to be more cost-effective, reliable, and efficient. Government resources and private companies are teaming up to determine best practices and a future vision. As a result transactive energy is likely to become more common and sophisticated in the coming years.

The Institute of Electrical and Electronics Engineers (IEEE) is the world’s largest technical professional organization dedicated to advancing technology for the benefit of humanity. To learn more about the transactive energy market and other utility initiatives, explore IEEE’s extensive library of resources.

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