What Is Transactive Energy?

In a transactive energy system, every homeowner would have the opportunity to become self-sufficient, with their own sources of electricity. Renewables like solar and windmills would be pervasive, benefiting the environment and reducing carbon emissions. Smart devices like washing machines and electric cars would know to use electricity at night, when energy is most affordable and least in demand.

Transactive systems have great potential for the future, but they’ve also been around for quite some time, functioning on the same principle that wholesale systems operate on. Transactive systems have had a significant impact on the energy industry in the past, but they will likely have an even larger role in the future.

Governments, corporations, and citizens can all benefit from a transactive system. Its implementation is complicated, but the possibilities are endless. A transactive system is built on the backs of interoperability, demand response, and distributed energy resources (DERs). With all this potential, it’s only right to ask, What is transactive energy?


Defining Transactive Energy

Transactive energy refers to a system in which anyone on the grid can buy or sell surplus energy. In a transactive energy system, traditional consumers generate their own electric power with DERs like combined heat and power, solar panels, and windmills.

Other examples of DERs include nuclear facilities, hydropower, biomass farms, natural gas turbines, and trigeneration units. Utility companies still operate and provide electricity, but they are no longer the only suppliers of electricity.

Transactive Energy and Energy Sharing

The transactive energy concept requires a decentralized smart grid powered by a DER network. In transactive energy systems, end users are both consumers and producers, or “prosumers.” These prosumers engage in energy trading, which could potentially operate on a P2P blockchain platform.

Transactive energy systems connect utility companies, residential and commercial producers, and consumers through energy storage systems, DERs, smart meters, and distributed ledger technologies like blockchain. Producers and consumers can then communicate and trade energy on a P2P platform, which they can potentially access through mobile apps, websites, and smart devices.

Transactive Energy and the Environment

In a transactive energy market, residential prosumers are motivated to use renewable energy sources like solar panels and windmills. These sources are reliant on certain weather conditions, like daylight and wind, but their widespread use would lessen the energy burden on the environment and help prevent further climate change.

On a larger scale, energy companies in a transactive market can invest more money into larger renewable energy facilities, such as biomass, windmills, hydropower plants, and geothermal plants. Switching from fossil fuels to renewables is one of the most important steps for healing the environment from severe pollution.

Biomass is casually referred to as a renewable resource, but it actually emits carbon into the atmosphere. However, the plants that are the source of biomass energy capture a similar amount of carbon dioxide through photosynthesis, so biomass is still carbon neutral.


Transactive Energy and Interoperability

A transactive energy market is much harder to implement in reality than it is in theory. Some of these obstacles are regulatory, while others are technological. And in a regional or national decentralized grid, people who are entirely unfamiliar with the energy industry would need to be aware of transactive energy systems to fully participate.

Currently, the interoperability between DERs and the bulk power grid is insufficient. DERs in the US are not required to provide reactive support to the grid, even though their technologies are advanced enough to do so. If transactive energy is going to be implemented on a wide scale, interoperability needs to be at the forefront of the energy industry’s concerns and goals.

Transactive Energy and the Interoperability of Renewables

Renewable energy sources have a lot of benefits, but their implementation into the power grid is complicated. Utility companies depend on consistent energy generation to supply the right amount of power. Some renewables are weather dependent and variable, which means that utility companies can’t predict the exact amount of electricity that these sources will generate on a given day. A transactive system alleviates this issue, as it more effectively balances generation and consumption through a demand response system.

Although some renewables are inconsistent, others are more reliable. Biomass and geothermal plants produce regular amounts of power, which can be predicted. These low-variable sources offer a base of energy that utility companies can depend on, while the fluctuating production of solar and wind can function as additional power.

Transactive Energy and Demand Response

The Pacific Northwest National Laboratory (PNNL) states that more than 70 percent of the United States’ electricity use comes from commercial buildings, residential homes, and other structures. PNNL asserts that a new system of demand response energy management is necessary to reduce power costs, consumption, and carbon emissions.

The cost of supplying energy varies minute to minute, depending on demand. Costs are typically higher during the day and lower at night, when fewer people are using power. The traditional electrical grid adjusts the supply to meet the demand. A demand response system does the exact opposite.

Since energy storage is difficult, a demand response system offers a more effective way to balance supply and demand in real time. In a transactive smart grid with smart metering, utility companies could directly communicate with consumers, notifying them of the cheapest times to use electricity. In a smart building, Internet of Things devices could then use electricity during off-peak hours, saving the consumer’s money and improving the overall efficiency of the power grid.


Transactive Energy and Microgrids

A microgrid within a transactive electricity market can reduce transmission losses, improve grid reliability, decrease expenditure on power infrastructure, increase local energy sharing, and decrease consumers’ electricity bills.

Traditional, centralized grid systems have powered the world for decades. Today, centralized grids are outdated, vulnerable to cyberattacks, and costly to maintain and repair. Centralized grids transmit electricity across vast distances, wasting energy and risking power outages.

In a centralized system, a single failure can cause outages for thousands or even, in some cases, millions of people. In a decentralized transactive system, a system failure is largely insignificant: it would affect only a single power source among hundreds or thousands of others, depending on the microgrid’s size.

Microgrids can also occupy less space than traditional energy systems. Solar panels can be installed on roofs in urban spaces, occupying essentially no space while contributing to the city’s electrical output. These are the benefits of just a single microgrid, but the potential of every microgrid increases as its network increases.

Transactive Energy and Networked Microgrids

One of the biggest benefits of transactive energy is grid reliability. In a traditional centralized system, extreme weather events can severely impact the power system, cutting energy off from consumers.

In a networked microgrid, separate microgrids can reroute power to support each other in these situations, reinforcing grid reliability. A combined system of networked microgrids and DERs can provide electricity to critical infrastructure during extreme weather events or other abnormalities.

Transactive Energy and Lower Costs

Another benefit of transactive energy is lower costs, both for the consumer and for the producer. Demand response saves consumers money during off-peak hours, and DERs save utility companies money on shorter transmission distances. There is also a greater use of renewable energy sources in a transactive system, which reduces the amount of money spent by both consumers and producers on oil and gas.


Transactive Energy and the US Power System

The United States runs on a national grid system, which is divided into three interconnections: Eastern, Western, and Texas. According to the Energy Information Administration, the power system consists of more than 7,300 plants, almost 160,000 miles of high-voltage power lines, and millions more low-voltage power lines and transformers. Overall, this system connects 145 million consumers.

Along those millions of miles of power lines, a significant amount of energy is wasted. This centralized system is vulnerable to cyberattacks and aging infrastructure. Even the United States Government Accountability Office notes that the US electrical grid has reliability and security concerns. Rightfully, the United States government is actively searching for solutions to these issues, and transactive energy is a viable candidate.

United States government-run labs like PNNL and the National Institute of Standards and Technology (NIST) are heavily involved with developing transactive energy technologies and implementing them in the United States. PNNL launched a project in 2016 that was the first of its kind and tested demand-side transactive control. NIST is involved in the TE Challenge, in which the goal is to demonstrate platforms and apply transactive energy approaches to real problems in the United States’ grid. Together, labs like these are asking the question, What is transactive energy to the United States?

Transactive Energy in the US

A transactive energy system is decentralized, but to function on a national scale, it will need centralized standards for machine-to-machine transactions and overall interoperability. A blockchain platform would work well as a standard system for data collection and a transparent and secure transaction ledger. However, regulatory standards would need to be adapted for other purposes. One such standard is IEEE’s P825, which is a guide to a transactive framework that focuses on smart grid interoperability.

Transactive energy needs an effective P2P trading platform to encourage competition in the market and provide security, transparency, and accessibility. No such platform is currently in use. The closest thing to this is the Feed-in Tariff, or FiT, scheme, which incentivizes the purchase and use of renewable energy sources. The FiT scheme is not a P2P platform, but it does attempt to encourage competition in the market.

FiT schemes are common in the United States and around the world, especially in Germany and Japan. Dr. Lucy Butler and Dr. Karsten Neuhoff found that Germany’s FiT scheme created more competition and lower costs than the UK’s Green Certificate program, another incentivization scheme that supports renewables.

FiT schemes come under occasional criticism, but they have shown that clean energy can lower costs and make it more accessible for everyone. Likewise, Dr. Jatin Nathwani and Dr. Daniel M. Kammen’s research supports a decentralized supply of electricity through distributed renewable resources, which would lower costs, increase accessibility, and help eradicate energy poverty.

The United States has already adopted programs like FiT schemes to encourage renewables and support the environment, but more must be done to save the aging grid and changing climate. A transactive system could be the solution.

Transactive Energy, the US, and Hydrogen

The European Union enacted a hydrogen policy in 2020 to install electrolyzers with a forty-gigawatt annual capacity by 2030. Only 250 megawatts per year could be produced globally at the time the policy was written. The United States is behind the European Union with this technology, and it will need large investments to implement a green hydrogen industry.

Hydrogen could play a huge role in a transactive energy system, powering cars, long-haul trucks, and on-site fuel cells. One of the first auto companies to commit to low-carbon hydrogen was Toyota, which produced a hydrogen-powered sedan, the Mirai. Low-carbon hydrogen can be converted from hydropower and wind power, maximizing the energy potential of renewable resources like water and wind.


Learn More about Transactive Energy

This brief guide explored the benefits and complications of a decentralized power system to answer the important question, What is transactive energy? A transactive energy system depends on successful interoperability, a demand response system, and a variety of DERs. If you’re interested in diving deeper into this topic, read this guide to transactive energy.

Interested in learning more about 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.