Transactive Energy Isn’t Your Grandpa’s Power Grid

The U.S. power grid is a modern engineering marvel, but it’s overdue for an overhaul. Participants at the recent Transactive Energy Conference in Portland, Oregon, came together to discuss the changing system and to develop the concept of transactive energy as the future of the grid.

Transactive Energy seeks to engage all devices and resources in the electrical grid in a market-based system. (Source: Edward Cazalet, "Transactive Energy: Public Policy and Market Design." May 2013)

As the first such conference of its kind, the gathering was initiated by defining exactly what transactive energy is. In an interview with Sustainable Business Oregon, Carl Imhoff, manager of the electricity infrastructure sector for Pacific Northwest National Laboratory and a moderator at the conference, provided a succinct definition: “Transactive energy is a means of using economic signals or incentives to engage all the intelligent devices in the power grid—from the consumer to the transmission system—to get a more optimal allocation of resources and engage demand in ways we haven’t been able to before.”

If consumers need proof of what a smarter grid could do for them, transactive energy is a concept that can provide it. Transactive energy systems integrate both utility-owned and third-party-owned resources—including power generation, ancillary services, and load management services, among others—in order to utilize the lowest-cost electricity in real time. The key driver of transactive energy systems is the market-based approach, which allows every service provided to the grid, even those by consumers, to be valued.

This way, those providing the services, whether they are generating power or providing load reduction services or something else, can be compensated, thus splitting the benefits and savings of the increased efficiency of the electricity system between the customer and the utility. This system is a long way from the traditional unidirectional flow of power (from utility companies to consumers) and supply side-focused mindset of the historical electricity sector.

Employing the increasingly prevalent two-way information and communications technology deployed as part of smart grid development efforts, consumers can begin to interact within the electricity system in ways that were not possible in the past. A transactive energy system utilizes smart grid infrastructure to send signals back and forth between utilities, grid operators, and individual assets in the grid system, communicating the real-time flow and cost of power.

These assets can include everything from large centralized power plants to residential solar photovoltaic arrays to demand-response programs. Signals can even be sent to and from electric vehicles (EV), integrating EVs into the electrical grid.  In a transactive energy system, instead of being passive energy consumers, you and I could become what are being referred to as “prosumers,” not only receiving electricity from the grid, but providing our own services to the grid system and getting paid for it. 

Perhaps surprisingly, the conference was attended by a multitude of utility industry representatives. After all, integrating non-utility owned assets into the grid would result in competition for utilities, right? But, as more decentralized and variable sources of power come on line, utilities are finding that the conventional business models, in which utilities match centralized supply resources to demand, may not fit into the future decentralized grid.

Utilities recognizing this fact are thus coming to the table to participate in the transition. With a host of newly accessible power generation and load management resources on both the supply and demand side, and armed with real-time information as to which resources cost the least, utility companies that take the time to explore these new business opportunities could indeed end up becoming more cost effective.

But the concept of transactive control shouldn’t just appeal to economists, utility industry representatives, and engineers. The establishment of such a system will have benefits for consumers, both monetarily and environmentally. While the system may be focused explicitly on grid reliability and economics, the shift to this smarter electricity sector provides significant environmental benefits. Creating a more responsive, resilient grid is a significant step to integrating variable and decentralized renewable energy generation. This would enable clean energy solutions such as wind power and energy efficiency to be brought to the forefront of power sector operations.

Demand-side solutions that promote energy-saving measures, especially during hours of peak electricity demand, help stabilize the grid. These measures also reduce the need for typically expensive, fossil fuel peaking power plants. Peaker plants only run when there is high electricity demand on the grid, and are typically natural gas plants that can be ramped up quickly and have lower fuel costs (for the time being, due to the low cost of natural gas). Valuing more demand-side options, such as energy efficiency and demand-response programs, could reduce the need for peaker plants and their inefficiencies.

The added economic benefits of a transactive energy system can also incentivize environmentally friendly behaviors on the consumer side. For example, if electric vehicle owners start making money by using their cars as energy storage for the grid, it could promote interest in electric vehicle ownership. And if homeowners can save or even make money by responding to price signals for energy efficiency, residents would be encouraged to conserve more energy.

The implications of a transactive energy system thus stretch beyond economic and grid reliability benefits (although these alone are very significant). It would also enable the development of a cleaner, more efficient energy sector, which is, in fact, an explicit objective of the transactive energy concept.

The Pacific Northwest Smart Grid Demonstration Project is the largest transactive energy demonstration in the U.S. at present. (Source:

Transactive energy demonstration projects are now under way to begin understanding the challenges and full benefits of such systems. The Pacific Northwest Smart Grid Demonstration Project is the largest transactive control demonstration project in the United States at present. The challenges discussed at the transactive energy conference ranged from the engineering challenge of avoiding the creation of “architectural chaos” to the policy and regulatory issues that keep utilities hesitant to invest in such drastic changes to the power sector.

Certainly these are large challenges to surmount, which require not only technical solutions and regulatory reform, but also a shift in thinking away from a decades-old mindset of a centralized electricity system. But the good news is that the right people, including utilities, regulators, grid operators, and other stakeholders, are coming to the table. The transition will take some time, but the ball is already rolling. As one conference presenter put it, the transition to a transactive energy system will be an evolution, not a revolution.

Reese Rogers is a MAP Sustainable Energy Fellow at Worldwatch Institute. 

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