The ultimate dream for distributed energy resources (DER) is "transactive energy" and a completely decentralized energy marketplace that allows transactions between all residential and commercial customers on the distribution system.

Transactive energy is now done in wholesale power markets, but the transactions are enabled by system operators’ automated mechanisms for supply-demand balancing. Those kinds of technologies, regulations and clear price signals are not yet available at the retail level. But new software platforms could soon allow customer-to-customer transactions by automating supply-demand balancing based on real time DER market value.

"Transactive energy should derive optimum value from customer-owned or utility-owned assets," Avista Utilities Electrical Engineering Fellow and Technology Strategist Curtis Kirkeby told Utility Dive. "But value is not cost per kWh, it is the relative costs of keeping electricity flowing. On the distribution system, value is complex because of the magnitude of customers and assets."

New pilots are using technology-enabled auctions to develop price signals and resolve some of the complexities of DER value. A pioneering new Green Mountain Power program will use third-party developed software to show what premium customers are willing to pay for renewables generated electricity. The bigger question, which power system stakeholders are now working on, is what the value of peer-to-peer transactions can be in balancing system needs and meeting policy goals.

What transactive energy is

Transactive energy would allow customers to market energy they generate to other customers on the distribution system. But that could compromise the utility's management of the distribution system. GMP's undertaking goes further than previous pilots in testing if transactions can take place without threatening utility control.

Significant early pilots by the Pacific Northwest National Laboratory (PNNL) in the 1990s advanced understanding of transactive energy’s value. It is a combination of power consumers’ preferences and choices and "how much an individual or entity who consumes power is willing to pay for energy when there is too much demand and not enough supply," early PNNL work concluded.

Today's drivers toward transactive energy are the "economic, technological and customer preference opportunities" available from DER, according to the 2018 Gridwise Architecture Council (GWAC) Roadmap. Limited DER deployment has been possible with "ad hoc arrangements" for utility management of them, but rising penetrations require "a more robust response to maintaining and enhancing safety, reliability, and resilience of distribution energy systems."

DER can provide those values but it "will likely involve a real time price signal to monetize the operational needs of the system," ​Ron Melton, group leader of distributed systems at PNNL told Utility Dive.

"We don’t envision consumers glued to dashboards watching price signals to decide when to use clothes dryers or charge electric vehicles." Ron Melton Group Leader of Distributed Systems, PNNL

It will also necessitate smart devices and an automated transaction platform to engage "the human preferences programed into the devices and the real time signals," Melton said. "We don’t envision consumers glued to dashboards watching price signals to decide when to use clothes dryers or charge electric vehicles."

PNNL’s 2006-07 Olympic Peninsula Demonstration Project was probably the first significant test of transactive energy. Communications-enabled DER with pre-programed devices allowed system operators "to manage system peak load and distribution constraints," according to a 2019 Smart Electric Power Alliance (SEPA) whitepaper.

PNNL’s 2009 to 2015 $178 million Pacific Northwest Demonstration Project expanded the validation to five states, the Bonneville Power Administration, and 11 utilities. It used a transactive energy management system and 55 intelligent technologies, including smart meters, innovative batteries and voltage controls.

But it called for better automation capabilities, now available in smart technologies, to get more benefits from smart meter data, improve smart interconnections, and grow DER markets.

Simulations from 2015 to 2018 by multiple research agencies found transactive energy can reduce voltage violations, lower customer bills, improve power flows, and reduce line losses, according to a National Institute of Standards and Technology (NIST) report.

Today, microgrid pilots are becoming the preferred transactive energy study sites, researchers and analysts agreed.

Transactive energy’s cavemen

The biggest impediment to utility deployment of transactive energy is that few jurisdictions allow the real-time pricing that is used in peer-to-peer transactions. Part of regulators' reluctance to facilitate that is their concern with bringing too much DER onto distribution systems before technologies are available to manage them.

Microgrids are "the cavemen of transactive energy" because they will begin growing new transactive energy technologies and make it more familiar to consumers and regulators, Clean Energy Ventures Managing Director Dan Goldman, who has led investments in transactive energy software technologies, told Utility Dive.

PNNL is again leading the way. Its Connected Homes project is testing connected devices in residential buildings that will allow more streamlined transactions, its website reported. The Clean Energy and Transactive Campus, launched in 2015, has led to innovations in distributed devices and control systems that more efficiently and cost-effectively manage DER and building energy usage.

Other important microgrid projects are being piloted in Maine, Southern California and Washington state by Avista Utilities.

Avista is currently developing a microgrid that will optimize energy use in "a hub building and five buildings of about 160,000 square feet each that will have a net zero energy impact," Kirkeby said. As a subset of the grid, microgrids advance understanding of "how to get to transactive energy, engage customers, and how the utility participates," he added.

Maine’s Isle au Haut is adding solar, storage, diesel backup, smart water heaters and a microgrid platform to its power system, SEPA reported. The total cost will be less than the $1.7 million necessary to replace the island’s aging undersea cable link to Maine’s power system.

This microgrid is an "outlier" to others because its focus is not price but system supply-demand balancing, Kay Aikin, CEO for project software provider Introspective Systems told Utility Dive. Software will optimize the microgrid's ability to meet demand based on customer preferences, aggregated demand curves, a market clearing price, and a negotiated real time price that completes the transaction.

The GMP project establishes value for distributed renewables to customers and the power system by allowing "transactions for excess supply," Aikin said. But it doesn't "solve the key problem of controlling and balancing energy supply and demand."

Today’s power system matches supply with load, but high penetrations of variable renewables will make that difficult, she said. Introspective’s communications network "uses aggregated small flexible distributed appliances, devices and technologies" and "turns them on and off to increase or decrease total load" to balance the system.

"If we try to put 100% renewables on the network as it is right now, disruptions caused by system imbalances could be a nightmare." Kay Aikin CEO, Introspective Systems

Using distributed devices and control technologies, system operators could transform "40% of a utility’s load" into flexible resources that can "contribute to system balancing," Aikin said. That could reduce battery requirements for renewables integration "tenfold" and, "at today’s battery prices, that is a game changer."

As regulators begin to see benefits like these from customer-to-customer transactions, they will allow more real-time pricing and that will lead to more DER on the system, Aikin said.

But technology has to give customers the ability to manage 100% renewables before utilities make that transition, she added. "If we try to put 100% renewables on the network as it is right now, disruptions caused by system imbalances could be a nightmare."

A project aimed at increasing understanding of the impacts of real time pricing is being piloted in California. The small Retail Automated Transactive Energy System (RATES) Pilot was deployed in 2015 by TeMix and Universal Devices, with the support of Southern California Edison (SCE), SEPA reported.

A final report on its accomplishments is being finalized, SCE spokesperson Jude Schneider emailed Utility Dive. It was designed to better understand customer responses to real-time pricing and included the important innovation of allowing customers the option to pre-select the amount of energy consumption they want from the program.

Like TeMix, the breakthrough Green Mountain Power (GMP) program offers customers options for buying more renewables-generated electricity at their designated prices. GMP is counting on LO3 Energy’s Pando platform to allow automated transactions that will turn the potential system imbalance nightmare foreseen by Aikin into a 100% renewables reality for customers and their utilities.

GMP is also counting on Pando to make participation accessible enough to overcome the challenge of getting customers to be more proactive.

How Pando works From LO3 Energy (used with permission)

Is this it?

Beginning in February, GMP customers got the opportunity to expand the utility’s 60% renewables standard offer to 100% by purchasing DER-owning customers’ excess generation through Pando, GMP VP and Chief Innovation Officer Josh Castonguay told Utility Dive.

Through the Pando online marketplace, customers can select a fixed premium price of about $0.03/kWh over their retail rate to purchase enough additional renewables to match 100% of their usage, he said.

The estimated 200 customers selling into the platform will come from GMP’s existing net metered customers, , according to GMP’s proposal to its regulators. The anticipated aggregated demand through Pando, largely expected to be from commercial customers, is expected to be around 500 MWh per year.

Buyers can also set "their own price or budget limit options" through the marketplace dashboard, Castonguay said. If there is an offering in the Pando platform’s daily online auction that matches that "bid," they get the renewables they want credited to them.

Using the Pando platform "within an existing regulatory and commercial market reality" is "a small, pragmatic step toward a long-term transactive energy vision," LO3 Energy Director of Strategy and Operations Matt Brown told Utility Dive.

"They may be able to earn subscription or transaction fees for providing a frictionless platform that allows DER owners to earn a premium and buyers to access local renewables." Matt Brown Director of Strategy and Operations, LO3 Energy

Through Pando-based auctions, securely moderated and ledgered by Blockchain, GMP "will be the first U.S. utility to operate a commercial-scale transactive energy platform with regulators’ approval," Brown said. "It will compensate distributed assets and meet regulators’ objectives of transparent and equitable cost allocation using market principles."

The daily auction will set a "clearing price" for DER generation, based on customer demand at the prices offered by DER owners, he added. "The floor price is the retail rate because GMP’s net energy metering assures at least that compensation and makes the utility the buyer of last resort. But the DER owner has the opportunity to earn a premium if there is demand."

LO3's simulations and shadow marketplaces have shown roughly 30% of customers engaged by such offerings will pay a premium of up to 10% for local clean energy, Brown reported. The viability of future similar marketplaces may be guided by the GMP program’s demand and average clearing price.

But the program will also allow LO3 to build, test and iterate other Pando platform functions, like more dynamic pricing or customer engagement offerings, and it may eventually provide new revenue streams for GMP, Brown said. "They may be able to earn subscription or transaction fees for providing a frictionless platform that allows DER owners to earn a premium and buyers to access local renewables."

It could also connect customers to utility efficiency and rate design initiatives, he added. "The long-term outcome could be a new role for the utility as a service provider rather than a deliverer of electrons."

Initial results of the GMP program are expected in the spring. The outcome depends on "whether this is something customers want" enough to participate through the Pando platform, Castonguay said. It is not certain that bidding and buying in the marketplace will be seen as an opportunity or an obstacle "and the only way to know is to try it."

A similar transactive energy marketplace is being developed by Ameren Illinois and software provider Opus One Solutions, according to the utility’s press release. Opus One did not respond to requests to describe its platform and Ameren declined an interview, but is "using the simulator developed in the project to gain insights," utility spokesperson Marcelyn Love emailed.

The challenges of transacting value

Transactive energy could lead to new utility business models, but "economic tools and processes" are needed that distinguish value from cost so that the transactions are priced according to value, SEPA reported. Another critical regulatory barrier is the need for a formal distinction between peer-to-peer transactions and transactions between electricity providers and their customers.

A transaction is based on "a derived economic value" and "the challenge is that we don't have all the answers about when and where value is," Avista’s Kirkeby said. "Without complete information on every factor affecting every asset that's providing or using energy, the value on which a transaction is based may not be accurate."

The GMP program "is a very specific play with specific customers, but that is just one piece of transactive energy," he said. "It doesn't capture the value of addressing constraints or the role of infrastructure and resources in overcoming constraints at the most granular level. Without understanding and compensating that value, we risk cross subsidies."

Transactive energy done properly "will benefit all power system users," but peer to peer transactions without a detailed understanding of where and when assets and resources have value threaten reliability, Kirkeby added. "If you don't alleviate a capacity issue totally, you just changed it to a different time or location."

To get to a 100% renewables future, "we can't do things the way we're currently doing them, and the transactive concept is probably a key change," he said. "But the power system is the most complex machine that humans have ever created and interfering with reliable energy delivery can inflict real harm."

More transactive energy pilots are needed before high DER penetrations create "operational problems," PNNL’s Melton said. "The hard work of formulating algorithms to manage the price signals, bids and customer preferences that are the basis of the transactions is still being done."