The Emergence of the Energy Sharing Economy

Transactive Energy: The Engine for Sharing Power

November 22, 2016 | 2:00 p.m.

In our last post, we talked about the opportunities and challenges of the evolving smart grid. One opportunity is truly leveraging the distributed energy resources available on a large scale. Not just some rooftop solar panels or a community-level resource, but also the strategic use of energy storage, the control of local loads through smart devices, and the intelligent systems that put these resources together. The smart grid and the smart city of tomorrow will thrive on the sharing of energy resources.

Transactive energy is the engine for the sharing of power and enables the efficient use of these resources with little to no custom programming, making this mechanism a key technology for the decentralized grid of the future.

What is transactive energy?

Transactive energy is the concept of using market-based principles to balance energy. In other words, transactive energy suggests that the price of power should be based on the value of that power, whether that is related to the actual cost of the power or a non-monetary measure, such as the need for energy security or comfort level. Additionally, transactive energy principles argue that any money that the utility spends for upgrading the distribution grid should be focused where relative power prices for the same value are more expensive.

It may seem like the concept of transactive energy is comparable to the stock market, but the mechanism is closer to those applied by eBay and Craigslist. If you’re thinking, “Well, eBay and Craigslist are two very different marketplaces,” then you’re one step closer to understanding the difference between the two transactive energy paradigms in play today.

The eBay model

eBay is a centralized market facilitator that allows participants to bid on goods in exchange for money. The price of the goods sold depends on the value to the individuals participating in each transaction, with the sale going to the highest bidder. Users must register with a credit card and his or her actual name, and all payments funnel through a central location.

If you’re selling an item through eBay and you don’t deliver on your goods, or you’re a buyer and you don’t pay for the item you’ve won, you get a negative review and potentially removed from the marketplace. This model provides eBay’s users with a significant level of trust that their transaction is safe. However, that trust comes at a premium, in the form of a surcharge, which makes eBay’s model a little more expensive.

Cloud computing today allows multiple instances of the eBay platform to be hosted around the world, making it less likely that a hacking incident or computer outage will bring this platform down. Still, there is always the chance that an error will propagate through the system and cause a mass outage.

In energy, the eBay concept translates to a distribution system operator, or DSO, which keeps the centralized architecture of the power system we have today intact while allowing multiple participants to buy and sell energy behind the meter. A DSO would be an independent provider of the marketplace and optimize the resources, but would not own any of the assets (energy and capital) being exchanged.

The centralized structure of the DSO makes it easy to secure, easy to verify the transaction delivery, and easy to monitor the status of the resulting power usage in various network segments.

However, there are some negative aspects of DSOs as well. Due to the influx of renewable energy in some areas of the U.S., for example, the status of the distribution grid can change rapidly, making it vulnerable to voltage congestion and instability. When a large cloud passes over a community with high solar penetration, the amount of renewable energy being fed to the grid decreases. To continue meeting demand, this dip in production must be supplemented with energy reserves very quickly, which remains the difficult piece of grid operation with a high renewable penetration.

We have already seen that the centralized management of energy is ineffective in this scenario. Because the DSO is centralized, transactive energy markets would not be able to create the instantaneous price differences quickly enough. That weakness impacts the ability to actively use market-based methodologies to help ease the resulting grid instability.

The Craigslist model

On the other hand, we have the Craigslist marketplace. Largely unregulated, Craigslist has little to no barriers to entry, allowing participants to buy and sell goods online after simply providing an email address or phone number.

Generally, Craigslist transactions are more localized than eBay, allowing goods to be sold more quickly and for less money. However, there is no real way to determine if the users are reliable. Transaction agreements are made between two individuals on a virtual handshake, and payment is typically made in cash. The success of the Craigslist platform is a testament that these handshake transactions are usually quite successful, but there remains some concern of security in the market.

In energy, the Craigslist concept translates to a bilateral transactive market, which would allow participants to share power with one another. Let’s use an example of an office building and neighboring fitness center, both of which have their own sources of renewable energy. The office building generates excess energy on the weekends and the fitness center generates excess energy during typical business hours throughout the work week.

The two companies may create a forward contract for 5 years in which the office building sells its excess energy to the fitness center on the weekends when the fitness center is busy. Likewise, the fitness center sells its excess energy to the office building during office hours.

In a bilateral transactive market, liquidity is vital, and discovering potential trading partners can be an issue. Market makers (much like those used in NASDAQ) can increase the liquidity of the energy market by buying from and selling to many market participants.

One specific way to enable a bilateral transactive market is to use the TeMIX standard. This standard builds on the OASIS Energy Interop standard that is used at the transmission level of the U.S. grid’s bulk market today.

In TeMIX, participants pay for power in addition to the transport of that power. This dual cost structure considers the availability of power in the current network as well as the congestion of the distribution lines. In TeMIX, the utility provides the transport of power through existing distribution infrastructure and collects its portion of the payment accordingly.

This is a true market, so there is still work to do to determine how to address non-delivery of energy, securing transactions, and ensuring stability in the marketplace. There is also a lack of understanding of the network topology inherent in the model, and this affects how to ensure that neighbors who want to trade power aren’t prevented from doing so by being on different phases of the distribution line.

Enter Blockchain

Most often discussed in the same breath as bitcoin and other digital cryptocurrencies, blockchain is a database technology for storing and maintaining transaction records without a centralized authority (such as a bank).

As the underlying technology for these cryptocurrencies, blocks of transaction records are timestamped and reference previous blocks of records, thus forming a chain. This collective chain follows three principles: 1) the ledger is open/public, 2) the ledger has redundancy and all the ledgers are distributed, and 3) there are special nodes, or participants (also called “miners”), that compete to be the first to validate transactions and discover the transactional keys within the collective. Successful miners get rewarded a certain amount of the cryptocurrency. The result of all this is a cheaper, faster, more secure way of executing transactions.  The distributed ledger decreases risk of widespread failure and increases cybersecurity, while the use of miner nodes makes blockchain work more quickly than traditional measures.

Blockchain can also remove the risk associated with transaction security and delivery. Placing TeMIX-type transactions in the blockchain payload  provides the accountability desired for these important transactions.

This idea has already been proven out in one important project in the NY Prize, a competition focused on helping to decentralize the New York grid. The Brooklyn Microgrid successfully used blockchain methodology to complete its first transaction in April 2016.  This combination of decentralized grid operation with blockchain technology is expected to be the key to making transactive energy work.

Putting it all together

To truly transform the centrally-managed grid of today, with its limited support for high penetration of renewable energy, and limited control on the distribution level, we need the ability to distribute intelligence to the edges of the energy grid: the substations, the communities, the manufacturing facilities, and even the homes. Transactive energy is the key to making that happen. Without intelligence, the custom logic required to support the changes to the grid topology would be far too daunting.

The intelligence must be designed with the ability to respond automatically to price signals and transactions. Individuals in need of power will not be constantly looking at the market to determine when accessible, affordable power becomes available.

A successful transactive energy platform must also be able to predict the needs of grid participants and create the market conditions necessary to allow for both planned operations as well as support the unexpected.

With the addition of participants with controllable smart devices like lighting and thermostats, the increasing availability of energy storage, and developing machine learning capabilities, transactive energy is the key to building a more collaborative, efficient, and secure grid for the future.