Transactive Energy: The Next Big Deal for the Smart Grid
Transactive energy (TE) is a new hot topic in the energy industry, but what exactly is it? Frankly, it is a concept so new that it does not yet have a formal definition. Carl Imhoff, manager of electricity infrastructure for the Pacific Northwest National Laboratory summed it up by saying, “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.”
What does this really mean?
It means that the electric distribution system is transforming from a one-way generator to end-user transmission system to a smart grid with resources like distributed generation, load management, ancillary services, and even generation resources owned by third parties or end-users. The intelligence driving TE is based on market value and economics. Whereas smart grid technology refers to the ability of the electric grid to communicate between generator, end-user and even points in between, TE takes this a step further and introduces the additional consideration of energy value.
To understand the concept of TE it is important to understand the role of dynamic pricing in the energy industry. Wholesale power markets use dynamic pricing to value energy based on demand at the time of use. This means price of electricity can fluctuate throughout the day. A TE system can actually make energy use decisions based on price signals. This could include a building energy management system programmed to respond to a high price signal by curtailing energy use via automated demand response, using microgrid generation, or even shifting load to onsite energy storage.
We can think of TE as a literal energy transaction in which energy travels through the grid from where there is supply to where there is demand. Signals can communicate not only real-time power use, but also real-time power cost. While pricing is the primary driver behind TE, grid reliability can also enter into the equation. After all, energy demand and supply is linked to price, and TE will also be able to process data indicating that grid resources need to be conserved. Curtailing electricity use at high demand or critical peak times will save end-users money on energy bills, and could even alert them to emergency situations.
A transactive energy grid will go hand-in-hand with the emerging smart grid and use similar software and devices to communicate. TE creates an interactive market for electric end users with the technology to respond to dynamic pricing and electric grid demand. The technology that makes this possible includes software capable of interpreting essential data, and distributed generation sources such as microgrids, energy storage, and even energy reduction in the form of automated demand response. In fact, facilities with distributed generation resources can even contribute excess electricity back to the power grid in a transactive energy system. Energy generated onsite by buildings, and microgrids will have monetary value to grid operators. TE is truly a two-way transaction system in which electricity can be directed to where it is needed, and priced accordingly.
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