Transactive Energy—An Overview for Manufacturers

Transactive Energy—An Overview for Manufacturers

This piece was originally published in the January/February 2019 issue of electroindustry.

Interest in transactive energy (TE) is growing, as evidenced by New York’s Reforming the Energy Vision discussions; as piloted by the national labs; and as implemented in the United States (by companies like Introspective Systems and LO3), Denmark (by PowerMatcher), and Australia (by Power Ledger).

These and similar tactics are driven by the realization that new approaches are needed to efficiently and reliably integrate distributed energy resources (DERs) and adapt to the changing preferences of electricity consumers. TE is one piece of the solution.

A Solution Framework

In 2011, the GridWise® Architecture Council (GWAC) held an initial workshop on TE that brought together researchers and practitioners from utilities, vendors, labs, and academia. Since then, TE has grown to be the subject of annual conferences, the Smart Electric Power Alliance (SEPA) Transactive Energy working group, and the National Institute of Standards and Technology (NIST) Transactive Energy Challenges.

The GWAC defined TE broadly as: a system of economic and control mechanisms that allows the dynamic balance of supply and demand across the entire electrical infrastructure using value as a key operational parameter.

Neither a specification nor a standard, TE is an approach that describes economic and control tools for managing all elements of a grid, whether it is a single building or a series of interconnected, international utilities. Its key operational parameter—value—does not have to be economic. It can be as personal as individual comfort or as global as delivering sustainable electricity to improve people’s lives.

The delivery of electricity is always about balance. According to Erich Gunther, former GWAC chairman emeritus, the pesky laws of physics require that generation, movement, and use of electricity be balanced. Similarly, policymakers balance historical precedent, existing investment, and local views

of what is fair and equitable. Consumers balance needs and desires with price, availability, and usability of electricity and associated devices. Finally, manufacturers balance the economic goals of their organizations with physical, regulatory, and market constraints.

Local Drivers for Change

In 2015, GWAC produced a transactive energy infographic (Figure 1) to summarize the applicability of transactive energy within four interoperable zones of the grid.

At the regional or bulk level, wholesale markets ensure reliability and efficiency by assigning a financial value to balancing supply and demand  as well as measuring the financial cost for the uncertainties inherent with both sides of power delivery. These market and reliability structures enable the integration of intermittent technologies like grid-scale renewables and storage while maintaining availability, affordability, and reliability.

At the local, microgrid, and building level, significant change from the historical paradigm is needed and occurring. With enhanced performance and declining costs for many smaller-scale renewable energy sources and storage technologies, policymakers are incenting—and consumers are increasingly demanding—the acquisition and use of these technologies. As the cumulative effects of technological changes and greater customer options become significant, a more robust response to maintaining and enhancing the safety, reliability, and resilience of distribution energy systems and markets will be required.

Figure 1. Transactive energy enables customers to drive a reliable and cost-efficient electricity system. Infographic courtesy of GridWise Alliance

Regardless of whether a particular device or system can provide electricity to the grid or simply make electricity more controllable, DERs impact the distribution grid to which they are connected, irrespective of the side (i.e., utility or customer point of connection) on which they are located.

The existing distribution system that was deployed decades ago was not designed for large-scale deployment of DERs with potential power flows in multiple directions. The impacts and challenges of expanding DER use are broad:

  • Customer reliance on utilities may be reduced, especially if distributed generation is paired with storage and smart inverters, which in turn affects utility planning, operations, and cost
  • Building owners can be compensated for aligning their individual values with the holistic needs of the distribution system either by varying their production or consumption of
  • Regulators can enable the recovery of shared cost of electricity transport with more granularity to meet the values of their
  • Voltage variability increases that affect operational costs and the more frequent operation of equipment may reduce reliability and
  • Traditional generation may need to adapt to a “duck curve” of a day’s utility load, requiring a steep ramp up or down as intermittent DER suddenly increases or stops because of wind, cloud coverage, or time of day.
  • Distribution planning must address increased risks to reliability and related costs in a constructive manner that meets the regulator’s requirement for economic fairness and the customer’s requirements of value.
  • TE provides a set of techniques that can be used to address these challenges:
  • Distribution engineers can ensure safe and reliable operations with solutions that utilize wires and non- wire alternatives.
  • Manufacturers and entrepreneurs can provide innovations that unlock the value of capabilities embedded in the building, microgrid, and local levels of the grid.

The GWAC TE roadmap (Figure 2) outlines a vision to deploy TE systems at scale as an operational element of the electric power system to facilitate the integration of DERs and dynamic end uses, such as connected buildings.

As the volume and capabilities of installed distributed resources increase, the need for collaboration among the parties using the distribution grid likewise increases, eventually driving a further automated—and potentially market-based—operation.

Figure 2. The GWAC TE roadmap outlines a vision to deploy TE systems at scale as an operational element of the electric power system. Illustration courtesy of GridWise Alliance

Policy Provides Technology Solutions

Henry Ford allegedly quipped that if he had asked customers what they wanted, they would have said a faster horse. Providing solutions envisioned in the TE roadmap will require similar innovative thinking from policy, business process, and technology standpoints.

The primary challenge is policy and business models, not technology. For example, reselling power over utility lines is not yet legal in most states, so buying local power and consuming it with intelligent loads  is restricted. Without regulatory guidelines and

operational flexibility, customer participation will not adequately develop and additional service providers will not participate. Without such flexibility and participation, consumers will lack certain options and incentives—the primary requisites for the transactive energy future.

Finding a way to create and make available actual consumer benefit is essential to success. If consumers do not perceive and receive benefits from a smart appliance, for example, they will have no interest in buying one. On the other hand, opportunities for equipment manufacturers are enormous and encompass the customer, the utility, and service providers.

At the building level, the customer needs capabilities that

  • achieve value that is individually determined;
  • integrate not only with the traditional utility but also with other customers and service providers; and
  • align their values holistically with the physical requirements and economic signals of the

At the local level, utilities and new service providers need technologies that

  • allow localized distribution grid peak power reduction to decrease cost and risk;
  • enable grid resilience to respond to operational stress and speed recovery in the event of an outage;
  • provide a financial incentive to industrial and other consumers to provide grid services;
  • respond to physical conditions, economic signals, and defined consumers’ preferences allowing local optimization;
  • interoperate with customer, utility, and service provider devices seamlessly; and upgrade or can be replaced easily without risk or the need for outages.

At the bulk level, system operators will need solutions that

  • adapt to DER to self-dispatched distributed resources efficiently;
  • refine load forecasts to reduce the need for ancillary services;
  • provide situational awareness to grid operations during service restoration to distributed devices; and
  • interoperate with utility, service provider, and customer devices seamlessly.

As the price point for DER declines and consumer preference for sustainable and local resources grows, it is not a question of if a locality will need to address the identified risks, but when. As an industry, the response should be to create an increasingly flexible network at all levels of the electricity deliverability system to expand customer participation and options.

Regulation must support the development of customer participation and flexibility to achieve these benefits, and differing innovative solutions will invariably appear. With potentially millions, if not billions, of interacting devices on humanity’s largest synchronous machine, the ease, cost, and quality of their integration and interoperability on the grid will be at a premium.

The principles that drive the investment in this space are both familiar and new:

  • affordability: minimizing cost must be considered in light of the value added;
  • interoperability: solutions must operate in harmony with other devices through proprietary or open standards;
  • dependability: devices must operate in a predictable and understood manner; and
  • maintainability: a flexible or market-based distribution grid will need to adapt with more agility as devices enter and exit the network at a much faster cadence.

As the deployment of DER expands, the challenge it presents will drive transformation for regulators, utilities, customers, and manufacturers. It is far better to foster coordination, discussion, and agreement on the front end than to quickly cobble together solutions when immediate problems must be addressed.


  1. GridWise Architecture Council’s Transactive Energy Framework,
  2. The Erich Gunther Memorial Fund commemorates the continuing work of the GWAC. Learn more at
  3. GridWise Architecture Council’s Transactive Energy infographic,
  4. GridWise Architecture Council’s Transactive Energy Roadmap,

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