Why 'transactive energy' can save endangered utilities

Distributed generation has been called an existential threat to electric utilities. But it doesn’t have to be a doomsday scenario, and interesting work going on in the field of transactive energy envisions a much more pragmatic future of the smart grid.

Consider this: Society functions best when individuals or systems act in coordinated ways to cooperatively share their systems and resources. Water infrastructure is a prime example. We don’t all dig our own wells and septic systems; we share infrastructure that provides a better means of distribution and management of fresh and waste water. People who live in rural areas do have their own personal infrastructure, but when it comes to aggregations of people in villages, towns and cities, shared infrastructure is the only sensible solution. Energy is another example of the benefits of shared infrastructure. But while it is highly unlikely that the business models for water infrastructure substantially will change, the future portends significant transformations for electric utilities.

The utility business model has been organized on the principles of very centrally controlled generation and variable demand or consumption of electricity. Generation was predictable, consumption less so. The "just in time" nature of electricity -- delivering just what is needed, not more or less -- is what utilities control to keep the lights on without frying them.

Distributed generation, whether at individual levels, organized into microgrids or aggregated into virtual power plants, will disrupt this business model. Generation gets less predictable. Consumption gets more predictable.

These aren’t bad smart-grid trends, as long as we keep in mind that with very few exceptions, "no man is an island" in the North American distribution grid. Not too many distributed generation assets or microgrids function solely as standalone islands and don’t need integration to the utility grid for supplementary or backup purposes.

Utilities recognize that their customers want more energy independence and sources of energy that are sustainable. Renewables are a good choice to eliminate CO₂ emissions and, especially when it comes to solar, cost-effectively can scale from small to large privately owned systems. One challenge is that even when fully or partially self-sufficient from the utility grid, distributed generation customers expect that the utility grid will be there to supply power if their independent systems fail. But customers with distributed generation actually may require more services or equipment investment from utilities to support these interconnections. That triggers the second challenge of allocating costs and fees in fair and equitable methods.

The GridWise Architecture Council (GWAC) has been working on a Transactive Energy Framework document that addresses the operational and business aspects of these utility transitions. Transactive energy enables the integration of renewables in the forms of DER, microgrids and virtual power plants on a vast scale in the larger grid with an emphasis on maintaining the safety and reliability of the grid and proposing business models that maintain fair allocation of costs and fees.

Ben Franklin had the right idea when he said, "We must, indeed, all hang together or, most assuredly, we shall all hang separately," to a group of rebellious colonists signing the Declaration of Independence.

This idea is implicitly at the core of transactive energy. A utility with significant distributed generation assets interconnected to its distribution grid cooperatively must accommodate those assets and coordinate them to keep the grid balanced. Conversely, all distributed generation that has an interconnection to the larger grid has to function cooperatively and in a coordinated fashion with that grid. These principles must apply to re-architecting the utility business model and grid of the future.

That’s a primary goal of the GWAC group as it works on the Transactive Energy Framework. This framework can help utilities ensure that distributed generation is not an existential threat and that we get a grid that lasts the next 100 years.

This story originally appeared at Smart Grid Library. To learn more about the smart grid and the convergence of sustainability and technology, be sure to check out VERGE SF Oct. 14-17.

Image of electricity pylon from below by Eldad Carin via Shutterstock