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Transactive Energy: The Next Big Deal for the Smart Grid?

Smart Grid Innovation

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. 

Photo Credit: Smart Grid Innovation/shutterstock

Jessica Kennedy's picture

Thank Jessica for the Post!

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Jessee McBroom's picture
Jessee McBroom on July 27, 2013

Thanks for the post Jessica. I imagine we will be hearing more on transactive energy as the smart grid developes and deploys progressively.

Pieter Siegers's picture
Pieter Siegers on July 30, 2013

I can imagine this moving around of energy is going to create considerable losses, although smarter systems that redirect energy excess would reduce losses if they are careful designed.

In the end, we’ll have to see if the net result is a positive one or a negative one.

For this moment, as TE won’t be useful until good energy storage solutions are available and operating, much more can be done on the micro-level, which will reduce significantly the need to move energy around.

I assume this TE stuff is being invented by current energy providers who are seeing their market reduced by local renewables.


Clayton Handleman's picture
Clayton Handleman on August 13, 2013

Nice to hear they have a name for this now.  Been waiting for a long time to see this develop.

Rather than being distinct from the smart grid, I would describe it as one of the functions of the smart grid. 

TE solves a lot of problems.  Imagine energy storage for example.  10 years from now there will be a lot of cars in driveways with 100 kwhr or larger batteries.  They can have set-points for consuming from the grid and feeding the grid.  If you include PEVs then you extend to nearly infinite elasticity of the distributed storage as there will always be a price at which sellers jump in and feed from the storage points. 

This also will create a vibrant market for Ph.D theses.  I can come up with all kinds of stuff to study and write on, from stability to ultimate period for each incrimental time step (the thing will be a giant parallel computer that will initially need to have synchronously), then the next batch of theses, going asynchronus, then how to game the system, how to counteract various aspects of gaming the system.  A rich vein of fundnig for academic study. 

Lets get US K-12 education whipped into shape to assure that this is developed in the USA and we are the drivers of it as we have been for the Internet.  The product opportunities and the economic benefits are going to be extraordinary!



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