Complex transactions made simple with transactive energy

EEnergy Informer

Debating how to treat solar vs. non-solar customers is mostly focused on what are the costs and benefits associated with serving the former and whether they impose extra costs on the latter since they end up consuming fewer kWhs, hence contributing less than fair share to the upkeep of the grid, on whose critical services they continue to rely.

If that were the full extent of the problem, an analysis such as the one summarized in the preceding article – if you agree with the methodology and the assumptions – would suffice. But all indications are that that is not the full or even a partial extent of the problem.

As the cost of self-generation, not just solar PVs, continues to drop and technologies to better manage demand, store energy and operate semi-independent micro-grids evolve, increasing number of consumers will take advantage of opportunities to generate, store and trade electrons, not just back and forth to the “utility” as is the case today, but to their neighbors across the street, or across the city, or state. Over time, flow patterns that used to be one-way and highly predictable will become complex and convoluted.

rsz_screen_shot_2014-09-23_at_95004_amIn this context, the fundamental role and function of the distribution network, and by extension transmission and central generation, will also change. The network, the grid, will evolve from a one-way conduit moving electrons from central plants to consumers will assume a much more complicated and valuable function, namely one of balancing prosumers’ variable load and generation while providing a myriad of important services including back-up, reliability and power quality.

As extensively covered in the June and Sept 2014 issues of this newsletter, the regulators in California and New York have initiated two important investigations precisely because they have come to the conclusion,

correctly, that the problem facing the industry they regulate is not limited to the treatment of solar vs. non-solar customers, or fixed vs. variable charges, or time-variable tariffs, or special tariffs for customers with or without EVs, or storage, or any combination of these.

The problem lies in the fact that as more consumers become prosumers and/or invest in storage and home energy management rsz_screen_shot_2014-09-23_at_95126_am(HEM) devices, the nature and definition of services they desire and are willing to pay for changes – just as happened with mobile telephony, digital cameras, or any other disruptive technologies.

Telephone consumers, who used to
pay for the old land line service a per
minute charge applied to the number
of minutes, now essentially pay a
fixed monthly charge based on the
speed and bandwidth of the mobile
network. Everybody pays for being connected to the ubiquitous network; those with the need for fast access to download and upload files and videos pay more for these valuable services. Customers sign long-term agreements, usually multiple years, for service with penalties for switching from one network to another.

The mobile phone bills, if anyone can understand them, detail what transactions took place, basically when calls were made, for rsz_screen_shot_2014-09-23_at_95316_amhow long, and the volume of digital data that was uploaded or downloaded. Few people talk on the phone these days.

Many familiar with the changing nature of services on the electricity network believe that a similar transition will take place in the coming years, and the bills must also account for the transactions that the network enables or facilitates. These may include uploading electrons from the grid during evening or cloudy days, uploading into the grid during sunny hours of the day for those with PVs, and other transactions, say electrons stored in the EV battery, some of which may be sold back to the grid or another customer at times of high network prices.

In Transactive Energy, a recently published
eBook, Stephen Barrager and Edward
Cazalet point out that, “The complexity of the
electricity market is beginning to overwhelm
rsz_screen_shot_2014-09-23_at_95549_amregulators, planners and (grid) operators,”
adding, “The struggle to integrate prosumers
(mostly PV panel owners) into the grid is one indication of the challenges we are facing.”

Deciding how much to pay, or not to pay, for customer-installed solar PVs, the authors make clear, is not the end of the problem. If fixed monthly customers fees are raised or credit for excess solar generation is scaled back – proposals currently in vogue by the industry – disgruntled prosumers may be persuaded to install batteries and/or invest in EVs, to back up their solar generation, making matters worse.

“These issues are very difficult for our outdated command-and-control systems to sort out. The slow pace of dealing with change is stifling innovation,” the authors say, concluding, “Our electric utility and regulatory model is outdated and ill-equipped to deal rsz_screen_shot_2014-09-23_at_95749_amwith decentralized energy, prosumers, storage, and micro-grids.”

The solution? Transactive Energy (TE), using forward- and spot-priced tenders among producers and consumers as schematically shown on graph on page 5. The authors envision the emergence of transactive energy platforms (visual on left) where buyers and sellers can trade.

 

 

 

As further described in the book,

“Producers signal to consumers that they have energy to sell by offering sell tenders. Consumers decide if they want to accept a portion of a sell tender at a tendered price, wait for a better tender, or not use as much energy.” “Producers, consumers, and prosumers can transact bilaterally or autonomously on the TE Platforms.”

Other excerpts:

“There are 2 products: energy and transport service. Customers will transact for their energy needs and separately transact for transport.”

rsz_screen_shot_2014-09-23_at_100121_am“Energy services parties and transport services parties meet on TE Platforms where they agree on transactions that may be facilitated by various intermediaries (schematically shown on page 5 and above).”

“There is one market rather than
separate wholesale and retail
markets as we have today. For each producer, intermediary, and transmission and distribution operator, there needs to be only one tariff for energy and one tariff for transport.”

“TE offers a vision that is efficient, fair, and transparent. Customers and producers, no matter what size, play by the same rules. Costs are allocated fairly by an open, commercial process. The whole system is operated on consistent and transparent principles.”

At least on paper, TE offers an elegant solution to many of the complexities of the evolving electricity market. When asked, about TE’s near term feasibility, Ed Cazalet told EEnergy Informer, “Transactive Energy is feasible in many places today, it is the natural next step in the evolution of the electricity business and regulatory model.” Cazalet’s description of TE may also be found in the book on Distributed Generation further described at the end of this month’s newsletter.

Co-author Steve Barrager, agrees, pointing out that, “We are about to see a welcome disruption in the electric utility business model. Technology is making it feasible for all customers and storage devices to have access to wholesale energy markets – differentiated by time and location. The technical disruptions will help us move toward a business and regulatory model that is more efficient, fairer, and more transparent. It will also spur innovation.”

rsz_screen_shot_2014-09-23_at_100502_amTE has attracted many converts in recent years – mostly
because they have come to the conclusion that incremental
solutions such as shifting more costs to fixed monthly charges is not going to solve the fundamental problems plaguing the industry and its outdated revenue collection model. There is even an active Transactive Energy Association on LinkedIn, along with a website at www.tea.web.org.

 

 

 

 

 

Perry Sioshansi is president of Menlo Energy Economics, a consultancy based in San Francisco, CA and editor/publisher of EEnergy Informer, a monthly newsletter with international circulation. He can be reached at [email protected]

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