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Transactive Energy for a Smarter Grid:
Frequently Asked Questions

Q: What are Transactive Energy and Transactive Energy Systems?

A: Transactive Energy combines economics—how much an individual or entity who consumes power is willing to pay for energy when there is too much demand and not enough supply—and that consumer's preferences and lifestyle choices. These factors work together via smart devices that communicate with the energy market to make decisions on behalf of the consumer whether to pay higher energy costs during times when power use peaks or delay energy use to pay less and alleviate strain on the power grid.

Here's a more detailed example of how Transactive Energy might work. A water heater is connected to a smart device that includes a software "agent" acting on the consumer's behalf for lifestyle preferences previously programmed by the consumer. It communicates with the energy distributor on the amount it will pay to operate the water heater in a coming period (say 5 minutes). Once all smart device requests are balanced against available energy, a market price for energy is obtained—typically higher during peak use time and lower during non-peak use. The result is devices that are willing to pay more to consume energy, and those willing to pay less don't consume energy during that period—again, based on the consumer's preferences, such as a preference to wash dishes before bedtime versus after dinner, or the desire to stay within a certain cost. Consumers can always update their preferences as desired.

Q: Why do we need Transactive Energy?

A: Three trends impact today's electricity industry: (1) ever-increasing access to cheaper and faster communications, allowing the coordinated use of more energy than ever before; (2) increased automation in our day-to-day lives, also allowing the coordinated use of energy; and (3) an increasing environmental commitment that has resulted in 29 states introducing mandatory renewable energy portfolio standards and another eight states introducing voluntary guidelines.

This last trend creates the growing need for an adaptable and resilient electricity system. Rising use of renewable energy resources—such as wind or solar panels—also contribute an integration challenge to utilities and the power system, because they don't consistently produce electricity. Bottom line: We depend greatly on the power grid for our growing cadre of modern lifestyle choices. Activities that both inject and withdraw power from the grid need to be coordinated to avoid straining this much-needed resource and assure reliability and predictability.

Thus, Transactive Energy and associated systems provide the needed framework for achieving power grid efficiency and reliability—through smart device "negotiation" that allows the consumer to make choice-oriented decisions tailored to their preferences and needs while alleviating stress on the power grid based on those decisions.

Q: How do Transactive Energy Systems Work?

A: At a high level, Transactive Energy Systems combine economic signals about the cost of energy during peak/non-peak use with control mechanisms, such as smart devices and software agents, to balance energy supply and demand. Smart devices equipped with communications and computing technology are deployed into a system that matches energy sellers and buyers—electric utilities, consumers, and third-party-operated devices. Ultimately, the choice of actions, timing, and cost of energy use is driven by the consumer, based on their preferences.

Q: What are the Benefits of Transactive Energy?

A: The benefits of Transactive Energy include the following:

  • Greater optimization of energy and coordination of consumption, alleviating strain on the power grid and improving reliability and predictability.
  • Increased consumer flexibility around energy pricing, including the ability for the consumer to buy or sell energy according to their preferences and lifestyle choices, predetermining actions, timing, and cost of energy use.
  • A beneficial supply and demand model for energy distributors and consumers. For example, when the amount of power from renewable sources is higher on the grid, energy cost may be lower than usual to avoid excess power generation and encourage greater use of electricity to balance the supply. This allows distributors to offload extra electricity while allowing more choice for consumers, such as pre-cooling their homes during excess generation periods at reduced cost.

Q: What is Pacific Northwest National Laboratory's Role in Transactive Energy?

A: PNNL pioneered the concept and philosophy of Transactive Energy. Since the late 1990s, our experience in smart grid research has provided insight into both the economic and engineering needs of the nation's electricity infrastructure and how its design impacts energy use and efficiency at varying scales. PNNL laid the groundwork for and demonstrated a choice-oriented model that incentivizes both consumers and distributors. We also designed two transactive Smart Grid Demonstration projects under the Recovery Act (Pacific Northwest Grid Demo and American Electric Power Ohio gridSMART®), and served as the Administrator for the GridWise® Architecture Council, which has organized and managed three international conferences on Transactive Energy.

Q: Where can I learn more about Transactive Energy?

A: With the formation of the GridWise® Architecture Council, a community of practice in the area of Transactive Energy Systems began to take hold. Additional activities relating to Transactive Energy are being coordinated by both the National Institute of Standards and Technology and Smart Grid Interoperability Panel.

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