Monday, November 4, 2013

Consumer Empowerment and Transactive Energy Markets

By Patty Durand, Executive Director, SGCC

In my last blog, I offered a glimpse at the new SGCC report, Smart Grid Economic and Environmental Benefits: A Review and Synthesis of Research on Smart Grid Benefits and Costs, which quantifies costs and benefits per utility customer per year of various smart grid enhancements to the grid.

It’s important that we document the value of smart grid investments for the consumer, who after all, pays the tab. But the focus on the present shouldn’t preclude looking ahead to where smart grid technology will lead us all in the future.

Consider the notion of “transactive energy markets.” The idea is that, once intelligence is extended across the distribution system, including smart meters for homes and businesses, and intelligence is applied to loads (heating/cooling, lights, electronics, electric vehicles) in those homes and businesses, we’ll have a complex web of supply and demand for electricity.

Here is my take on it: imagine affordable, distributed generation for homes and businesses, most likely in the form of solar photovoltaic panels, and couple it with affordable energy storage.  Then at some point every customer’s combination of generation and load will sometimes make demands on the grid and sometimes add surplus electricity to the grid.

The thinking on transactive markets is that a market will arise that optimizes the entire grid and its many nodes, or customers, by charging for electricity demand according to near-real time pricing, and rewarding those who contribute their surplus by paying the same time-sensitive prices.

Although this is complex and futurist, a trade group has been formed to focus on this topic. The Transactive Energy Association
explains its mission here. Between savvy practices and in-home automation, utility customers should be able to reduce their electricity uses when electrons are expensive and draw more when it’s inexpensive. With best practices plus distributed generation and storage, it’s possible to create a surplus, thus providing financial incentives for energy efficiency and wise use.

Those who don’t wish to deal with potential price volatility might purchase subscriptions as a hedge. Others may invest in automation for long-term gains.

Yes, much has to happen to make this vision a reality. And, yes, not all consumer segments will want to be involved.  But we’re closer to such a market than you might think. Consider net metering, which is a reality in many states: when a customer produces excess solar energy in California, for instance, the value of that contribution is figured into the utility bill. Likewise, in current demand response and dynamic pricing scenarios, those who cut their use at critical peak times are rewarded in some fashion.

Yet we’ll need affordable home energy management systems that can prioritize our personal loads and optimize the timing of their electricity use by monitoring dynamic market prices. Regional markets and clearinghouses will need to be organized and run efficiently to enable transactions.

It’s difficult to foresee how a market with millions of nodes, all automated to maximize the end user’s benefits, will affect the current, two-peak-a-day load profile. Will new, expensive peaks and low-price troughs emerge? Will the load profile flatten to a more consistent level across the 24-hour cycle?

And it’s hard to forecast how transactive energy markets will affect the utility business case. In the near-term, the efficiencies gained might well contribute to lower demand for peaking (and highly polluting and capital-inefficient) power plants.  We can’t ignore the potential outcomes for utilities and, for the foreseeable future, they will have an important role that’s properly rewarded. The promise for consumers, however, is a level of engagement that rewards efficiencies and wise use, which should benefit them personally, as well as cutting carbon emissions by rewarding distributed generation.

For more background on the concept of transactive energy via a WorldWatch Institute blog is available here.

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