In a transactive energy model, generation, storage and loads enabled by intelligent communications capabilities allow generators, customers, utilities and third parties to buy and sell between themselves based on mutual economic benefits, write Mark Knight and Tom Sloan

Microgrid, Borrego Springs, California

Credit: SDGE Sempra Energy

In the US, the electricity grid is changing due to aging infrastructure, environmental protection regulations and other factors, but the most important changes relate to new technologies that permit customers to participate more equally with their traditional utility in generating and consuming electricity. The historic regulatory-utility paradigm requires modification as the cost and proliferation of technology and communications creates opportunities at the edge of the grid. Specifically, we want to focus on the opportunities for building and home automation, as well as distributed generation.

Regulatory and political demands from recent years are requiring massive investments in new distributed (renewable) generation plants, with 29 US states having mandatory standards while an additional eight states have voluntary goals. But while distributed generation will provide more flexible and diverse ways to equalize load and generation, utilities are currently responsible as not only the energy provider of last resort, but also as the guarantor of power quality. The intermittency of renewables when compared to traditional generation can be a challenge for them to manage.

Managing that intermittency as the industry faces the transition from a load-following paradigm to a supply-following paradigm is not an insignificant challenge and the industry can’t afford to design purely for either extreme during the transition. That means an electric system that is safe, reliable and – importantly – flexible, yet geared towards a future where demand responds to supply.

Figure 1. Transactive energy system infographic Source: GWAC

During the past decade, demand response resources have significantly increased their market share in organized markets. For example, demand response resources that are capable of providing reserves may participate in the day-ahead and real-time ancillary services markets. The combination of demand response and distributed generation offers powerful opportunities to balance supply and demand, both by reducing demand to alleviate high generation prices or supply shortages, or by increasing demand to balance renewable generation. And where regulatory mandates do not support this type of integrated market-driven transactive energy system (TES) on the utility wires, microgrids offer an excellent opportunity to implement distributed generation that is closely integrated with local loads, where the typical drivers are combinations of reliability, resilience, cost, power quality and social mandates. This is one of many areas where TESs come into play.

Transactive energy systems

With today’s enhanced performance and declining costs for many renewable energy sources entering the system, these resources are here to stay. But distribution systems were not designed for large-scale, frequent penetration of inputs from customers with potential power flows in multiple directions.

The response should be to create an increasingly flexible network at all levels of the electricity deliverability system. This is the challenge we face and the direction in which we are heading. Accordingly, it is helpful to think of transactive energy not as some software or hardware that can be purchased and installed, but as a model in which generation, storage and loads enabled by intelligent communications capabilities create the ability for generators, customers, utilities and third parties to buy and sell between themselves based on mutual economic benefits.

The GridWise Architecture Council (GWAC) created the Transactive Energy Framework (TEF) to provide common ground and facilitate further development of TESs. The TEF includes the following definition of transactive energy: A system of economic and control mechanisms that allows the dynamic balance of supply and demand across the entire electrical infrastructure using value as a key operational parameter.

This definition is purposely broad because it is intended to encompass a variety of possible methodologies and implementations of TESs within the electric power system, as depicted in Figure 1, and even behind or across the meter in end uses such as building energy management systems.

This definition recognizes the need to consider both economics and control, or operational considerations, to assure that systems both provide opportunity for economic efficiency and address reliability and other concerns. But what it does is open up possibilities for distributed generation by providing a framework for close co-ordination of generation with local loads.

Transactive energy and the periodic table

Most people are familiar with the periodic table developed by the Russian chemist Dmitri Mendeleev in 1869, in which elements are arranged according to their properties (related to atomic number). Each column contains elements that have the same number of electrons in their outer shells, and elements in the same column tend to have similar chemical properties. On the left are the alkali metals, and on the right are the noble gases. In between we have other groups, the largest of which are the transition metals which represent not only the largest group of elements but also many of the elements which we use in everyday life, whether in pure or alloyed forms, and which can combine with other elements to make various compounds. The final large block depicts combinations of ordinary metals, non-metals, and halogens.

Figure 2. Classification groupings for transactive energy systems

Source: GWAC

Not dissimilar to this, there are four different ways in which TESs are classified within the TEF. The four groupings are shown in Figure 2 which resembles the periodic table, and are, from left to right: Principles, Guiding Architectural Principles, Attributes and Layers. These groupings are all covered in the Framework but are somewhat different in how they address TESs:

• Layers – emphasize the pragmatic aspects of interoperation, i.e., why build it;

• Attributes – qualities or characteristics to help understand the boundaries of the system, i.e., what to build;

• Guiding Architectural Principles – starting points for the architectural foundation, i.e., how to build it;

• Principles – statements of high-level requirements, i.e., how it should work.


GWAC’s interoperability framework forms the basis of Layers. This conceptual framework, published in 2008, works well for describing TESs as well. In designing the framework, GWAC broke the stack into four layers: Policy and Market Design, Business Models and Value Realization, Conceptual Architectural Guidelines, and Cyber-Physical Architecture (note: cyber-physical, not cybersecurity). See Figure 3.

These four Layers are described briefly below:

• PM Policy & Market Design

From an interoperability point of view, there is a need for alignment of regulation and policy in several dimensions, including: how changes in customer-based generation, demand management, and communications between customers, their appliances, and their utility company will require policymakers, regulators, utility executives and consumer advocates to design policies that maximize customer engagement and accommodate distributed energy resources (DERs), demand management and ancillary services;

• VR Business Models & Value Realization

Innovative business leaders anticipate and/or create market and customer opportunities by creating and sharing new value streams with customers, aided by new and innovative market designs and regulatory policies. The key in the electricity marketplace will be for generators, utilities, customers and third parties to monetize their respective abilities to provide energy, load management, ancillary services etc;

• CA Conceptual Architecture Guidelines

Conceptual architecture provides a stable foundation for logical (how) and physical (with what) architectural decisions. For example, a distributed generation-driven system can be one in which the utility owns and controls all aspects of energy production and integration into the grid system, one in which independent customers control the generation aspect and the utility manages the integration as best it can, or a combination of the two;

• CP Cyber-Physical Infrastructure

The power grid architecture includes two cyber-physical networks – the electrically connected network and the communications and information networks necessary to monitor and control it. Transactive energy applications will operate in both the cyber domain, making use of the information and communications infrastructure, and the physical domain, delivering electricity products and ancillary services.


The next group within the TEF are the Attributes. In conjunction with the GWAC definition of transactive energy, the Attributes help to define the essential elements and scope for TESs:

• AR Architecture

A key distinction is whether the architecture is centralized, distributed or a combination of the two;

• EX Extent

A transactive system may apply in transmission, distribution or both; it may also be useful for managing energy within buildings or by end-users of electrical energy;

• TP Transacting Parties

TESs involve parties transacting (mostly automated) with each other in ways that monetize benefits to each;

• TX Transaction

A TES must clearly define transactions within the context of that system, while understanding who the transacting parties are, what information and commodity/service are exchanged between them, the rules governing transactions and mechanisms for agreement and arbitration;

Figure 3. Layers emphasize the pragmatic aspects of interoperation: ‘Why build it’ Source: GWAC

• TC Transacted Commodities

Although the primary commodity transacted is energy, derivative products such as reliability driven call options (e.g., demand management and ancillary services) may also be transacted among parties;

• TV Temporal Variability

Transactions within a single system may range from sub-seconds to five minutes or some longer period. It is also possible for transactions to be event-driven or contingency-based, rather than based on system demand;

• IO Interoperability

There are two elements to consider here: technical interoperability and cognitive (semantic) interoperability. The systems must be able to connect and exchange information and understand the exchanges in the context that was intended in order to support workflows and constraints;

• VD Value Discovery Mechanism

Fundamentally, a value discovery mechanism is the process by which transacting parties come to an agreement on value. Value realization may take place through a variety of approaches including an organized market, procurement, tariff, an over-the-counter bilateral contract or a customer’s or other entity’s self-optimization analysis;

• AV Assignment of Value

Assignment of value is fundamental to value discovery. For example, end-users of electricity may have non-quantitative values such as comfort that require a mechanism to translate them into elasticity, thereby enabling quantification in a transaction; and customers favoring ‘green’ energy may be price-insensitive;

• AO Alignment of Objectives

A key principle in the broad application of TESs is the continuous alignment of multiple objectives to achieve optimum results as the system operates. Optimization for the system may mean sub-optimization for components at specific times, while recognizing that the overall objectives of all parties must be addressed such that benefits, whether economic, operational, or political/policy preference, are perceived as achieved by all parties;

• AS Assuring Stability

The stability of grid control and economic mechanisms are required. The operationalization of grid stability will ultimately be dependent on the economic incentives, provided the TES participants value system stability over individual short-term participant benefit.

A grasp of the basics

So by now, whether you realize it yet or not, you have the basics for recognizing why a TES might be of value and what you might want to build. But this is a very academic treatment of the topic so perhaps it is best to look at examples such as a homeowner who wants a way to capitalize on surplus generation, or a building owner who wants to optimize his energy use and collaborate with other building owners in a mutually beneficial way, or a campus that wants to promote clean power, while creating a sense of energy independence by installing renewable generation and allowing it to generate as much as possible by co-ordinating energy use with energy production.

These concepts will be addressed in part two of this article, in which we also look at the (Foundational) Principles and Guiding Architectural Principles of Transactive Energy Systems.

Mark Knight is Director of Consulting in the Utilities Solutions group at CGI and Chairman Emeritus of the GridWise Architecture Council

Tom Sloan is a member of the Kansas House of Representatives, a member of the GridWise Architecture Council, and a former member of the US Department of Energy’s Energy Advisory Committee