Utilities In the Middle – Building Connections for Transactive Energy

At the Transactive Energy Systems Conference in Portland this June, over 130 representatives of government, industry, utilities and academia gathered to share the latest ideas and results in transactive energy (TE). The takeaway: we’re seeing significant early promise in TE, but there is still a lot of work to be done on establishing value and business models.

By introducing market-based micro-transactions between energy suppliers and users, TE turns the traditional utility business model on its head. So we wanted to gather reactions specifically from electric utility experts. We were able to grab three interviews with these attendees:

  • Earle Ifuku, Director, Technology Implementation at Hawaiian Electric Company (HECO)
  • Paul Breslow, Open Innovation Principal at EDF
  • Curt Kirkeby, Fellow Engineer at Avista, a partner in the Urbanova smart city project

While each person brought a distinct perspective to TE, each conversation contained some common themes. Below are four of them, with comments from our interviews.

How to approach transactive energy?

While the promise of TE is not hard to understand, it’s much more complicated and nuanced than simply “I’m going to sell my power to you.” So, the first step is usually how to frame the discussion about TE.

  • Ifuku: There’s always that sort of schizophrenic view about how aggressive we need to be to get to [TE]. While pursuing the goals of a market-based transactive model, you are creating more technical challenges for your internal system operators and grid planners. It’s a push and a pull kind conversation we constantly have inside our company as we formulate our grid modernization strategies for achieving the 100% renewable goal by 2045. – [Ifuku photo]
  • Breslow: As a large power company, it’s incumbent upon us to understand how we’re going to exist in any transformations, and to understand what that looks like. For example, our utility-scale renewable and traditional generating companies view distributed generation as a eroding the growth of traditional development approaches, and so many groups are looking towards Distributed Energy Resources, or DERs.
  • Ifuku: It’s become more apparent to me that to achieve the TE Framework objectives, that we need to go beyond looking at PV, energy storage and ultimately EVs as load resources. I think that’s the underpinnings of the things that I’m learning here for the first time. The transactive energy will fundamentally change that paradigm.
  • Breslow: In the in roughly 20 years that I have been researching and working in the cleantech field, I have looked at things mostly as a technologist. I think technology is an important lens, but there are at least four different lenses that I think that are important. This includes the market aspect of it, in terms of what potential customers are going to be doing, the products and business models. Regulatory is a hugely important aspect, of course, and often the most challenging. Financing is key, and it has been as innovative and important, if not more so than technology, for encouraging adoption. When I look at my time in solar, it was not necessarily just being able to get the cost of solar modules down as much as probably the PPA [Power Purchase Agreement] models and other types of innovative financing, which drove more installations. And then one of the things I’ve realized recently that is also really important, is the social aspect of a technology, product, or business model. A good example that we discussed at this event is blockchain, which has broad implications for society beyond its potential use as a transaction and ledger system for energy trading and other use-cases.

Financing is key, and it has been as innovative and important, if not more so than technology, for encouraging adoption.” – Paul Breslow

  • Kirkeby: Clearly, when you start looking at smart cities it’s all about people, not about technology and infrastructure. When you start thinking about how could you influence positively all the aspects of life for people, then it’s really mini-transactions right? Everything can be classified as a transaction of some sort. If you want to optimize across a platform of utilities and data and people, processes, it would be a lot easier to do if that were somehow in a transaction that was available, authorized and verifiable, reconcilable.

Establishing value for all parties

Several of the presentations at the TES conference focused on modeling the components of the value streams in a way that all participants can realize some benefit from putting TE into practice. No one is more aware of this than utilities, as transactive business models threaten traditional revenue streams. Through experience with Demand Response (DR), DERs and pilots, they are making progress.

  • Kirkeby: We’re trying to push that transactive element to the very edge, to the meter. Right now that’s how customers pay, they get measured with that meter, so if we can push that transactive element to that very same meter and it can do the transactive market then we’ve really got the ability to implement a market across all of our customers.
  • Ifuku: For context, in Hawai‘i we are talking about the stage three DR penetration growth scenario. At the end of 2016, the Hawaiian Electric Companies have achieved a 26% RPS performance – with major contribution coming from private rooftop solar. More than 15% of total customers – including an estimated 26% of single family homes, have installed rooftop PV. The next steps will be for us to put in place the necessary communications platforms to be able to capitalize on the additional value streams associated with having DR as an aggregated resource.
  • Kirkeby: There’s a part of the [Urbanova] project that’s around co-optimization, for grid objectives as well as customer objectives. What’s an example of that? A customer objective might be backup. So, they want a certain amount of backup at all times. That means that only a certain part of their asset is really available for grid services. In your optimization, it would say “Okay, I need 40% of this asset for backup, so 40% is off limits. The other 60, if it’s available, is the potential for grid.” The grid would maybe have three or four different [benefits], but you would take the highest value of those four. The transactive element really needs to be focused on service, the type of service being provided. So it’s not just a kilowatt-hour play, the measurement could be kilowatt-hours, but the service is what would be the important part.

The transactive element really needs to be focused on service, the type of service being provided. So it’s not just a kilowatt-hour play, the measurement could be kilowatt-hours, but the service is what would be the important part.” – Curt Kirkeby

  • Kirkeby: There’s the need to develop the methods for valuation for each one of those services. Most of them are location based. Some of them are need-based, some measures. Certainly time domain is important. You have to take all of those aspects, so there would be a fixed component and a variable component. The variable component would involve the time domain and it would involve the location.
  • Kirkeby: First we’ll make it work just by transacting peer to peer. We’ll have a meter transact with another meter or transact with the central office. Then we’ll start working on the sophistication of adding the elements of variable cost and predictions. Ultimately you have to make sure it all works.

Customers are key, but are they interested?

In a few cases, TE is reaching down to the individual customer level. Availability can breed a growing interest, but some customers are more likely than others to invest both in time and money.

  • Ifuku: Hawaii is really pushing the envelope – utility reliability, obligations to provide safe, secure and reliable service. The Department of Defense is a good example of a key customer who is driving the energy security and grid resiliency for its mission critical operations on the island. There’s going to be a lot to be learned from our customers.
  • Ifuku: Now, for the first time, the things that we’re talking about are really reaching down to the individual residential customer level. In the past, the traditional distributed energy resources were targeted towards commercial and industrial plant operations. Now, every class of customer is participating in this market place. Soon, with newer programs every customer will have a chance to participate.

For the first time, the things that we’re talking about are really reaching down to the individual residential customer level.” – Earle Ifuku

  • Breslow: How these new models are regulated – if even allowed – and how they’re embraced by the consumers, remains to be seen. I’m not sure that a residential customer wants to be more engaged with energy [bills] than they are now, which is something like six minutes a year. Do they want to spend six minutes a day turning things on and off and managing that? Probably not.

Time for regulations to catch up

Through collaboration, conferences and pilot programs, the industry is producing ideas about how to restructure regulations to allow more TE benefits. For now, utilities are pushing the technology and pilots way ahead of the regulators.

  • Ifuku: We can’t wait for the marketplace, or the market players, to develop it for us. Having standards in place will allow us to move faster. Once standards are in place technical solutions will then become available to the market.
  • Ifuku: The challenge will be to establish a framework so that all the benefits streams can be unlocked. There are costs associated with modernizing the grid. We need to capture the full benefits of moving to the clean technology.
  • Breslow: All of us [major energy companies] are testing the technologies and the business models, and regulations are going to be the last to change for sure. We as an industry hopefully won’t be quite as brash as the car-sharing industry, or some companies that have gone into new spaces and pushed regulatory boundaries far before they were necessarily ready. In this sector of blockchain and transactive energy, people will be pushing the boundaries with ideas and pilots out of necessity for the next year or two – but then we expect that regulations will catch up and enable substantial adoption.