Navigant Research Blog

Exploring Potential for Integrating Transactive Energy into Virtual Power Plants

— August 4, 2017

The concepts of virtual power plants (VPPs) and transactive energy (TE) are similar in that they place prosumers—formerly passive consumers that now also produce energy—front and center in an emerging market for grid services delivered by distributed energy resources (DER). Both trends are indicative of an electric grid ecosystem that is decarbonizing, decentralizing, and digitizing.

Navigant Research believes that the future of energy rests on the foundation of cleaner, distributed, and intelligent networks of power, what we call the Energy Cloud. The VPP model presents a compelling vision of this future, as does TE. When combined, new revenue streams for diverse energy market stakeholders are inevitable. What portion of the VPP/TE plethora of possibilities will find its way into prosumer pockets?

In a new Navigant Research report entitled VPP Transactive Revenue Streams, I identify six grid services that could be enhanced by integrating TE within the VPP framework. Much more work needs to be done to put money into stakeholder pockets, so I’ve also briefly identified the regulatory challenges that need to be addressed to make these revenue streams real:

  • Localized clean energy: How can previous policy vehicles such as net metering and feed-in tariffs be accommodated or revised (or eliminated altogether) to shift from subsidy schemes to a more transparent market locally, regionally, nationally, and internationally? TE platforms operating within VPPs may be a good starting point.
  • Virtual capacity: Just as consumer supports need to be revisited for solar PV and other distributed generation, so do assumptions governing determinations of resource adequacy for wholesale system planning. Perhaps exit fees and demand charges are obsolete in a DER-rich future. What are new ways to monetize the actual non-generation-related services a power grid provides?
  • Real-time demand response: More sophisticated load-based demand response will be part of the toolkit to displace ramping fossil fuel generators up and down in response to variations in solar and wind. Harvesting load will be one of the key innovations to benefit from TE-based blockchain ledger systems.
  • Fast frequency regulation: While the VPP seeks to provide creative fast frequency response, the sources of such services are still often spread far apart. In an ideal world, localized generation, energy storage, and load could be marshaled to address frequency challenges to the grid. How can we integrate locational benefits in the pricing of such grid services?
  • Smart voltage control: The proliferation of smart inverters onto the grid represent a rich resource portfolio that can be monetized in multiple ways. TE trades would enable a similar value proposition as fast frequency response. The same challenges to pricing locational benefits apply.
  • Big data from small sources: A VPP supported by TE must rely on accurate and timely data, analytics, and insights. While prosumers may not reap large profits from the data they provide via TE, energy service providers and distribution system operators may view this as the largest revenue stream flowing from the digital grid utility transformation.

Do VPPs create opportunities for TE revenue streams or vice versa? Most likely, these two DER platforms will evolve in parallel. DER management systems that can harmonize VPP and TE platforms must incorporate market pricing mechanisms to reflect the changing value of millions of connected endpoints throughout the day. That’s quite the challenge, which also translates into a major revenue stream opportunity for the Energy Cloud ecosystem.

To learn more from two major players active in the Energy Cloud ecosystem—Enbala Power Networks and ABB—tune into the Navigant Research-hosted webinar on Tuesday, August 15 at 2 p.m. EST.

 

Transactive Future of 2030

— May 2, 2017

The power industry is just a couple of years into the most disruptive decade in its history. Industry transformation is a topic Navigant Research returns to on a regular basis in blogs. We often discuss the current issues regarding a particular technology, but we also discuss what the industry will look like at the end of this transformation.

The recently published report Defining the Digital Future of Utilities takes a look into the future and discusses how the utility industry might operate under an aggressive Energy Cloud scenario in 2030. In that scenario, there are ubiquitous distributed energy resources (DER)—in particular, solar PV, electricity storage, and EVs. In addition, residential prosumers are able to sell their excess generation on an open platform at market prices.

Transactive Energy Is Customer Centric

A fully transactive energy system could not look more different compared to the utility business model of just a few years ago. The biggest difference is that the balance of power in the energy value chain shifts to the point of consumption. By 2030, customers will sit at the heart of the electricity value chain. The old supply model is likely to be replaced by a combination of services developed to aid self-consumption and maximize returns on DER investments. While grid-sourced electricity supply is still required, customers’ electricity requirements are mostly met via their own PV and storage. Demand for grid-sourced power is significantly reduced (though it still increases dramatically when solar production stops in evenings).

Today’s supply-based business model is significantly disrupted: with every PV installation, the need for grid-sourced power diminishes. And when prosumers can sell their self-generated power onto open markets, they will compete against large-scale generators. Not every customer will want every kind of technology, service, or tariff. Consequently, the 2030 business model will be based on service offerings that meet each customer’s specific needs.

New competitive energy service providers will compete for customers with transactive energy services that optimize a customer’s returns from their DER investments. There will be significant areas for differentiation and a variety of service offerings. Many of these will be offered in regions where incumbent utilities currently enjoy the protection from a monopoly market. Only a small proportion of potential revenue will come from grid-sourced power supply; all the rest is up for grabs.

Adaptation Grows Ever More Crucial for Utilities

Incumbent utilities really are facing an adapt-or-die decision. Whoever owns the customer relationship will lay claim to the majority of value on offer. Some utilities are already investigating new service-based business models and trialing transactive energy platforms, although many are not. Those incumbents that resist the current transformation or complacently believe it will not affect their current business models could be in for a shock. Falling solar and storage prices strengthen the economic case for residential DER; the ability to sell electricity at market prices could replace existing feed-in tariffs. These are compelling arguments for transactive energy. A refusal to react to the requirements of the 21st century energy industry will see at least some utilities vacillate their way into extinction.

 

Australia Moves Forward with Transactive Energy

— March 29, 2017

Last month saw an announcement of another Australian transactive energy trial, led by the Australian Renewable Energy Association (ARENA) and distributed energy resources (DER) management software specialist GreenSync. The transactive energy trials, which will be run alongside network operators United Energy and ActewAGL, will use GreenSync’s DER management software as a market platform. The trial marks another step in the evolution of DER management: from managing the physics of DER to also managing financial transactions. By trading grid services from their DER with local network companies, residential and commercial customers will benefit from direct financial incentives that GreenSync believes will help justify the investment in DER.

A Hotbed

Australia is a hotbed for transactive energy. There are numerous transactive energy trials underway in the country—certainly more per capita than anywhere else in the world. And there is good reason:

  • At 15%, residential solar PV penetration is high.
  • There is abundant sunshine in most cities.
  • Critically, residential PV makes up a significant proportion of all PV, so is relatively important and gets plenty of regulatory attention.
  • Network charges are high, due to the extraordinarily long distances power has to travel for relatively small numbers of customers.
  • Blackouts are not uncommon—a recent heat wave in South Australia caused a surge in demand that could not be met by existing thermal generation led to the market operator to demand 100 MW of load be shed.

Future Resources

Energy Networks Australia (ENA) and Australia’s national science agency CSIRO co-wrote the recent Electricity Network Transformation Roadmap, which details a series of integrated measures that will expand customer choice, decrease emissions, lower costs, and improve security and reliability. ENA expects residential DER participation rates of 40% by 2027, with 29 GW of solar PV and 34 GWh of batteries. By 2050, Australian generation is expected to be virtually entirely renewable.

DER are regarded as important future resources that—when aggregated—will balance the networks, reward their owners, remove the need for green subsidies, and reduce the need for network infrastructure investments.

While the Australian market has some unique characteristics that have encouraged the early adoption of transactive energy, the continued falling costs and improving efficiency of solar PV and storage will make a viable economic case in more and more geographies. It is vital that vendors develop trustworthy, robust, and scalable platforms if transactive energy is to mature from its current embryonic state to a widely accepted market mechanism. Over the next few years, regulators, network operators, energy suppliers, and DER vendors will all be watching the Australian market with close interest.

 

Understanding Peer-to-Peer, Blockchain, and Transactive Energy

— March 9, 2017

Coauthored by Richard Shandross

These days, clean energy media and the utility industry are abuzz with talk about peer-to-peer (P2P) energy, the idea that power generation and consumption can be fully decentralized. More specifically, startups in multiple places around the globe have latched upon the concept of utility customers who own renewable energy resources—prosumers—selling their power directly to their neighbors or others in their town or city. They promise platforms that empower customer choice, support local green energy, and sometimes even save or make the customer money in the process. It’s a very appealing idea, and the customer excitement it generates has not escaped the eyes of utility management. Many utilities are considering their own play in this space, and several have announced products and/or partnerships.

Invariably, the solutions involve blockchain technology. Blockchain is the epitome of decentralization, and some implementations allow users to enter into smart contracts as part of a complete transaction platform. Because of this pairing of P2P energy transactions with blockchain technology, many people equate transactive energy with blockchain P2P. However, transactive energy represents a broad set of activities that includes much more than this type of solution.

Possibility of True P2P Energy Transactions

A more fundamental question is whether true P2P energy transactions are even possible. Traditionally, P2P transactions occur when peers make their resources directly available to other participants without central coordination. There are a few select scenarios in which this can occur between prosumers and consumers (for instance, in microgrids that can be isolated from the main distribution grid). Yet, for the majority of customers, this is not how distributed power transactions will work. Two factors typically prevent transactions that are being labeled as P2P to deviate from true P2P:

  1. Unless the two parties run their own power line between their respective sites—which is highly unlikely—the power generated by prosumers and the power used by consumers must travel over a utility’s distribution network. The operation of this network is coordinated by the distribution utility, not the peers in the transaction.
  2. Because the distribution network is used, the prosumer will be paid for the power it exports, and the consumer will pay for the power it uses, according to the utility tariffs applicable to them. The two parties do not determine the price; rather, they use the blockchain platform to negotiate and implement their own, separate transaction. That transaction is in addition to, rather than in place of, the standard transaction with the utility.

In other words, the distributed nature of blockchain technology does not mean that everything about what is being called blockchain P2P is distributed. The purchase and sale of power on a distribution grid involves centralized control.

We will discuss situations in which a true P2P energy transaction is possible in a separate blog. But for the vast majority of cases, a different type of connection between prosumer and consumer is needed to achieve the goals of customer choice, support of local generators, green energy, etc. An alternative already exists, which is to intentionally include distribution and/or supply companies in the transaction. An example of this would be a model in which:

  • Consumers pay their current retail tariff—including taxes and distribution charge—or a shade below it (as an incentive) for locally sourced power. This tariff could incorporate pricing signals that incentivize behavior that supports grid operation.
  • The distribution network operator receives a small fee for the use of its infrastructure.
  • The supply company earns a small fee for operating the transactive platform—which could be based on blockchain to save on transaction and processing costs.
  • Prosumers are paid a price significantly above wholesale, but below retail.

Role of Blockchain and Transactive Energy

What about the role of blockchain in the electric power industry? That is a big subject, one that is currently under construction by many parties in the industry. Here are a few possible ways to employ blockchain—any of which could have a significant impact on the power industry or portions of it:

  • Data logging: For example, Grid Singularity in Austria is setting up a platform for monitoring and sharing of power/energy production data worldwide.
  • Asset valuation: Another Grid Singularity innovation, the blockchain would store immutable performance data for an asset.
  • Certificates: P2P market ledger for renewable energy certificate trading and purchase.
  • Bill payment: Would allow unbanked customers to pay bills via cryptocurrency. Another use would be third-party bill payments by NGOs, charities, relatives, etc.
  • Conditional energy supply: Smart contracts could be employed to allow condition-based choice of generation sources involving weather, prices, or other complex conditions.

Transactive energy and blockchain are both exciting, emerging technologies that are currently in nascent states. There is potential for them to be employed together to positive effect. However, they should not be equated with each other and, except in rare situations, they do not enable true P2P energy transfer.

 

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