I am an Apple guy. I prefer Apple products because I can just plug in my printer, plug in my backup hard drive, or any other peripheral device and I can start working (or playing.) I don’t have to go through any anxiety-inducing installation process. Apple has designed a hardware/software ecosystem that allows me to just “plug and play.” I appreciate it. I am happy to pay extra for this capability.

Today’s electricity grid doesn’t work like the Apple ecosystem. The system is making innovators, and potential investors crazy. Our electricity markets are a patchwork of centralized command-and-control systems that require an umbrella of bureaucracies to hold them together. The grid and the organizations that support it are not prepared for new, disruptive technologies.

We have to have innovation if we want a cleaner, less expensive, more reliable, and more transparent system. The current system is not friendly to innovation. Small storage units like the Tesla Powerwall and small solar installations are struggling to “plug” into the grid and “play” in the electric energy markets.  Innovators want a simple “plug and play” system where they can play on a level playing field.

Before we can just “plug and play” with devices like small storage and solar we are going to have make some changes. We have to deal with two grids. The first is the  “grid of things,” the poles, wires, and transformers. The second is the “grid of people,” the buyers and sellers of electric energy and transport.

Getting plugged in

BookGraphicsFortnightly20151021.001The “grid of things” has to be changed in order for innovative devices to “plug” in. The grid has to be rewired so energy can flow in two directions where appropriate.  Energy needs to flow from the grid into the storage devices and from the storage devices back into the grid. Likewise for solar. Excess energy from solar panels needs to flow into the grid. The changes in the “grid of things” require some money and some technical savvy. Planners and engineers will figure out how to do it economically. It is just a matter of time.



Becoming a player

The changes in the “grid of people” are not so straightforward. For illustration, let’s assume you want to invest in a storage device. You will have to decide where to put it, what storage technology to install (lithium ion, sodium sulfer, etc.) and how large to make the unit. Your objective is to do it in a way that maximizes your profit (benefit) and limits your risk.  To make this decision you will have to estimate the future price of electricity at different times of the day, days of the week, and years. You will want the price both for buying energy and for selling energy. Plus, you will want to know what it will cost to connect to the grid at various potential sites.You will want some assurance that your contracts with the grid are good into the future so you can limit risk.

For the future prices you will probably have to go to local IOU. They will probably tell you that they only sell energy, they are not authorized to buy energy from small storage. If you are selling energy then you are a “producer” and producers are under the control of the local Independent System Operator (ISO). So, you are a customer from the point of view of the IOU. You are a producer from the point of view of the ISO. (That’s right, One device, two organizations.) Both the IOU and ISO are regulated by the Public Utility Commission (PUC) and, possibly, the State Energy Commission. So, you have a problem. All these people will have to be involved in deciding how your storage unit will be operated and how the buying and selling prices will be determined. And, by the way, it could all change if the next State Governor wants it to change.

If you are a big player, an IOU or private energy company, you can participate in the decision making, and you have the resources and time to deal with the bureaucracies. It is probably easier to get a large pumped hydro storage unit “plugged into” the grid than 10,000 small storage units in today’s political/economic/technical system.

Transactive Energy is the ultimate “plug and play” business model.
TE grid of people.001Transactive Energy (TE) is all about the “grid of people.” In the TE model the “grid of people” functions according to four simple rules as follows:

  1. There are two products: energy and transport.
  2. Forward transactions are used to coordinate investment decisions and too manage risk.
  3. Spot transactions are used to coordinate operating decisions.
  4. All parties act autonomously. (This might be called the “plug and play” rule.)

In the Transactive Energy business and regulatory model any party interested in investing in a device has access to forward tenders for buying and selling energy and transport. This allows all device investors to transact in a transparent market for future energy and transport. All parties can use this mechanism to manage risk. The forward tenders also enable the coordination of investments across the grid. Spot prices enable the coordination of operating decisions. Everyone plays on a level playing field no matter what size.  The energy ecosystem is constantly adapting and moving toward a state that maximizes social net benefit.

bookmarkFor more about the Transactive Energy business and regulatory model see our book, Transactive Energy: A Sustainable Business and Regulatory Model for Electricity.

Or, see our submission for the SEPA 51st State project.

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