Transactive Energy: A Sustainable Business and Regulatory Model for Electricity


Stephen Barrager, Ph. D
Edward Cazalet, Ph. D


This book is about applying fundamental business concepts to move our electric power markets to a new paradigm. The heart of the new paradigm is the use of forward and spot transactions to guide investment and operating decisions. The current paradigm is regulated cost-of-service and centralized resource optimization. This old paradigm will gradually give way to the new model as the electric system evolves from centrally planned to a decentralized energy ecosystem.

The new business and regulatory model, Transactive Energy (TE), scales well. It can coordinate decisions across the full spectrum of size and technology. It works equally well for central power-plant planning and for smart home-appliance operation. It supports both competitive pricing and cost-of-service pricing.

The TE model embodies four big ideas:

  1. There are two products: energy and transport services.
  2. Forward transactions are used to manage risk and coordinate investment decisions.
  3. Spot transactions are used to coordinate operating decisions.
  4. All parties act autonomously.