Utility Week

18 | 18TH - 24TH MAY 2018 | UTILITY WEEK Operations & Assets Market view I baulked when I first read the term "trans- active energy" (TE). I'm rarely a fan of neologisms, and the portmanteau of transaction and active still sits uncomfort- ably. While the UK market prefers to talk about flexibility, the term is inescapable for anyone with a global perspective on the elec- tricity industry, and particularly for someone who works for a US-based company. While the terminology may be here to stay, TE is not yet reality. However, its adoption might be more rapid than some expect. There are many definitions of TE but, sim- ply put, TE is when any customer, regardless of size, can trade electricity within a power market. Any distributed load or supply (dis- tributed energy resources, DER) connected to a network has an inherent value, which changes over time depending on certain market conditions. For example, during a windy, sunny weekend, National Grid may face an oversupply of electricity and can pay customers to take electricity. Conversely, when capacity is constrained, customers can be paid to turn off loads. Demand response (DR) markets have developed over time to cash in on these opportunities. At present, only the largest DER customers can participate directly in flexibility markets, with smaller DER aggre- gated by the growing number of DR special- ists across Europe. However, to date these companies have mostly targeted commercial DER owners. The residential market is largely untapped, although some are experimenting with aggre- gating electricity storage (either stationary or in the batteries of electric cars). TE essentially disaggregates individual loads and supplies, providing a channel for individual customers to participate in energy markets. Although there are some significant barri- ers to TE – not least the fact it is not allowed in most markets – there are many compelling drivers. TE puts the customer at the heart of the electricity value chain, allowing them to decide when, at what price, and from whom they buy their power. This customer-centric- ity is behind the relatively rapid warming of global regulators' initial coolness to TE. A market-based financial return on DER invest- ments is an alternative to solar subsidies. A financial return should also encourage DER owners to participate in energy markets rather than island themselves from the grid, which is important when considering the infamous utility death spiral. Generating power closer to the point of consumption should reduce the need for expensive infrastructure investments and sets a framework in which market signals, not infrastructure investments, can help integrate DER. But the biggest driver is what I call the blockchain goldrush, which has seen hun- dreds of millions of dollars invested in energy-related blockchain startups eager to find use cases for the technology in a con- servative industry ripe for disruption. Given that TE was coined in the US, it is somewhat ironic that its adoption will likely be much faster outside American markets, except for the DER-trailblazing states of Cali- fornia and New York. The US remains largely unreformed, and the vertically integrated utility business that persists is not as con- ducive to competitive energy services as lib- eralised markets in Europe, Japan, Australia, and New Zealand. TE is most likely to become a reality in just a handful of countries unless market reform becomes more widespread. Australia and Germany will likely be the first to move out of trials and into larger-scale deploy- ments. Japan, France, and the UK are all promising markets, while adoption in the US will be limited to a handful of progressive states. However, ubiquitous TE markets are still a long way off. I previously mentioned barri- ers: TE has to battle against vested interests, legacy infrastructure, a lack of mature tech- nology platforms, regulations, taxation and customer attitudes. Viable business models around which TE can develop do not yet exist at scale. Current TE trials around the world should help identify ways in which money can be made in the future. Although this is not a simple task, when and where TE becomes a reality it will grow rapidly. Navigant Research anticipates that the first TE markets will appear in the next 5-10 years. By 2026, residential and commercial customers could be trading $40 billion in electricity a year, largely driven by the commercial segment. Stuart Ravens, principal research analyst, Navigant Research Power to, and from, the people Transactive energy – although not allowed in most markets – promises to give individual energy customers a way to participate in energy markets, says Stuart Ravens.

• Cover