by David Thill, Energy News Network
Under the concept, utilities would shift from power providers to platforms facilitating transactions among customers.
Ameren is preparing to test a Canadian company’s software that could someday help usher in a radically different business model for the utility.
The software will simulate a “transactive energy marketplace” on the company’s microgrid in downstate Illinois. Eventually, the concept could allow Ameren customers to buy and sell power from each other in real-time or day-ahead markets.
The shift for utilities from power provider to platform is far from certain, but some industry forecasters think it might become a necessary transformation as more customers invest in their own generation and energy storage.
Those customer-owned, distributed resources undercut utilities’ traditional role, but they also create new challenges and inefficiencies — ones that utilities of the future might be in a unique position to help solve.
Transactive energy is a relatively new concept, and large-scale applications likely won’t be common in the next few years, said Medha Surampudy, a senior research associate at the Smart Electric Power Alliance, which recently released a report on transactive energy.
Ameren announced in March that it is partnering with Ontario-based software developer Opus One Solutions to test the marketplace, which resembles existing power markets at the wholesale level. The project will also evaluate blockchain, a digital ledger platform that verifies transactions and is often part of discussions about transactive energy.
Today, most transactions either include utilities or involve resources owned by the same owner. But so-called peer-to-peer transactions are possible in the future if regulation allows.
Getting it all to work will require complex interaction among demand- and supply-side resources, rather than one-way price signals. It means decision-makers have a difficult task of determining the value these distributed resources provide to the grid, not just generation but also storage and demand response.
And automation is key in transactive energy marketplaces, Surampudy said: Owners of distributed resources set their devices to buy and sell automatically.
How to assign resource value is a “fraught area that we’re going to have to figure out more as we go along,” said Mark Knight, an adviser at Burns & McDonnell consulting firm and chair of the Smart Electric Power Alliance’s transactive energy working group.
Decision-makers have several factors to take into account. Aside from the economic component, distributed resources can add to or subtract value from the grid based on environmental effects and when and where they operate. The resource’s point of interconnection to the grid is important, since some locations serve peak demand better than others.
Illinois’ Future Energy Jobs Act directed the Illinois Commerce Commission to determine a formula for distributed resource valuation, emphasizing the importance of location on the grid. The topic also came up for discussion during the 18-month NextGrid study process in Illinois, when several working groups met to chart the course of the state’s electric grid going forward. The report, currently in draft form, doesn’t come to a conclusion about how specifically to calculate value, but it notes that valuation is a matter of “serious debate” and will vary by state.
Opus One’s software aims to help utilities determine the value of distributed resources on their grid. In addition to Ameren, the developer already partners with several utilities throughout the country, including the New York branch of National Grid.
Using Opus One’s software, National Grid created a small-scale “distributed system platform,” which calculates the value of distributed resources on the 120-acre Buffalo Niagara Medical Campus in day-ahead and real-time markets. The software uses that information to facilitate energy transactions among the resources, which include combined heat and power and existing backup generators, with storage and renewables planned for later.
“We think the [National Grid] model has a lot of merits,” said Joshua Wong, president and CEO of Opus One. “But we think economically that system is very robust.” A real-life platform that complex would necessitate significant regulatory change, he said. Among other things, current regulations usually prohibit customers from selling energy to each other. But simpler programs, like modified demand response, can be a first step toward something more intricate, Wong said.
The Pacific Northwest National Laboratory conducted a pilot with demand response in 2007 in Washington’s Olympic Peninsula. It used a two-way real-time auction to select the most economical generators — including municipal water pumps, backup diesel generators and residential electric systems in 112 homes — while curbing peak demand.
“The project demonstrated the ability for transactive energy to manage system peak load and distribution constraints; enable utility wholesale price purchases; enable generators, loads, and appliances to automatically bid or offer into a real-time energy market; and provide cost savings for customers and the municipality,” a Smart Electric Power Alliance description of the project says.
New business models
Marketplaces like the ones being tested by Ameren, National Grid and others are part of a growing recognition among utilities that their monopoly status may soon disappear. After decades of operating as vital resources for customers, they’ll likely face competition from other energy sources.
“That doesn’t mean there’s not a need for utilities,” Knight said, adding that they bring important expertise to the grid, especially in managing physical infrastructure. In pilots like National Grid’s, the utility serves as a central platform to facilitate transactions among distributed resources, Wong said.
But large-scale change won’t happen overnight.
“The struggle is investor-owned utilities [and] regulators are the ones that say how they can make more money,” said Killian Tobin, CEO and co-founder of Chicago-based Omega Grid, a blockchain startup company.
Omega Grid, which in 2017 participated in Ameren’s Accelerator startup incubator program, currently has a memorandum of understanding with the utility, though Tobin could offer few details about the partnership. Ameren hasn’t said what blockchain provider it’s partnering with on the Illinois project.
Omega Grid finished a pilot last year with a California winery that has a microgrid with solar panels, several batteries and a microturbine. Each asset operated as an individual player bidding into a real-time market on the microgrid, facilitated by Omega Grid. Since the microgrid is owned by one organization, Tobin’s team didn’t face regulatory barriers.
He predicts most of Omega Grid’s utility partnerships in the coming years will be with municipal utilities. The company currently partners with the electric utility in Burlington, Vermont, where it issues blockchain tokens to customers based on how much energy they save in a demand response program.
“At the end of the month, when we know the exact value of that voucher, we allow them to cash that in,” Tobin said. In the near future, they’ll also be able to cash it in with local merchants.
“A municipal utility can save money on their electric bill and share it” with customers, Tobin said. Investor-owned utilities aren’t usually incentivized in the same way, he added.
Energy costs are dropping, “pushing utilities to change their business model,” he said. “What we’re offering is an alternative. We get that they’re not going to flock to it right away, but they’re just in this negotiation right now, with themselves and with the regulators.”