Transactive Energy
A Sustainable Business and Regulatory Model for Electricity
November, 2015
Stephen Barrager, Ph.D.
Baker Street Publishing, LLC
steve@bakerstreetpublishing.com
Edward Cazalet, Ph.D.
TeMix, Inc
ed@temix.com

© 2015 Baker Street Publishing, LLC. All Rights Reserved.
The Transactive Energy business model.
The electric energy ecosystem of the future will be much
different than what we have today.
The changes are driven by technology and the need to
wean ourselves from fossil fuels for environmental and
political reasons.
This document introduces a business and regulatory
model for the future. The model is based on fundamental
economic principles.The model is enabled by the tidal
wave of communication and computing technology that
is sweeping over us.

© 2015 Baker Street Publishing, LLC. All Rights Reserved.
We are moving into an era where all ways to make or
save energy will get to compete fairly, at honest prices,
regardless of their type, technology, size, location, and
ownership.
Amory Lovins, Rocky Mountain Institute,
in Utility Fortnightly interview

© 2015 Baker Street Publishing, LLC. All Rights Reserved.
We have two grids.
a grid of things.
A grid of people, and

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Renewables
Storage
Storage
Storage
Renewables
Storage
ProsumersHomes
Factories
Generators
Transmission Grid
Distribution Grids
Storage
Decentralized
Energy
Resources
In 2020 the “Grid of Things” will have decentralized energy resources,
solar, wind, distributed storage, and two-way energy flows.
Commercial
Buildings
Storage
Storage
Microgrids
Renewables
Renewables

© 2015 Baker Street Publishing, LLC. All Rights Reserved.
Renewables
Storage
Storage
Storage
Renewables
Storage
ProsumersHomes
Factories
Generators
Transmission Grid
Distribution Grids
Storage
Decentralized
Energy
Resources
Commercial
Buildings
Storage
Storage
Microgrids
Renewables
Renewables
Distributed Energy
Resources (DERs)
will be virtually
everywhere: PV
panels, back-up
generators, and a
host of technologies
we have not even
thought of yet.
Energy storage will be
distributed
everywhere: in
homes, in vehicles,
in neighborhoods,
and in commercial
buildings. Some of
the storage will be
electrical, some will
be thermal.
Renewables,
especially wind and
solar, will play a much
bigger role.
The building stock will
be more efficient.
Energy will flow between central
stations and customers. It will also
flow between customers.
In 2020 the “Grid of Things” will have decentralized energy resources,
solar, wind, distributed storage, and two-way energy flows.

© 2015 Baker Street Publishing, LLC. All Rights Reserved.
The “Grid of People” includes Energy Services Parties and
Transport services parties.
Energy Services Parties Transport Services Parties
-Consumers
-Producers
-Prosumers
-Storage Owners
-Transmission Owners
-Distribution Owners

© 2015 Baker Street Publishing, LLC. All Rights Reserved.
$
$
Buy Tenders:
Forward
and Spot
In the Transactive Energy business model people use tenders and
transactions to meet their needs. There are two kinds of transactions:
forward and spot.
Sell Tenders:
Forward
and Spot
Transactions:
Forward
and Spot
Delivery
Consumer
Prosumer
Producer
Regulators

© 2015 Baker Street Publishing, LLC. All Rights Reserved.
$
$
Buy Tenders:
Forward
and Spot
Long-term purchase contracts or subscriptions for service are examples
of forward transactions. Spot transactions are used to fill the gap
between forecasted and actual needs.
Sell Tenders:
Forward
and Spot
Transactions:
Forward
and Spot
Delivery
Consumer
Prosumer
Producer
Regulators

© 2015 Baker Street Publishing, LLC. All Rights Reserved.
Tenders and transactions are recorded on transaction
platforms in the Transactive Energy (TE) business model.
Energy Services Parties Transport Services Parties
Transaction Platform Providers
-Consumers
-Producers
TE Service
Interface
Transaction
Database
-Prosumers
-Storage Owners
-Transmission Owners
-Distribution Owners
Tenders and
Transactions

© 2015 Baker Street Publishing, LLC. All Rights Reserved.
A set of intermediaries enable the “Grid of People” and the
“Grid of Things” to work together.
Energy Services Parties
Intermediaries
Transport Services Parties
Transaction Platform Providers
-Consumers
-Producers
TE Service
Interface
Tenders and
Transactions
Transaction
Database
- Exchanges
- Marketers
- Retailers
- System Operators
-Prosumers
-Storage Owners
-Transmission Owners
-Distribution Owners
Tenders and
Transactions

© 2015 Baker Street Publishing, LLC. All Rights Reserved.
Regulators oversee the system to prevent abuse. The system
is transparent.
Energy Services Parties
Intermediaries
Transport Services Parties
Transaction Platform Providers
-Consumers
-Producers
Regulators
TE Service
Interface
Tenders and
Transactions
Transaction
Database
- Exchanges
- Marketers
- Retailers
- System Operators
-Prosumers
-Storage Owners
-Transmission Owners
-Distribution Owners
Tenders and
Transactions

© 2015 Baker Street Publishing, LLC. All Rights Reserved.
Buildings will have a TE Service Interface. Many control
algorithms will reside in the Cloud.
TE
Service
Interface
0321
Energy
Management
System (EMS)
HVAC
System
Water
Heater Battery
Smart
Appliances
Intermediaries
Distribution
Grid
Transactive
Energy
Platforms

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Standardized platforms can be local or span large regions: neighborhood,
substation, municipality, region, balanciing area, NERC Area, or nation. There can
be energy transaction platforms and transport transaction platforms.
Energy Services Parties
Intermediaries
Transport Services Parties
Transactive Energy Platforms
Neighborhood
Substation
City/Town
Region
Balancing Area
NERC Area

© 2015 Baker Street Publishing, LLC. All Rights Reserved.
The Transactive Energy (TE) model embodies the
following four “big” ideas:
1) There are two products: energy and transport;
2) Forward transactions are used to coordinate investments
and manage risk;
3) Spot transactions are used to coordinate operating
decisions; and
4) All parties act autonomously.

© 2015 Baker Street Publishing, LLC. All Rights Reserved.
Rule 1) There are two products: energy and transport.
The energy product is an amount of energy measured at a specific
location and specific time period on the “Grid of Things”.
The transport product moves energy from one location to another; for
example, from a transmission substation to a building on the distribution
grid.
Separating energy and transport allows a regulatory model where
energy can be produced and consumed in a free market. Simultaneously,
transport can be a cost-based, regulated product.
Energy Transport Delivery

© 2015 Baker Street Publishing, LLC. All Rights Reserved.
Rule 2) Forward transactions are used to coordinate investments and manage risk.
In the TE model, all parties have access to forward contracting to make
investment decisions. Today only large investors like utilities and private power
producers can manage their risk using future contracts for energy sales and fuel
purchases. The TE model affords this risk management mechanism to everyone,
large and small.
Regulators are being faced with a pletora of tough decisions. Who should own
or lease solar panels? Is it better to locate them centrally in the desert or
dispersed on rooftops? Is it better to invest in efficiency or more supply? Is it
better to have central storage or decentralized storage? Where is the best place
to locate storage in the grid?
In the TE model these decisions are made
on a level playing field by both producers
and consumers. Small producers and
consumers will have access to forward
transactions to manage risk. The result will
be a capital stock that maximizes net social
benefit and affords risk management for all.

© 2015 Baker Street Publishing, LLC. All Rights Reserved.
The Transactive Energy Platform provides a level playing field
for consumer and producer investment decisions.
Transactive Energy Platform
Net
Benefit
Outcome
Decision
Uncertainty
Influence
Capital Stock
Forward Tenders
and Transactions
Investment
Decisions
- Consumer
- Producer
Operating
Decisions
- Consumer
- Producer
Spot Tenders
and Transactions
Climate
Change
Technology
Regulation
Weather
Customer
Demand
Solar
Output Wind
Output

© 2015 Baker Street Publishing, LLC. All Rights Reserved.
Rule 3) Spot transactions are used to coordinate operating decisions.
Every storage operator needs minute to minute and forward energy and transport prices to
make charging and discharging decisions. By the year 2020 every electric vehicle will have an
Energy Management System on board that will make the charging and discharging decisions.
The vehicle systems will need actionable, dynamic price information to make smart decisions.
There will be thousands of electric vehicle owners each with different lifestyles and driving
needs. “Optimizing” the operation of this system is beyond the capability of our current
command-and-control business model. We need a business model that responds and adapts
naturally to changing technology and consumer needs. The TE model meets this need by using
constantly changing forward transactions and spot prices.
Spot prices are used by decision makers to make
adjustments between what they predicted demand
would be and what it actually is. Operating decisions
are coordinated system-wide when all operators
have access to the same spot price market.

© 2015 Baker Street Publishing, LLC. All Rights Reserved.
Rule 4) All parties act autonomously.
Customers are able to decide what maximizes their net benefit if they are
given the right prices for energy and transport. Only the individual producer
or consumer knows what is in their best interest.
Customers will have access to the same weather and price formation that
Independent System Operators have in the TE business model. They can use
that information to decide what is best for them. While individuals act in
their best interest the system is constantly guided toward the state that
maximizes overall social net benefit.
Rule 4 can be called the “Plug and Play” rule. Any technical device or
customer should be able to plug into the electricity system and begin
working without dealing with layers of bureaucracy.

© 2015 Baker Street Publishing, LLC. All Rights Reserved.
The Transactive Energy model follows all
four rules.
Energy and transport markets are separated.
Central station, DER, and customer investments are coordinated by forward
transactions. The forward transactions enable everyone to manage risk
associated with uncertainty in future prices, technology, and weather.
Investment dollars go where they produce the most social benefit.
Producer and consumer operating decisions are coordinated by spot
transactions. There is no need for "peak" or "time-of-use" pricing. Price
signals to everyone will be time-varying and location dependent.
All customers and producers act autonomously subject to regulatory
guidelines.

© 2015 Baker Street Publishing, LLC. All Rights Reserved.
Example of how a retail Transactive Energy
tariff works for a typical consumer.
All the decision making is handled by an algorithm in my
energy management system. The energy management system
is my agent.
• Based on my forecasted usage, I transact with a supplier
for delivery of a fixed quantity of energy in each hour of
the year(s) for a fixed monthly payment (subscription.)
• If I use less than I subscribed for in each hour then I am
paid for the difference at the hourly spot price.
• If I use more than I subscribed for then I pay for the
difference at the hourly spot price.
• As my needs change I can automatically buy or sell a
quantity of energy at the current spot price tendered by
my supplier(s).

© 2015 Baker Street Publishing, LLC. All Rights Reserved.
We have all the connections we need.
Home, office, mobile. People, devices, data.
You can buy a thermostat at the
Apple Store that is remotely
programable with your iPhone.
The thermostat knows where
you are, how you behave when
you are at home, and what the
weather forecast is.

© 2015 Baker Street Publishing, LLC. All Rights Reserved.
The three pillars of Transactive Energy
are protocols, connections, and systems.
Physical
System
Transaction
System
Regulatory
System
Systems
PeopleHome
Things Data
Mobile
Office
Connections
Protocols
American National
Standards Institute
Organization for
the Advancement of Structured
Information Standards
TeMix
Energy Market
Information
Exchange
(EMIX)
Energy
Inter-
operation
Services
These 2
pieces are
ready to go.
These two
pieces are
ready to go.
The physical and regulatory
systems are in place. The
Transaction Systems need to
be piloted and deployed.

© 2015 Baker Street Publishing, LLC. All Rights Reserved.
TheTeMix protocol covers the required
process and content.
American National
Standards Institute
Organization for
the Advancement of Structured
Information Standards
TeMix
Energy Market
Information
Exchange
(EMIX)
Energy
Inter-
operation
Services
Content Process

© 2015 Baker Street Publishing, LLC. All Rights Reserved.
Transactive Energy is a “Silver Bullet.”
• It will spur innovation.
• It will provide incentives for efficiency.
• It is fair and transparent.
• It has the support of vendors, customers,
suppliers, economists and environmentalists.

© 2015 Baker Street Publishing, LLC. All Rights Reserved.
What are the impacts on the stakeholders?
Ultimately everyone will win. This
business model will raise efficiency and
lower fossil fuel consumption. It will
enable innovation in technology and
market design.

© 2015 Baker Street Publishing, LLC. All Rights Reserved.
What are the impacts on the customer?
Customers will have more choices and less risk. They will
be able to use forward transactions to manage risk and stabilize
bills in the same way big producers and consumers do today.
They will move usage away from high cost time periods and
toward low cost time periods and renewables. They will
capture the benefit of the service they provide to the grid. This
will stimulate efficiency and cost reduction. The cost of
electricity will go down and we will use less of it.

© 2015 Baker Street Publishing, LLC. All Rights Reserved.
What are the impacts on the utilities?
Utilities will win if they actively participate in the transition to TE. They
have an advantage in developing some of the TE platforms.They have
existing relationships with millions of customers. TE will enable them to
retain these customers.
Utilities can also provide many intermediary services to maintain safety
and reliability. They have a natural advantage in transmission and
distribution. Most of their rate-base is in transport. In the long run they
will probably retain their position as transport service providers. Their
unregulated affiliates will probably become competitive energy service
providers.
Importantly, by employing forward retail contracts and subscriptions
utilities can better secure cost recovery from customers and prosumers.
Many customers who have alternatives will still agree to purchase and
sell with the utility on a long-term basis. Why do some of us stay with
AT&T when we have many choices?

© 2015 Baker Street Publishing, LLC. All Rights Reserved.
What are the impacts on the storage owners
and the renewables industry?
Renewable industry value chain will flourish. Everyone will have
more choices. Market forces will determine what, where, and when
technologies are deployed. Usage will move toward low cost supplies,
i.e., renewables.
Independent power producers will also have more choices.
They will be able to capture more of the benefit they provide to the
grid because of their location flexibility.They will be able to transact
directly with customers.
Storage owners. The TE model will enable storage owners to
capture the benefit of their mobility and operating flexibility. Storage
will be installed in the right places. Electric vehicle owners will be able
to capitalize on their mobility and charging flexibility.

© 2015 Baker Street Publishing, LLC. All Rights Reserved.
What are the impacts on policy making bodies
and planners?
Regulatory and policy-making bodies will be able to focus on
promoting innovation and avoiding economic abuses.The TE forward
transactions will greatly reduce the incentives for market
manipulation of spot markets and will contribute to reliability.The TE
Platforms will help automate rules to mitigate market abuse.
Planners will be relieved of an impossible task. The energy
ecosystem of the future is too complicated for a central command-
and-control approach. Central planners can not optimize resources
because they do not know the benefit of energy use or efficiency,
they only know the cost.

© 2015 Baker Street Publishing, LLC. All Rights Reserved.
The California State Legislature and the
Public Utilities Commission will have to do
the following to enable Transactive Energy:
• Encourage Transactive Energy pilot projects and monitor results.
• Separate energy and transport charges to the customer.
• Provide storage and renewable owners with access to wholesale
energy markets.
• Transition existing retail tariffs to long-term (forward) and spot
transactions.
• Deploy transaction platforms to facilitate buying and selling of
energy and transport by commercial and retail customers.

© 2015 Baker Street Publishing, LLC. All Rights Reserved.
We have pieces of the TE business model in
our current system. Wholesale producers
and consumers use forward transactions to
buy and sell energy and transmission. They
use long-term contracts to maximize profit
and manage risk. Long-term contracts are a
form of forward transaction.
Wholesale producers and consumers also
use some psuedo-spot transactions to do
short term selling and buying of energy. This
is done in command-and-control mode by the
California Independent System Operator.
These mechanisms can be extended to
commercial and residential customers so
they can maximize net benefit and manage
risk.

© 2015 Baker Street Publishing, LLC. All Rights Reserved.
The Transactive Energy concepts
are developed in our new eBook.
Click here to buy
the iBook for the
iPad and Mac.
Click here to go
to Amazon and
buy the eBook
for the Kindle.

© 2015 Baker Street Publishing, LLC. All Rights Reserved.
Follow the development of the TE
model on the SEPA 51st State project.

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Read the California Public Utility Commission
white paper.

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Become a member of the Transactive Energy
Association group on LinkedIn.

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Follow Transactive Energy on the Baker Street
energy blog.