Unleashing Alexa: How transactive energy could unlock residential energy optimization

In our Part 1 on transactive energy (TE), we looked at the path to implementing TE and the types of companies involved. Steve Widergren, principal engineer at Pacific Northwest National Laboratory, and Ed Cazalet, CEO at TEMix, Inc., were interviewed for these posts.

I have a confession: I’m slightly obsessive about not running my dishwasher, laundry, and dryer between 7am and 9pm. Why? For the savings… hmm… well, I actually don’t save any money from being a good citizen of the grid that tries to keep my usage from contributing to the grid’s peak load. I have good odds that you, the reader, wouldn’t save money either, with most residential rates being essentially volumetric – you pay the same per unit of energy no matter when you buy it. So, even though residential energy usage accounts for 38% of annual US electricity consumption, there is (essentially) no economic incentive for aligning the vast majority of that usage with grid conditions.

I had to say “(essentially)” because of demand response. Demand response mechanisms are a step in the right direction, but they only apply for a sliver of hours each year when demand levels are extremely high. The existence of demand response is already an implicit admission that tariffs don’t always create efficient supply-demand equilibria, so why not extend the principle underlying demand response to cover all hours of the year?

In many ways, that’s what transactive energy is. By creating a market with direct supply-end user interaction – both in real time and forward-looking – rather than having intermediated simplified tariffs, TE ties consumer economics more directly to supply dynamics – not only a question of how much, but when and where that demand is. In Steve Widergren’s words, TE would “make transparent where the real values are,” with “where” encompassing both physical location and time. “Value” can be assigned to any action – whether it’s about individual consumer’s actions like when you run your laundry, whether to put PV on your roof, or when to charge your EV. Or grid design questions, like whether a utility should install a neighborhood battery or PV rather than invest in increased substation capacity.

While creating such a real-time supply-end user connection would be new for nearly all types of consumers, the residential consumers would see a larger change in their pricing structures than would large commercial or industrial consumers. To be clear, this is not suggesting that residential consumers would necessarily see large cost increases or decreases, but rather acknowledging that businesses and larger users more commonly have tariff structures today – like time of use rates and demand charges – that incentivize aligning demand with supply patterns. This introduction to real-time pricing for residential consumers would be particularly helpful for smart home product manufacturers. Currently, with little or no economic incentive to align usage, few smart home products generate energy value via their ability to be “smart,” i.e. connected. (Though smart home and energy efficient products overlap, energy efficient appliances create value by using less rather than being connected, and not all such products are “smart.”) Demand response-enabling products, such as smart thermostats, do provide value in many markets, but this is a small subset of the universe of smart home products. With TE, grid-friendly practices would save money, and devices that connect to appliances and manage energy would have real value, creating a business case for smart home products from an energy perspective in addition to the cool and convenient factors.

TE would create new opportunities for value creation throughout the residential energy value chain, from manufacturers of equipment such as meters, home appliances, and smart speakers to utilities and energy retailers. The home energy manager position, interfacing between energy demand and the energy market and optimizing usage, would be the point of new value creation. The race to smart home dominance is already intense. Tech companies like Amazon, Google, and Apple have all launched smart speakers and app ecosystems; cable companies like Comcast and AT&T are active in smart home and security products; residential energy product providers like Tesla are deploying storage-based solutions; and electric meter players like Itron and Johnson Controls are building on their competitive positions. With all of these different approaches to the smart home already under way, there should be many devices already in place with the connectivity to be the home energy manager and interface with a TE market – if and when it develops. But there is by no means a clear likely winner yet.

Though promising, the path forward to implementing TE will require regulatory adaptation. Ed Cazalet notes that it will be a transition away from today’s “postage stamp” pricing on the grid, but equitable transition solutions within the TE structure are certainly available. I, for one, am looking forward to the transition to TE, so that I can automate timing of my laundry with confidence that the automation is saving me money. Until then, I’ll have to settle for (probably) being a good citizen of the grid, even without financial incentive.