IEEE Power & Energy Magazine - May/June 2016 - 71

other driver-taxi, commercial, and personal-was doing and then not only avoid traffic jams but
also prevent creating new ones. The just-in-time nature of instantaneous energy delivery [before
the widespread deployment of battery energy storage systems (BESSs)], the interdependent nature
of reliability across the grid, and existing social norms regarding "surge pricing" for essential
commodities like electricity provide some unique aspects to implementing TE at retail scale.
This article will lay out issues around critical next steps in
designing and implementing DSOs:
✔ understanding the economics of TE from the viewpoints
of customers/rate payers, utilities, and third-party investors in DERs and how the economics may inform policy
decisions and tariff designs
✔ addressing issues in the integration of retail and wholesale markets or the interactions of DSOs and independent
service operators (ISOs)
✔ some discussion of the likely costs of DSO infrastructure
and issues that drive these costs.

Understanding
Transactive Energy
in the Ecosystem of
Energy Economics

TE Economics and the Cost Benefit
Analysis of a DSO
First, let's look at the overall economics of TE in terms of the consumer's viewpoint-the cost benefit to the customer. Figure 1 shows a conceptual view of the major relationships in the retail energy
ecosystem, including wholesale market economics, DSO operations, DER economics, transmission and distribution (T&D) investments, utility rates, and customer investments and costs. In this
figure, the thin blue arrows indicate that one variable influences another at any moment in time.
The red arrows indicate that one variable influences the rate of change of another variable. In this
figure, the adoption rate of DERs thus drive the total DER penetration over time. There are two
mechanisms for DER adoption. One is that customers see a favorable set of economics for a particular DER technology (and location and size) given market energy economics, retail rates, and DER
costs. The second is that DER capacity markets (a capacity market is an auction or other process to
get resources built or deployed) can influence DER economics directly by greatly affecting DER
economics. Some other variables are also dynamic in some sense; T&D reliability
is not a direct function of instantaneous capital expenditures but the combined
result of cumulative T&D investments (or noninvestments) made over a
specific time frame.
The time dynamics and the ways that different relationships work-
some of the feedback loops in Figure 1 are positive, some are negative, and some can be either way depending upon conditions-will

may/june 2016

ieee power & energy magazine

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