Transactive energy has been notoriously difficult to pull off. The few successful implementations were not interoperable. The people who knew markets did not understand electricity and its use. The people who knew the economic value and operation of building systems did not understand markets. The large regulated economic entities that today control the distribution of electric power see price as something determined by the utilities commission. The bulk power market operators, with the deepest understanding of power markets have been unable to shed their legacy of control.
The US National Institute of Standards & Technology (NIST) defines transactive energy (TE) as “a system of economic and control mechanisms that allows the dynamic balance of supply and demand across the entire electrical infrastructure using value as a key operational parameter.” TE essentially uses markets to create spontaneous order out of the chaos of free-agent users of energy using different control systems and technologies to live their own best lives. Markets are algorithms are cooperative algorithms that generate solutions to changing supply and demand without the imposition of central control.
More than a decade ago, NIST and the US Department of Energy sponsored the development of communication standards to enable deployment of TE. The result, OASIS Energy Interoperation, saw little adoption. It was too complex. Products developed by different people interoperated only with difficulty. The work of several brilliant economists to define markets in time (or time-of-use) inspired the original specification. But, as any student in business school knows, economics helps understand business, but is not assist market participants accomplish their goals by making daily buying and selling decisions.
Financial traders can use any market in the world; but must know the different rules that govern each market. There are rules for trading hours, for after-market trading, and for market characteristics. There are Order Book venues, which you may recognize if you have traded stocks. There are Auction venues in which everyone who is “in the money” gets the same price. There are Quote-driven venues in which individuals negotiate directly. Each of these rewards different trading strategies.
There are standard ways to interact in financial markets, ways to buy and sell, ways to negotiate directly, ways to express how each market works. The FIX Trading Community (FIX) Protocol Association is the premier developer of communication and business practice standards across financial exchange. The adoption of FIX standards and specifications drives greater transparency of financial markets around the world.
The committee working on CTS has been meeting with representatives of FIX for more than a year. The economists who drove Energy Interoperation posited the smart toaster, a shorthand for the least sophisticated device able to autonomously participate in a TE market. No one is going to program the smart toaster; it must be able to find local markets, discover the trading rules of each, and begin buying. More sophisticated systems can understand venue mechanisms develop strategies that support their more sophisticated strategies. For example, a battery both buys and sells over time. The battery owner can configure policies to support purposes not shared with the market. FIX has taught the committee how to define market descriptions and rules that enable a machine to self-configure for trading in the local markets.
CTS does not design or specify any TE market. FIX has helped CTS to describe any market in time. CTS will support both the toaster and the battery in understanding how each market works, that is, it will support the individual energy trader’s participation in any market based on time.