The Evolution of the Multitier Hierarchical Energy Market Structure: The emergence of the transactive energy model

Over the last 10 years, a combination of policy directives and technological advances has led to a rapid and significant addition of distributed energy resources (DERs), such as renewable energy source (RES) generation, demand response (DR), storage, and electric vehicles (EVs), into the distribution grid and behind the meter (BTM) in many power systems around the world. At the same time, the Internet of Things (IoT) revolution has emerged as a major market force that is expected to create massive flexible capacity, which can be harnessed to solve grid problems and assist in the integration of RESs into the grid. The penetration of DERs across various levels of the power system has created a hierarchical market structure where DERs could participate, either individually or through aggregations, in the form of virtual power plants (VPPs) in BTM markets and in distribution and wholesale markets. The landmark Federal Energy Regulatory Commission Order 2222 has further created a high-level regulatory framework for allowing DERs to bypass the distribution grid and directly participate in wholesale energy markets. In this multitier market architecture, transactive energy (TE) markets are emerging by allowing customers, either as individuals or in aggregate, to actively engage in energy markets by negotiating and responding to "value signals," based on price, demand, time of day, and other grid and local market considerations.