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If the Grid Becomes a Value Exchange, How Do We Assign Value to it?

New report details pros and cons of applying valuation methods to Transactive Systems

May 2016
If the Grid Becomes a Value Exchange, How Do We Assign Value to it?
Conceptual valuation method, as recommended by the Valuation of Transactive Systems report, Figure 4.1.
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As our nation's energy demands continue to grow and energy resources become more diverse, our need for a flexible electricity grid increases. A relatively new concept, called Transactive Systems (TS), has the potential to provide that flexibility through a value exchange platform. Today, the principal commodity being exchanged in emerging TS is electrical energy. Such mechanisms are called transactive energy systems.

Valuation is a set of relatively mature, existing processes that includes cost-benefit analysis, integrated resource planning, and many other assessment methods. Valuation of TS is unique. In every transactive system mechanism, elements respond to incentives that become revealed to them, and certain operational objectives become explicitly incentivized by the transactive system mechanism. The transactive system mechanisms define the important coupling between the responsive elements and the system’s objectives. Characterizing the value provided by transactive system mechanism is not as straightforward as characterizing the value of a new power plant or transmission line.

Exchanging Value, Not Creating it

The transactive system is treated as a platform for exchanging value. “In the report, we argue that it's tricky to apply valuation to systems that use TS because the TS facilitate the exchange of value—they do not necessarily create new value streams,” said Don Hammerstrom, PNNL scientist and an author of the May 2016 report issued for DOE’s Offices of Electricity Delivery & Energy Reliability and Energy Efficiency and Renewable Energy. “This subtle distinction is important as we strive to compare the efficacy of some of the recently designed TS. Two TS might claim to harvest the same values, such as increasing the ability to host renewable generation, but one may do so more effectively and cost-efficiently than the other.”

The valuation methodology presented in PNNL's new report results in a series of periodic (usually yearly) monetized costs and benefits, plus a series of unmonetized benefits. Depending on the purposes of the valuation, the results are further aggregated to support decisions. Conventional economic treatments, like net present value, reduce the value of a scenario to a single monetary number. However, the methodology also recommends support decisions through selected weightings of unmonetized benefits and, where appropriate, through assessments of risk.

So, where do we go from here?

The report suggests a methodology that should be considered for valuation of grid services, regardless of whether or not TS scenarios are being studied. Any valuation study will benefit from improved transparency of assumptions and valuation processes, and the report suggests specific methods for documenting business case scenarios. PNNL continues this work, extending the study deeper into the building domain with the eventual goal of being able to simulate and compare alternative TS approaches.

PNNL Research Team: Don Hammerstrom, Atefe Makhmalbaf, Chad Corbin, Rob Pratt, Nick Fernandez, Abhishek Somani, and Juliet Homer.

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