Transactive Energy Versus Demand Response in Cutting Wholesale Electricity Prices

In regions with deregulated electricity markets, energy utilities forecast and purchase the energy demand of their power consumers from wholesale electricity markets. To promote transparency for consumers, time-varying tariffs are implemented by energy utilities so as to notify the consumers about the true cost of their power consumptions. As a result, demand response programs are developed to help the flexible loads in lowering their electricity costs, and to help the power grid in lowering peak of power consumption and wholesale price of electricity. However, demand response programs are not capable of unlocking the full potential of flexible loads in responding to the circumstances of the power grid. That is because, proliferating distributed energy resources cause rapid fluctuations in the power consumptions of distribution systems, which are not reflected in five-minute updates of wholesale prices. Therefore, these fluctuations cannot be compensated for by the reaction of the flexible loads. To address this shortcoming, the transactive energy is emerging as a new paradigm, which includes a power distribution market that runs on a moment-to-moment basis and enables real time transactions of energy between power consumers. In this paper, the transactive energy framework is compared to the demand response framework in cutting the wholesale electricity price. Using the IEEE 9-bus system as a power transmission system and the IEEE 33-bus system as a power distribution system, it is numerically shown that the transactive energy framework comes with a 240 % advantage over the demand response framework in reducing wholesale price of electricity.