Innovations and Decentralized Energy Markets: Technologies and Institutions for a Clean and Prosperous Energy Future

Digital technologies facilitate the coordination of energy sales between consumers in vastly different ways than in the past. In these new transactive energy systems, digital devices like smart energy meters are programmed to buy and sell electricity from other households or traditional electricity providers. This is a dramatically different system than the current utility-based model where there is one supplier of electricity that all consumers purchase from. This research first examines the potential for digital technologies to provide new services to consumers. The paper then discusses how current utility regulations prevent the use and growth of digital technologies. Finally, it suggests policy changes to encourage the use of digital energy technologies. Moving toward a transactive energy system on a broader scale will take time. The authors propose several policy changes that could clear the way for continued innovation in decentralized energy markets. They include allowing electricity rates to vary dynamically over the day based on overall demand, directing utilities away from cost-based rate setting and towards a consumer protection model that provides information on electricity suppliers, and implementing performance-based rates that compensate utilities for providing the electrical grid infrastructure that households use to buy and sell electricity. The authors find that these changes would allow innovative digital technologies to improve people’s lives by making electricity more affordable and cleaner.