Developing Europe’s smart grids

Among other improvements, these will have the in-built intelligence to manage the intermittent flow of electricity from renewable sources, allow consumers to keep a far better check on how much electricity they are using, and enable utility companies to take a more refined approach to load management.

Creating these smart grids requires a range of information and communication technologies to be layered over the current passive networks to ensure the electricity system of the future – from power generation, through transmission and storage, to intelligent final use – works as efficiently and dynamically as possible.

The European Commission’s recommendations for smart grid implementation call on governments to establish common minimum specifications for smart meters by the end of this year and to draw up a coherent timetable for their rollout. The Commission is enthusiastic, citing estimates that ICT-enabled improvements (outside of the ICT sector itself) could save about 15 per cent of total carbon emissions by 2020. It says smart metering devices would cut household energy bills by 10 per cent.

But capturing these benefits in full is complex because it involves co-ordinating a variety of players – from the utility and telecommunications industries and investors in renewables, to government ministries, energy regulators and industrial and domestic consumers. While much of the necessary technology is available today, market forces alone won’t ensure optimal deployment: no single group is sufficiently incentivised to make the necessary investments because the benefits won’t be evenly distributed.

“In terms of technology, 80-85 per cent of what is needed already exists, although often as individual products that are not connected up to reap all the benefits,” said Keith Redfearn, general manager for GE Energy’s European transmission and distribution business. “What’s important here is for government and regulators to ensure the right level of investment.”

Across Europe, enthusiasm for smart grids is booming. Italian utilities, led by Enel with a €2.5 billion investment project started in 2001, have installed 31 million digital meters and the systems to manage them remotely. The German Federal Ministry of Economics and Technology is co-ordinating implementation of six smart grid demonstration projects by leading companies in the E-Energy Project. The UK government wants all homes to be equipped with smart meters by 2020 and France, Ireland, the Netherlands, Norway and Spain are also projected to achieve nearly 100 per cent smart meter installation in the next 10 years.

Sebastian Knab, a project manager for energy and innovation management at the European Center for Information and Communication Technologies in Berlin says there has been a “huge increase” in interest in his work. “Lots of different stakeholders are interested in smart grids because they see the benefits,” explains Knab, who is also a PhD student at the Technical University of Berlin’s department of sustainable electric networks and sources of energy. “The problem is that no-one has enough of the benefits to do all the investments. So they all need to work together. The world of telecommunications and ICT is totally different from the utilities. They really have problems working together, especially in innovation.”

The smart grid concept encompasses a diverse spectrum of technologies, applications and solutions that will vary by country, regional characteristics and stakeholder priorities (cutting emissions, increasing security of supply, boosting energy efficiency or renewable energy sources, etc.). In essence, it will involve the transition from a passive, inflexible and centralised electricity system to one that can actively integrate the changing behaviour of all users – generators, consumers and those who do both. Existing infrastructure was not built to handle renewable and other distributed power generation where the output can’t be predicted or centrally planned.

For example, smart grid technologies could enable better load management, allowing a power company to run cleaner power sources such as hydroelectric, wind or solar instead of carbon-emitting plants to meet peak demand. Reducing variability in demand, through smarter end-use, could also reduce the number of new power plants that need to be constructed.

“We are currently discussing across the value chain on these issues,” says Gunnar Lorenz, head of the networks unit at Eurelectric, the European electricity industry association. “The ICT and telecoms industries are already quite active. More could be done, but it is clear that not all actors have the same interests.”

But alarm bells are already ringing. The UK energy regulator warned this month that up to £200 billion of investment may be needed over the next decade to upgrade aging infrastructure, find alternative sources of energy to replace North Sea gas and reduce carbon emissions. The report by the Office of the Gas and Electricity Markets (Ofgem) warned companies may be reluctant to make much of these investments because they involve riskier activities, including smart grids and renewable energy. Ofgem is not alone in voicing these concerns. The authority sounded out 55 organisations and people, including utilities, academics and environmental organisations, about an earlier draft of its outlook. The majority told Ofgem it was not pessimistic enough.

One issue Ofgem highlighted focuses on the technology that could help consumers change their consumption habits if they have devices in the home or office to tell them when electricity is more expensive. There are barriers to providing the necessary price signals for this so-called demand-side management, Ofgem said. It identified barriers to integrating renewable and distributed generation, citing uncertainty over the cost of carbon, a lack of awareness, shifting from a centralised electricity system and regulatory issues.

“It is important to have high-level strategy from government and regulation throughout the electricity sector but regulators need a more strategic and holistic view,” GE’s Redfearn says. “That has not been the case to date.” Ofgem, “is starting to get the idea,” he says.

The Brattle Group, a Washington, DC-based consultancy, recently highlighted how smart meters could either be a money-losing investment or bring significant economic benefits. It estimated that installing smart meters in the EU would cost €51 billion and yield direct, operational savings of only €26-41 billion. Dynamic pricing, such as real-time or time-of-use pricing, could bring extra benefits in the order of €14-67 billion, depending on adoption rates.

Italy is a pioneer in dynamic pricing and will this year switch all domestic consumers to a system with higher daytime electricity prices and lower charges at night and the weekends.