Smart Grids (Introduction)

Smart grid technologies—an introduction.


This introduction to smart grid technologies provides a comprehensive yet accessible overview of modernized electricity networks for non-specialists. It is one of a series of academically reviewed publications by the A.T. Kearney Energy Transition Institute, a non-profit energy transition research organization established in 2011.

This FactBook highlights the challenges raised by the traditional grid and smart grid opportunities:

  • Identifies key smart-grid technologies and categorizes them by applications
  • Appraises the status of smart-grid deployment
  • Assesses the economic and environmental benefits of smart-grid rollouts
  • Identifies select policies for successful adoption

Electricity grids need to be modernized to meet growing demand and integrate new applications

Power grids, which bring electricity to 85% of the world’s population, are arguably one of the most important engineering achievements of the 20th century. Today’s grids, century-old by design, were built to accommodate centralized generators, unidirectional electricity transport through high-voltage transmission lines, dispatch to consumer via lower-voltage distribution lines, and centralized control centers collecting information from a limited number of network hubs called substations.



The goal of a power grid is to optimize, for a given combination of generation capacity and demand patterns, the reliability of power supply (the frequency and extent of outages), the quality of power supplied (in terms of voltage signal shape, frequency, and phase angle), and its affordability.

Today’s grids are facing four principal problems and these are growing in severity. First, global electricity demand is rising faster than demand for any other final energy source. In addition, the electrification of the economy intensifies end-user demand around peak hours, stressing grids and making rapid expansion a necessity. Second, aging infrastructure tends to compromise reliability of power supply and exacerbate energy losses to the detriment of economies undergoing rapid electrification. Third, as the share of variable renewable energy (VRE) in the energy mix grows, the power grid will need to become more flexible to match supply and demand in real time. Finally, as the penetration of distributed generation (DG) rises to very high levels in some areas, issues relating to power quality and bi-directional electricity flows arise that cannot be properly managed by traditional grids.

A smart grid refers to a modernized electricity network that monitors, protects, and optimizes the operation of its interconnected elements

The notion of grid modernization differs from country to country, depending on the smartness of the existing system. However, notwithstanding such differences, smart grids are generally characterized by the use of digital information and communications technologies to manage both the bi-directional flow of data between end users and system operators, and the bi-directional flow of power between centralized and decentralized generation.



The goal of such a modernized network is to address grid challenges at a minimal cost. It should be able to accommodate all generation and storage options, optimize energy efficiency and asset utilization, improve power quality for end-user devices, self-heal, resist physical and cyber attacks, and enable new business solutions in a more open-access electricity market, such as demand-response programs and virtual power plants.

Beyond incremental changes in traditional grids, smart grids facilitate the expansion of independent micro-grids that are capable of “islanding” themselves from the main grid during power-system disruptions and blackouts. The modular nature of micro-grids may allow for their independence, interconnection, and, ultimately, the construction of a new type of super-reliable grid infrastructure.

Smart-grid technologies can be segmented into three main applications for addressing grid challenges

The transition to a smart grid requires the deployment of new power infrastructure, along with various kinds of devices, such as electronic sensors and computer systems, throughout the electricity network and their interconnection via high-speed communications networks using standardized protocols. This FactBook covers the most important smart-grid technology solutions, which can only achieve their intended benefits – the three main smart-grid applications – when integrated together.

The first application involves the optimization of grid monitoring and control, with advanced sensors and IT solutions interconnected via modern communications networks in wide-area monitoring and control (WAMC) or distribution automation (DA) systems. Such systems enhance control over dispatchable power plants, improve routing of electricity flows, anticipate demand patterns or grid weaknesses by virtue of predictive algorithms and condition-based maintenance, and react automatically to incidents threatening the reliability of power supply with the use of smart reclosers, which enable distribution grids to be self-healing.

The second purpose of smart grids is to enable consumers to contribute to grid management through the medium of intelligent end-user devices. Combining advanced metering infrastructure with smart appliances makes dynamic demand-response programs possible. These can contribute to system flexibility (in addition to peaking power plants or electricity storage) to compensate for fluctuations in VRE output or to flatten out aggregated peak loads. Bi-directional smart meters enable net metering and vehicle-to-grid programs that incentivize individual customers to become local suppliers of power and storage capacity. In addition, automated meter readings reduce the operating costs of distribution-system operators and provide greater visibility into pilferage.

The third principal aim of smart-grid technology is to enhance the physical capacity of the network. Ultra-high-voltage lines, direct-current underground cables, or superconductors transport more power with lower energy losses and a smaller visual footprint than conventional power lines. These new technologies could be especially effective in connecting remote offshore wind farms to distribution grids or interconnecting asynchronous grids. Finally, it would also be possible to adjust dynamically the maximum admissible power throughput of transmission lines by installing special temperature sensors along them. This would allow the deferral of expensive and sometimes controversial grid-extension plans.



Smart grids promise numerous economic and environmental benefits, provided social acceptance and cybersecurity issues are thoroughly addressed

It is estimated that a smart-grid rollout would generate net economic and environmental benefits in all regions where studies have taken place, although impacts are difficult to quantify. The U.S.’ Electric Power Research Institute (EPRI) estimates that the benefits for U.S. society as a whole would outweigh its costs by a factor of between 2.7 and 6. Restricting the scope to electricity-grid stakeholders, the International Energy Agency (IEA) estimates the ratio to be between 2 and 4 in OECD countries, and between 3 and 4.5 in China.

Although environmental sustainability is not the primary driver behind the adoption of smart grids, they help greenhouse gas emissions both directly (through energy savings) and indirectly (by encouraging the development of electric vehicles and renewables). The IEA estimates that smart grids could contribute to 4% of cumulated CO2 emissions-reduction efforts until 2030 in the lowest-cost pathway toward the 2°C target.

The concept of a smart grid relies to a large extent on active consumer participation and, for this reason, requires social acceptance. As future electricity grids will collect, communicate, and store operational and private data, the issues of cybersecurity, data protection, and data sharing must be carefully addressed.

Smart-grid technologies are attracting investor interest, but proper regulation and collaboration in standardization and best practices are vital to successful deployment

Global annual investments in electricity grids amounted to $218 billion in 2014 and are growing by 4% a year. Smart-grid technologies currently represent 20% of these investments ($44 billion), or $16 billion if the scope is restricted to digital energy technologies. Smart-grid investments are expected to grow by 5% a year until 2020, led by digital energy (9% a year), due in particular to rapid smart-meter rollout: 100 million units were installed in 2014, and the penetration rate globally is set to increase from 22% to 40% in 2020.

In addition to technology deployment, private investors' interests in smart-grid RD&D intensified after 2008, following announcements of support from the U.S. DOE ($4.5 billion committed) and EU (€3 billion already allocated). Although raised funds have stabilized since 2011, venture capitalists remain highly interested in digital-energy technologies, which comprise one of the most coveted clean energy investments – behind only solar PV – in terms of numbers of deals (35) and funds raised ($200 million) in 2014.

If smart-grid investments are mostly borne by system operators, benefits are spread among many parties (including customers and all citizens, if environmental benefits are considered). Yet as electricity markets evolve and monopolies break up, the design of smart-grid business models is becoming more complex. Therefore, carefully planned regulation is required to encourage smart-grid rollouts. Finally, standards covering interoperability, compatibility, and industry best practice are among the most crucial prerequisites for smart-grid deployment in avoiding the premature obsolescence of smart-grid devices.


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