Pioneering Smart Electricity Systems

The Challenge

The Global Environment - Pioneering Smart Electricity Systems

The nuclear catastrophe in Japan in March 2011 radically changed many preconceptions around the world about energy for the future. Before then, many countries with nuclear power plants sought a constant or rising share of nuclear energy in the mix, while today the future of nuclear energy is unsettled. At the same time, the threat of climate change requires restrictions on the use of fossil fuels such as coal for electricity generation.

In the face of this dual challenge, severe cuts in the global use of conventional electricity sources are regarded as inevitable. The hope of policy-makers, environmentalists and entrepreneurs rests on electricity demand management. According to this concept, electricity demand could be shifted by an external system operator, making it possible to shift electricity load from peak hours to off-peak hours and to save idle capacity. In addition, demand could be adapted to fluctuating electricity supply from renewable sources.

But a precondition for electricity demand management is adaptation of the electricity grid to allow for bidirectional communication between the operator controlling electricity sources and grid stability on the one hand and the electricity sinks on the other.

Bidirectional communication within a “smart grid” is not a mere technical specification. It is a gateway for new players in the electricity market (including, for example, technology companies and manufacturers of electrical appliances) and a challenge for the existing market structure. It requires regulation that is just as “smart” as the new electricity market.

Which concrete technical obstacles hinder the development of electricity demand management and “smart grids” that allow for bidirectional communication? What investments are necessary for this purpose? Can these investments be left to private companies or will public finance be necessary?

How will new players in the electricity markets challenge the business models of established incumbents? How can the transition of electricity markets foster increasing competition and efficiency? What is a socially desirable regulatory framework for these new markets? How can suppliers of electricity and “smart” appliances get end users on board? What tariff structure could provide the appropriate incentives for private households?

Which value added services of smart metering can be promoted? How can the communication structure of a “smart” electricity system be protected against cyber-crime? How can consumer concerns about data privacy be addressed?

Find out more about Pioneering Smart Electricity Systems in the Virtual GES, the web-based knowledge center of the Global Economic Symposium.

Find selected literature on Pioneering Smart Electricity Systems at the Econis Select database of the ZBW.

Confirmed Speakers

• Academia: Jean-Michel Glachant, Director, Florence School of Regulation; Holder, Loyola de Palacio Chair at the European University Institute, Florence
• Academia: Christof Weinhardt, Professor for Information Management and Systems Karlsruhe Institute of Technology (KIT); Founder and Director of the Karlsruhe Service Research Institute at KIT
• Business: Gabriele Riedmann de Trinidad, Head of the Group business area for Energy, Deutsche Telekom
• Business: Graham Weale, Chief Economist, RWE
• Moderator, Media: Fiona Harvey, Environment Correspondent, Guardian

GES Session Organizer(s)

• Sebastian Petrick, Reseacher, Kiel Institute for the World Economy
• Angela Kopmann, Reseacher, Kiel Institute for the World Economy

Session Experts:

• Christian Growitsch, EWI Köln
• Maximilian Auffhammer, UC Berkeley
• Herbert Jacobs, ESN EnergieSystemeNord GmbH

Proposed Solutions

by Angela Kopmann and Sebastian Petrick

Fostering the large-scale implementation of smart meters through suitable regulation

Smart meters are electrical meters that are able to communicate information on electricity consumption back to the operator. The wide-spread installation of smart meters at electricity sinks is one necessary precondition for the implementation of end-user-producer-communication. Accordingly, regulation to incentivize or stipulate their installation is a central puzzle piece of the full smart grid picture.

Establishing uniform technical and regulatory standards

Uniform technical and regulatory standards within and across national borders will improve the efficiency of smart electricity systems and enhance the impact of smart electricity distribution. Differing interests of market participants and individual countries require that regulators, governments and supra-national organizations work together on the development of international agreements. A fair distribution of incurred costs and necessary investments among all players will be a precondition for these agreements to be generally accepted.

Introducing suitable tariffs as incentives for load shifting by consumers

Tariffs are the main instrument for incentivization of consumers to shift consumption from peak demand to off-peak demand hours as well as from hours with low electricity supply to those with high electricity supply. Incentives can already be established with simple tariffs that discriminate between fixed hours e.g. day or night in a first step. As soon as technical requirements are met, complex tariffs that allow for real time control of variable demand could be introduced. Politics could foster this by imposing a dynamic electricity tax – higher if load demand is above mean load and lower if electricity consumption is below mean load.

Marketing “smart” appliances

In the long run, variable tariffs and smart meters are most effective if combined with appliances and machinery that can be controlled by the operator (with the end-user’s consent). So far, these appliances are not widely marketed, although the necessary technology is generally available. The same is true for equipment in the commercial sector. A starting point could be to let market forces take over: Producers might see the potential as soon as smart electricity grids are installed and the use of smart appliances and machinery is possible and also demanded at a larger scale. Introducing smart appliances as well as smart meters and tariffs is a classical chicken-and-egg problem – one is not possible without the other and an initial spark is needed to kick off the process. Since the construction of smart appliances is even more a decentralized task than the development of variable tariffs and the installation of smart meters, the latter one should be given priority by central players like utilities for that market mechanisms can take over and advance the marketing of smart appliances.

Please join the discussion and propose your solution via the discussion tab at the top of this page.