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?