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Smart Grid: A New Player In Europe’s Energy Policy Platform

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Smart Grids in the European Union Policy Landscape

Introduction

Currently, electricity is the most widely used form of energy in the world. In 2013, which is the most recent year available for data, European electricity consumption in the industry sector was 86 Mtoe, 71 Mtoe each in the service and residential sectors, and 5.5 Mtoe was consumed in the transportation sector. Although gross electricity generation from renewable energy sources is rapidly increasing, the traditional manner in which electricity is being managed is lagging behind the demand for innovative methods in energy efficiency. In fact, many scholars and policymakers have outwardly complained that most of the European Union electricity grid is completely outdated, and most of the grid infrastructure has not been updated for almost 100 years. As the European Union continues to pioneer into an era of sustainability, its basic infrastructure that brings energy suppliers and demanders together must be updated. Fortunately, the solution to this problem is gradually coming into prominence, and this solution is a Smart Grid. Smart Grids are a unique and evolving electricity supply network that uses digital communications technology to detect and respond to changes in electricity use.

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They are vital for moving forward with the goal of a European Union single energy market because they could integrate more renewable energy into electricity networks, establish a more secure energy supply, and assist in lowering prices for consumers. In order to make Smart Grids more prominent in the European Union, appropriate policies must be established. Currently, the European Electricity Grid Initiative (EEGI) and GRID+ Project under the Strategic Energy Technologies (SET) Plan is working to make Smart Grids present in every European Union member state.

Smart Grid Overview

Smart Grids are a relatively new player in Europe’s energy policy platform. First brought into prominence in 2006, Smart Grids were a part of the European Technology Platform for Electricity Networks of the Future. Its aim was to support the European Union’s Energy and Climate targets for 2020 in reducing greenhouse gas emissions, increasing the share of renewable energies, and improve energy efficiency. Smart Grids help reach all of these targets because rather than a traditional electricity grid that has centralized control, limited cross-border interconnections, and differing regulatory and commercial frameworks, Smart Grids will allow coordinated and local energy management, flexible and user-friendly energy supply, and harmonized legal frameworks that will help facilitate cross-border trading of power and grid services. Moreover, Smart Grids will be one of the most important products in fostering a more integrated European energy market. As of 2014, over €5.5 billion has been invested in approximately 300 Smart Grid projects, and about €300 million has come directly from the European Union budget.

The primary system components in Smart Grids are Home Area Network (HAN) that facilitates efficient power consumption management to all home appliances, the renewable energy that supplies to homes with electricity, the Smart Meter that communicates energy usage in real time, the electric utility center that interacts with the smart meters to regulate power consumption, and the local service providers. These components are all connected to a network that creates a digital two-way communication method between households and electric power companies that will create a more reliable power delivery at a reduced cost. On average, smart meters provide savings of €160 for gas and €309 for electricity per metering point, and an average energy saving of a total of 3%.

Although Smart Grids are gaining in public awareness, they are still not very prominent in countries’ energy utility landscapes. Currently, only 5 European Union member states (Italy, Norway, Sweden, Finland, and Denmark) are considered “early adaptors” of Smart Grids, which means that rollouts of the technology are either completed or are well under way. Italy is the most advanced member state in the implementation of Smart Grids. In 2002, the “Progetto Telegestore” initiative began, which resulted in the installation of 30 million Smart Grid meter points, which covers nearly 100% of households. Interestingly, Italy embraced smart metering to cut down on theft, rather than to empower customers and increase renewable energy efficiency; but this viewpoint is quickly changing. Other countries, such as France, Spain, and the United Kingdom, have mandated rollouts, but very limited deployment due to governments imposing strict timelines of implementation. Surprisingly, Germany is lagging behind in Smart Grid implementation. Although it has active pilot projects where thousands of meters have been installed, there are no strict implementation guidelines, so the smart meters remain unused. Despite this, companies in Germany have partnered with Google to offer customers the ability to monitor and control their electrical consumption in real time, which can enable consumers to remotely alter the status of electrical appliances, or dim lights. Most countries, especially those in the eastern bloc, have absolutely no Smart Grid infrastructure. Despite the benefits of increased energy efficiency and decrease in thefts, these countries are unable to even launch small pilot projects due to budget constraints. However, by 2020, it is estimated that approximately 72% of European customers will have a smart meter for electricity.

Rather than electricity monopolies ruled by regional utility companies, the energy market will become more liberalized by being able to more quickly respond to new electricity needs and supplies. Using Smart Grids, anybody would be able to trade energy. Smart Grids are able to adjust to changes in energy supply and demand in real time. With smart meters, consumers are able to adapt their energy usage based on fluctuating energy prices throughout the day, which both saves the consumer money and increases their energy efficiency. In addition, Smart Grids can better integrate renewable energy by combining information on energy demand with weather forecasts, which can allow grid operators to better plan the use of renewable energy into their respective grid and balance their networks. For example, if one city in Ireland, a member state with a high dependence on wind energy experiences a period of time with no wind, utilities could easily buy energy from Portugal with an excess amount of produced solar energy.

Smart Grid Challenges

Of course, there are many challenges that come with implementing Smart Grids. One of the greatest challenges comes from current technological inefficiencies. For example, electricity storage components and storage control technology might not be able to handle the volatility of renewable based electricity generation. Although energy storage is one of the most promising technologies to increase the amount of renewable energy in the grid, there are still few commercialized and available technologies that can would bring renewable energy storage to the common market. Because energy storage technology still is not well-developed, there could be many issues with storage malfunctions, which will reverse the goal of energy efficiency. There will need to be research of improved storage materials that are robust, flexible, and cost effective, in order to prevent a failure of the overall grid system. This brings up many safety and security issues reminiscent to that of the controversy of nuclear power. An extensive amount of research and development funding will have to be implemented in order to mitigate this public concern.

Another challenge is that there is a lack of universal technology standards, regulations, and incentives for smart meters. Although the Third European Energy Liberalization Package attempted to help solve this problem, member states have “Neither shared definitions for the functions that make up the various segments of the Smart Grid, nor provided a clear description of what investment incentives would be needed.” This is a substantial problem because if there are country-by-country differences in the implementation methods and capabilities of smart meters, then it will be challenging for energy suppliers in one country to willingly assist with the energy supply in other countries.

The largest and most prominent issue with Smart Grids are the potential security threats that come with a larger amount of stakeholders and wireless data transfer. Smart meters autonomously collect massive amounts of information and data to be transported to the utility company and service providers. This data includes private information that can be interpreted to infer household activities, devices being used, and times that nobody is in the home. If this information is intercepted into the wrong hands, it could lead to thousands of dollars in theft, and severely undermine the benefits that smart meters give consumers. Mitigating this problem will take a security solution that has not yet been developed for traditional IT networks, because automated grid networks have different security objectives. Creating a successful security system will take incredible amounts of time, money, and resources.

Policy Solutions

In order to solve the above problems, it will be vital for regulators and utility companies to work together to find a solution that is both economically rational and legally universal in order to maximize societal benefit. Currently, there are a few working groups and initiatives that are trying to do just that. The European Electricity Grid Initiative (EEGI) is one of the European Industrial Initiatives under the Strategic Energy Technologies (SET) Plan. The SET Plan is the overarching policy instrument that proposed a 9-year research, development, and demonstration program to accelerate innovation and the development of smart electricity networks in Europe. The primary objectives of the EEGI are to transmit and distribute 35% of electricity from renewable sources by 2020 and have a completely decarbonized electricity production by 2050. It plans on doing so by supporting the implementation of national electricity networks into a market-based and pan-European network in order to guarantee secure and quality electricity supply, as well as allowing customers to be active participants in energy efficiency.

Grid+ is a specific coordination and support plan created to provide operational support under the Strategic Energy Technology (SET) Plan. Its mission is to “Organize the networking and communication between various Smart Grid demonstration projects in Europe.” Its overarching goal is to connect national Smart Grid initiatives by mapping research, development, and demonstration activities in support of Smart Grid implementation. It will also create, monitor, and support a European-wide definition, validation, updating and Key Performance Indicators that will be used as Smart Grid infrastructure continues to be implemented. A complement to this plan is the Smart Grid Task Force (SGTF), which is a group of Smart Grid stakeholder representatives from industry, regulator, consumer groups, and the European Commission. Created in 2009, this task force has made important strides in creating an inventory of Smart Grid projects and lessons learned from them, setting guidelines for conducting cost-benefit analyses of Smart Grid projects in interested areas, and issuing a mandate for Smart Grids standards to the European Standardization Organization.

One of the most vital factors that will ensure the success of a European Union-wide Smart Grid is the complete liberalization of the energy market. If utility companies and consumers will be able to analyze energy price and quantity at any time, there must be as few barriers to being able to respond to constant energy price and demand fluctuations. Keeping a high level of competition through a revision of the traditional monopoly-based regulation of electricity supply will harbor a higher level of innovation in renewable energy production, and lower the price for consumers. The primary policy that will ensure an open market is maintaining predictable tariffs on energy trade, which will create liquid markets for the trading of energy and grid services. This will encourage finding more trading opportunities between member states, which will in turn better connect the European Union’s renewable energy use, and increase efficiency.

Conclusion

The Smart Grid is a very promising way for the European Union to fulfill their 2020 Objectives, all while perpetuating the goal of a single integrated energy market. Smart Grids connect suppliers and consumers in an interactive way by creating a network that possesses real-time data on energy consumption and price, which both increases energy efficiency and can incentivize consumers to decrease their energy use during certain times of the day. Although there are still a few issues regarding the security and technological details of Smart Grids, there are many policies that are solving the problems and making the implementation of Smart Grids in every European Union member state as economic and secure as possible. Smart Grids hold the future of a liberalized common European market where renewable energy use can flourish, but this future will definitely still take time.

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