The Smart Grid term is widely used and misused. Because it encompasses a wide range of issues, providing a concise, precise definition is not simple. This position paper sets out to explain our understanding of the concept: what it is and what it is not. It also describes important technologies and some of the risks and challenges associated with Smart Grid implementation.

Electric power is a fundamental utility in modern society. Power systems today are based on technology that was mainly developed for one-way power flows from large power plants to generally passive customers at the receiving end of the network. Making grids ‘smarter’ will help to alleviate many of the challenges that power systems are currently facing and that will occur with increasing frequency in the future, such as variable-output renewables, distributed generation, electric vehicles, under-investment in grid infrastructure, and more.

Looking ahead, implementation of Smart Grids is expected to bring along large investments in the power system sector. The key risk is that the costs of implementing the Smart Grid will outweigh the benefits. Many of the technologies that will be part of the Smart Grid are presently immature and need to climb significant learning curves. There is therefore a risk of stranded costs, due to high cost investments in an immature technology at a too early stage.

The lack of protocols and standards for the new ‘smart’ components means that there is a risk that investments may be made in equipment that is unable to interact with other critical components. Secure and safe IT communication and advanced software is essential for the current power system and will be significantly more important in the future Smart Grid.

Indeed, significant challenges lie ahead before any power system can be called a true ‘Smart Grid’. The challenges are spread across the electricity supply chain and solving these will require a great deal of new thinking. In order to encourage the power sector to transform, work should also be directed towards changing the regulatory environment that presently does not reward utilities for adapting and promoting new technology.

The Smart Grid – what it is and what it is not