*The smart grid is coming. Hermione Crease explains what utilities need to be doing now to ensure it fulfils its enormous potential.*

The smart grid is set to change the energy world as much as the internet changed communications. A smart grid is a network that uses information technology to deliver electricity efficiently. It has a number of characteristics that differentiate it from the existing grid, including: enabling greater customer participation and energy storage; improving network resilience; and supporting large-scale low-carbon generation by addressing intermittency issues, particularly variable and unpredictable outputs.

All these qualities will aid operational efficiency for the electricity system as a whole, as well as for individual companies, who will benefit from greater asset optimisation across their portfolios.

*Triple system rollout*

Building an intelligent, interconnected network is by no means a straightforward proposition. It has a lengthy ingredients list and requires extensive deployment of hardware and software to make it work. This is best seen as the rolling out of three distinct systems, although there are interdependencies between all three.

*Household:* The most obvious component at this layer is the smart meter. Smart meters are vital to the wider smart grid because they are the channel through which suppliers and customers communicate. This two-way exchange of information will enable customers to be more proactive participants in the energy system. We can also expect to see some form of demand-response technology, where the energy consumption of power-hungry appliances in participating households is automatically reduced or adjusted based on real-time energy information communicated through the smart meter.

*Distribution.* Advanced control systems and sensors need to be deployed in substations and wires to improve system resilience and allow it to integrate distributed low-carbon generation from households and businesses. There is also a new element to the distribution layer that needs to be built: the communications network. Operating in parallel with the electricity grid, this network will distribute data between all elements of the intelligent grid. It is possible that every smart meter could have its own IP address, and that IP will become the de facto communications protocol. But whatever the final design, the communications infrastructure will need to be protected from viruses, malware, denial-of-service attacks - in fact, from all the threats faced by any other communications network.

*Software.* Enterprise level software is required to present, interpret, analyse and react to the huge amount of data flowing through the system (see box on page 16, Data deluge). Utilities' back offices will need to be integrated with billing and asset management systems to ensure that customers see the benefits of their response to changing price signals, and that the network is operating at a level to support and respond to fluctuating requirements.

Yet the biggest challenge is that all these elements need to work together. Building a smart grid requires choices to be made, and there are a multitude of interdependencies that must be identified, understood and negotiated.

*Interoperability*

There are plenty of opportunities for standards to be drawn up and implemented to ensure interoperability, since no single provider will deliver all elements. However, this in itself is fraught with potential danger, since there are plenty of ­opportunities for the law of unintended consequences to come into play. Standardise at the wrong layer, or for the wrong piece of individual equipment, and the smart grid may lose some of its fluidity and flexibility, hindering potential growth in the future. Only one thing is certain: the functionality we put in place now is only the start of a whole swathe of potential applications in the future.

*Costs and benefits*

Aside from these technical issues, there is also the thorny issue of cost. Consumers still appear opposed to the introduction of smart metering - never mind the smart grid - almost certainly because of fears that the costs involved will result in big hikes in energy bills.

The benefits have been well recorded. Consumers will have a clear picture of their energy usage and hence the information they need to change the way they consume to save money. Utilities will see efficiencies and cost savings from reducing periods of unprofitable down time, fault elimination, unmanned intervention and asset utilisation.

But these early pickings are probably not enough to justify the expense. Italy has already spent €2 billion (£1.8 billion), but that was simply on installing smart metering rather than the whole grid. The $4 billion (£2.5 billion) the US has set aside for smart grid initiatives is close to the sum required to buy a smart meter for every house, and leaves little for strengthening networks and promoting standardisation.

*New business models*

Generally speaking, estimated costs have not taken into account utilities' desired return on investment. Companies will need to investigate ways of building new relationships with consumers, and find ways of using the enhanced, enterprise-level information that they are able to generate to create real value. Moreover, utilities will need to look at new business models in response to the huge changes prompted by the advent of a smart grid.

The government is investigating smart grid options. It would be wise to look at the successes and failures of experiences abroad. The US is probably the closest to having a finalised version of a smart grid, and Texas - the biggest wind power generator of all states - in particular has benefited from incorporating demand-response technology to ensure that its substantial wind resources are efficiently used. The Texas Panhandle, well known for its windy conditions, is home to 2,000 wind turbines. One night in February 2008, grid operators panicked when the wind tailed off and the turbines ground to a halt. The resultant drop in power threatened to cause an electricity blackout across the state. However, demand response kicked in to save the day, adjusting electricity consumption in response to this supply emergency by temporarily dimming lights and shutting down refrigerators.

Despite the challenges, the smart grid will transform the way energy is produced, bought, sold and consumed. Once in place, we will look back and, just like modern technology in almost every other sphere, we will scratch our heads in wonder at how we ever coped without it.

Hermione Crease is marketing and communications manager at energy technology specialist Sentec.