Context and background
Smart Grids are a key component of the European strategy toward a low-carbon energy future. Significant investments need to be mobilised. A fair allocation of short term costs and long term benefits among different players is a precondition for reducing uncertainties and incentivise investments. In this context, we have defined a comprehensive assessment framework of Smart Grid projects centered on a cost-benefit analysis (CBA).
Our role and products
For more than a decade, we made efforts towards identifying, defining and applying assessment strategies and approaches for optimal decision-making on smart electricity systems. More in detail, we informed the policy decision making through the following studies and products:
- Guidelines for cost-benefit analysis of smart grid projects. We developed a comprehensive assessment framework of smart grid projects centered on a cost-benefit analysis. Our general approach aims at integrating an economic analysis (monetary appraisal of costs and benefits on behalf of society) and a qualitative impact analysis (non-monetary appraisal of non-quantifiable impacts and externalities, e.g. social impacts, contribution to policy goals).
- Guidelines for cost-benefit analysis of smart metering infrastructure. To measure cost effectiveness, EU countries conducted cost-benefit analyses based on guidelines we contributed to develop.
- Comparison of international assessment approaches and frameworks. In particular, we partnered with US, Chinese and Brazilian actors to find synergies and differences in our evaluation methodologies and identify strengths and weaknesses.
- We also collaborate with ISGAN - International Smart Grid Action Network to develop a global framework and related analyses that can identify, define, and quantify in a standardized way the benefits which can be realized from the demonstration and deployment of smart grids technologies and related practices in electricity systems.
- Analyses on smart grid projects of common interest. We developed a multi-criteria assessment framework including: a) a checklist to verify that project proposals meet the requirements set out by the Regulation; b) a techno-economic assessment based on Key Performance Indicators able to capture the key features of each project; c) a Cost Benefit Analysis of each project.
Main publications
2018 - Cost-benefit analysis of Smart Grid projects: Isernia: Costs and benefits of Smart Grid pilot installations and scalability options
Smart Grid pilot projects and their assessment through a cost-benefit analysis are crucial to ensure that Smart Grid and Smart Metering roll-out are economically reasonable and cost-effective. Analysing the Isernia pilot project, the key result of the investigation is that an extra remuneration for such ambitious projects has been crucial in turning the Distribution System Operator’s Return on Investment (RoI) positive.
2015 - A Smart Grid for the city of Rome: A Cost Benefit Analysis
In this work, the JRC applies its Smart Grid CBA methodology to a full-scale project rather than only to a small-size demonstrative one. To this end, the JRC and ACEA - one of Italy’s biggest Distribution System Operators (DSOs), in charge of managing the distribution system of Rome - teamed up to study the merits of deploying Smart Grid technologies (preliminarily tested in a pilot project) in a big city like the Italian capital, hosting several million electricity users.
The ACEA Smart Grid Pilot Project (named "Malagrotta" after the area where pilot solutions were first realised) is the starting point for this study, as it displays many of the characteristics of emerging Smart Grids projects and interconnects several diversified generation facilities (like biogas, waste-to-electricity and PV plants) and consumption centres.
This study illustrates the outcome of the application of the JRC Cost Benefit Analysis (CBA) to a) the ACEA Smart Grids pilot project; and b) the planned deployment of Smart Grid technologies (tested in the ACEA Smart Grids pilot project) to the whole of the city of Rome. The CBA is conducted from both the private investor’s and the societal perspective, in order to assess whether scaling up the Smart Grid pilot project benefits the distribution operator and the citizens.
Finally, this report shows how the JRC's CBA methodology can be effectively used to assess the financial and economic viability of real Smart Grids projects and help the investment decisions of DSOs.
2012 - Guidelines for conducting a cost-benefit analysis of Smart Grid projects
Following the inventory of Smart Grid projects carried out by the JRC in 2011, the goal of this report is to provide guidance and advice for conducting cost benefit analysis of Smart Grid projects. We present a step by step assessment framework based on the work performed by EPRI (Electric Power Research Institute) on cost-benefit analysis and provide methodological guidelines and best practices. Modifications to fit the European context have been proposed wherever necessary. This work draws on the existing collaboration between the European Commission (EC) and the US Department of Energy in the framework of the EU-US Energy Council.
A European Smart Grid project has been selected from the JRC catalogue and used as a case study to test and illustrate the proposed assessment framework. The analysis is supported by a thorough reference to existing literature on cost-benefit analysis and on concrete results of available cost-benefit analysis carried out on the field.
On the basis of this exercise, we provide guidelines to tailor assumptions to local conditions, to identify and monetize benefits and costs, and to perform sensitivity analysis of most critical variables. The report also discusses the identification of indirect benefits (externalities) and social impacts that can result out of the implementation of Smart Grid projects but that cannot be easily monetized and factored in the cost-benefit computation.
2012 - Guidelines for cost benefit analysis of smart metering deployment
The present document provides a methodological framework for conducting a cost-benefit analysis of smart meter deployment. The assessment framework is structured into a set of guidelines to tailor assumptions to local conditions, to identify and monetize benefits and costs, and to perform sensitivity analysis of most critical variables. It also provides guidance in the identification of externalities and social impacts that can result from the implementation of smart metering deployment but that cannot be easily monetized and factored into the cost benefit computation.
This document is mainly intended to support Member States in fulfilling the provisions of the 3rd Energy Package on CBA of smart metering deployment.