Smart grid costs, benefits and impacts

Background and context

Smart and digital grids are enablers of the European strategy toward a low-carbon energy future. Their deployment requires that significant investments are mobilized.

What is for consumers in this digital grid revolution? Why market players should invest resources on technologies and solutions for renewed power system configurations? Who are the beneficiaries of smart electricity system developments? How winners and losers can be anticipated in the changing regulatory framework? What are the instruments and methodologies to capture all the possible benefits and costs?

In order to gauge the implications of the anticipated paradigm shift for the electricity system, new reference architectures and assessment methodologies shall be developed to properly capture the interactions between the different actors and technologies to value and allocate the costs and benefits of such transformation. A fair allocation of (predominantly) shorter term costs and (generally) longer term benefits among different players is a precondition for reducing uncertainties and incentivise investments. 

Specific provisions in the Third Energy Package foster smart meter deployment wherever benefits outweigh costs. The 2016 Clean Energy Package proposal goes beyond this and states that all consumers should be entitled to request a smart meter from their suppliers.

Our role

Against this background, over the last seven years, 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.
  • Guidelines for cost-benefit analysis of smart metering infrastructure. The EU aims to replace at least 80% of electricity meters with smart meters by 2020 wherever it is cost-effective to do so. To measure cost effectiveness, EU countries conducted cost-benefit analyses based on guidelines we contributed to develop.
  • Examples of applications to smart electricity projects and demonstrators. We applied our assessment approach to smart grid pilots and larger scale projects (e.g. covering the whole city of Rome).
  • 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. 
  • 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.

2018 - Cost-benefit analysis of Smart Grid projects: Isernia

This report presents the results of the application of the JRC cost-benefit analysis methodology to the ENEL smart grid project in Isernia. The Isernia project was chosen for the wide range of smart grid technologies covered in a real-world user environment. The project, which is funded by the Italian regulator, started in 2011 and ended in 2015.

The goal of this report is twofold: a) to gather insights on the real costs and benefits of a smart grid pilot project, including the societal ones, collecting crucial information for replication at large scale of the solutions tested; and b) to continue implementing the JRC cost-benefit analysis methodology on real projects, in order to build a solid case for its application to the most diverse smart grid projects as a decision-making tool for public and private investors in smart grid.

In addition, useful metrics to monetise smart grid benefits have been provided in this report, thus contributing to the definition of evaluation criteria that could be used in further applications.

2018 - Smart (Electricity) Grids for Smart Cities: Assessing Roles and Societal Impacts

This paper first discusses the main impact that smart grid deployment has, in  different  respects, in smart cities and then presents a methodology for an extended cost benefit analysis, able to go beyond the strictly financial aspects. It is based on previous developments at the European level.

Smart energy and electricity networks are a crucial component in building smart city architectures; their consistent and harmonized inclusion in the smart city design should be carefully considered through a detailed analysis of the impacts (environmental, energy, economic, societal) and the implementation of cost benefit analysis, not only in terms of managing the grid itself but also in a wider perspective that includes environmental, security, and social aspects.

The methodology conceptually illustrated can  naturally be extended to the assessment of proposals for the development of smart cities.

2017 - Assessment framework for Projects of Common Interest in the field of Smart Grids

This report presents an update of the assessment framework to evaluate smart grid projects of common interest, in line with Regulation (EU) 347/2013 on guidelines for trans-European energy infrastructure. In this context, every 2 years the European Commission establishes an EU-wide list of projects of common interest (PCIs), consisting of key energy infrastructure projects in the EU. These are essential for deepening the interconnection of Europe's internal energy market and reaching the EU’s energy policy objectives of affordable, secure and sustainable energy.

The assessment framework for smart grid PCI candidates is based on Annex V to the Regulation and it consists of: i) a checklist to verify project compliance with the general criteria, set out by the Regulation in Article 4(a) and (c); ii) a cost–benefit analysis to argue the economic viability of the project; and iii) an analysis based on Key Performance Indicators (KPIs) for evaluation of the non-monetary impacts. The assessment methodology is intended to guide project promoters in preparing their project proposals and assist the Smart Grid Regional Group in proposing smart grid projects of common interest.

2016 - Benefit Analysis of Smart Grid Projects: White Paper 2014-2016

This paper, whose European section was authored by the JRC, reviews and compares the US, Chinese and European approaches towards assessing benefits of smart grid pilot projects. It analyzes the three experiences to highlight their differences, advantages, and disadvantages. In the U.S., projects at two sites are assessed: the University of California, Irvine campus (UCI); and the Navy Yard (TNY) area in Philadelphia. In China, we cover several smart-grid aspects of the Sino-Singapore Tianjin Eco-city (TEC) and the Shenzhen Bay Technology and Ecology City (B-TEC). In Europe, we look at a benefit analysis of a pilot smart grid project in the Malagrotta area west of Rome, Italy.

The Irvine sub-project benefit analyses use the U.S. DOE Smart Grid Computational Tool, which is built on methods developed by the Electric Power Research Institute (EPRI). The TEC sub-project benefit analyses apply the Smart Grid Multi-Criteria Analysis developed by the State Grid Corporation of China based on the analytic hierarchy process with fuzzy logic. The B-TEC and TNY sub-project benefit analyses are evaluated using new approaches developed by those project teams. The JRC, instead, tailored an approach similar to EPRI's to the Malagrotta distribution grid case.

2015 - A smart grid for the city of Rome

This report, drafted by the JRC in collaboration with Rome's electricity Distribution System Operator (ACEA, now Areti), assesses the merits of deploying smart grids all over the city of Rome. For the first time, the JRC's Smart Grid Cost-Benefit Analysis (CBA) has been applied to a full-scale smart grid urban project, rather than to a small-size pilot only. The overall outlook for Rome's smart grid project turns out to be positive from both the private investor’s and the societal perspective. This report shows how the JRC's smart grid CBA methodology can be used to assess the financial and economic viability of real Smart Grids projects and help the investment decisions of Distribution System Operators.

The ACEA Smart Grid Project tests novel automation, monitoring and remote control solutions on different sections and voltage levels of the distribution grid. The project includes three sub-projects: Automation; Medium/Low voltage Monitoring; New Network Management Criteria. After a preliminary analysis of the pilot project in the district of Malagrotta (Rome), the study extends its focus to the whole grid of Rome, which connects more than a million electricity users. The CBA is conducted from both the private investor’s and the societal perspective, followed by a comprehensive sensitivity analysis to test the robustness of the results to variations (especially adverse) in the influential parameters.

2014 - Assessment framework for projects of common interest in the field of smart grids

This report presents the methodology elaborated by the JRC within the Smart Grids Task Force, Expert Group on Smart Grid Infrastructure Deployment (Expert Group 4).

The Regulation 347/2013 on guidelines for trans-European energy infrastructure provides for the establishment of a EU-wide list of "Projects of Common Interest", a label identifying key energy infrastructure projects in EU. Within this framework, Expert Group 4 had the mandate to define an evaluation framework for project proposals in the field of smart grids.

On the basis of its experience on Cost Benefit Analysis of smart grid projects, the JRC 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.

2013 - Evaluation of Smart Grid projects within the Smart Grid Task Force

This report presents the outcome of the evaluation of smart grid energy infrastructure project proposals carried out by Expert Group 4 (EG4) of the Smart Grid Task Force. This process was carried out using the assessment framework developed by EG4 for Projects of Common Interest (PCI) in the field of smart grids. This latter and the present document shall serve as guidance for the regional groups when proposing and reviewing PCI, under the trans-European energy infrastructure Regulation (EU) 347/2013.

Project promoters will be asked to demonstrate the project’s economic viability and cost-effectiveness in accordance with the trans-European energy infrastructure regulation (Art. 4(1) (b)), by explaining how potential benefits will outweigh the project costs, and will support their case with a societal cost-benefit analysis (CBA) and qualitative appraisals of benefits that cannot be reliably monetised.

Fulfilment of the technical requirements is a precondition for further evaluation of a project proposal, according to the policy and economic criteria.

2012 - A business case for smart grid technologies: a systemic perspective

In this paper, we present a systemic perspective aimed at establishing technical and economic synergies that may improve the business cases of individual different Smart Grid technologies and contribute to reverse the consumption-driven paradigm of the electricity sector. 

The digitalization of the electricity grid opens the way to bundle value added services to the electricity commodity, and possibly shift business value to electricity services in line with the notions of efficiency, conservation and sustainability. In this context, market forces should be mobilised within the boundaries of energy policy goals to contribute to the massive investments that are required to fulfill the smart grid vision.

Our analysis is supported by evidence from applications in the electric vehicle and smart meter ecosystems. Throughout the paper, an EU perspective is primarily considered.

2012 - Assessing Smart Grid Benefits and Impacts: EU and US Initiatives

This report aims to find common ground between EU and US assessment approaches on smart grid projects. This joint work was carried out in the framework of the EU-US Energy Council, to deepen the transatlantic dialogue on strategic issues such as policies to move towards low carbon energy sources while strengthening the on-going scientific collaboration on energy technologies.

In the last few years, initiatives on Smart Grids have been growing in number and scope on both sides of the Atlantic. A variety of projects has been deployed throughout Europe and US with different aims and results. Substantial public and private investments have been committed to research and development, demonstration and deployment activities. At this stage, there is a need to evaluate the outcome of implemented projects and share experiences and lessons learned. Effective project assessment and knowledge sharing is instrumental to prioritize policy initiatives, unlock market investment potentials and instil trust and understanding in consumers.

The report first assesses correspondences among definitions, terminology and methodological approaches, in order to clarify commonalities and differences. Secondly, it tries to strengthen cooperation on assessment frameworks and on sharing data collection experiences, project results and lessons learned.

2011 - Guidelines for cost-benefit analysis of smart grid projects

This report provides 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 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.

2011 - Guidelines for cost-benefit analysis of smart metering deployment

This report presents a step by step assessment framework based on the work performed by EPRI (Electric Power Research Institute), and we provide guidelines and best practices. Several additions and modifications to fit the European context have been proposed. This work draws on the existing collaboration between the EC and the US Department of Energy (DoE) in the framework of the EU-US Energy Council.

The assessment framework is structured into a set of guidelines to tailor assumptions to local conditions, to identify and monetize benefits and cost, and to perform sensitivity analysis of most critical variables. It also provides guidance in the identification of externalities and social impacts tha can result from the implementation of smart metering deployment but cannot be easily motetized and factored into the cost benefit computation.

This study represents the application to the specific case of smart metering deployment of the general guidelines for conducting a cost benefit analysis of Smart Grid projects.


Here below you can see an example of how we supported the policy making on monitoring progress and assessing merits of smart grids deployment:


You may also be interested in:

Scanning the smart electricity ecosystem

Analysing the Baltic power system and market changes

Electricity security in the EU: features and prospects