Hardly a day goes by without news or updates from the smart grid world over newspapers, media, or the internet. They tell us that the world is going to change completely and the business models of the past are doomed: the future is all about storage systems, smart metering, demand side management, electric vehicles, residential PV – all of them interconnected, of course. As technological development moves forward, more and more subjects are joining the rush: universities, research centers, utilities, start-ups, but also old big companies renewing their business or their corporate responsibility . To figure it out, just in Europe and excluding smart meters’ roll out, around €3.15 bn have been invested between 2002 and 2014 in smart grid projects (between €200 and €500 million each year) ; even higher investments took place in the US, where they accounted for nearly €7.1 bn between 2010 and 2013 .
As it is well known, smart grids can be considered as one of the pillars of the more extensive disruption regarding the Internet of Things (IoT) world. IoT refers to the extension of the ICT revolution (led by the internet) on the physical objects universe involving big data collection, automation, advanced resources management, machine to machine standards, process efficiency, virtual money, and virtual reality, just to cite a few. According to some estimates, the IoT revolution is expected an economic impact of up to $11.1 trillion yearly by 2025 (nearly 11 % of world GDP) , with a number of connected devices that will grow from 6.3 bn in 2016 to more than 20 bn in 2020 .
Nevertheless, despite the bright perspective and by just focusing on the energy related aspects of IoT, it appears that the smart world being built around us, or even better the smart grid concept itself, seems to be like a thousand pieces puzzle of which we are not able to figure out the overall picture. Somehow, we strive to wedge all the pieces together with the wisdom to leave margin to round the corners and the joints. Indeed, the number of stakeholders involved is significant: prosumers, retailers, DSOs, TSOs, regulators, energy producers, and manufacturing companies. Each has its own goals and business models and rarely do they coincide completely, nor do players have the same degree of information or capability to act. Moreover, as the number of projects increases, each subject is moving differently in pursuing its goals and is driven to adopt its own technical standards as everyone is trying to make its pieces the smartest. At the same time, we know that the stake is huge. The best cumulative joint of the puzzle would guarantee energy efficiency, intermittent renewables integration, economic savings, a more reliable electricity system up to a fundamental contribution to resilience of the energy supply. Indeed, energy independence represents an achievement which is not given for granted in such a complicated and turbulent geopolitical framework like the current one and which entitles smart grids as a key ingredient to the achievement of the 2020 objectives and the 2050 road map in the EU .
How can we carry out this uneasy task of moving, turning, adapting and even modifying altogether the tiles of the puzzle and achieve the best overall picture? Fortunately, in recent years a huge effort has been made in order to make things a bit clearer, that is, we have some more defined pieces that we can rely upon and from which to start from. Most European regulators say that smart meters should be considered as the focal point of smart grids and many have settled most of their technical parameters and their roll out strategy . The smart meter will represent the interface between the user (and its devices – in particular storage and distributed generation) and the world beyond the connection point: the grid and the electricity value chain. In particular, metering introduces two important ingredients:
- the standards regarding communication protocols between devices and the meter itself and between the meter and the grid systems;
- the architecture of the data transmitted (voltage, current, active and reactive power, quality of service, interruption events, etc.), including their time basis (seconds, minutes, hours) depending on the kind of data available.
Once a stable and standardized meter is settled, things are easier: the huge flow of data coming from each point of delivery (POD) is an extremely valuable piece of information for the grid control and dispatching that can be accomplished with a reverse flow of information. Information can be sent back to the crowd of meter devices in the grid, which, in turn, can regulate all the connected devices of the house according to a pre-defined algorithm.
At this point, we can introduce an additional element of the discussion: how can we properly evaluate the benefit of smart grids for the stakeholders? As said before, the goal is to provide a method that can give the most accurate overview of the whole puzzle, thus orienting choices on technologies, sectors and timing of investments; in other words: how to strengthen the joint of the pieces.
To this regard, a more and more central role should be ascribed to the bottom of the value chain: the final user, in particular regarding his choices, behaviors, and the energy devices he buys or installs in his house. The issue of behaviors has to do with the very first attempt made towards demand side management and the future smart grids: some years ago, Italy and other countries attempted to introduce a time of use tariff. The goal was, first, to improve the cost pass-through to the final user according to electricity prices in the different hours of the day and, second, to shift consumption peaks, such as those from laundry machines, to night hours. If, through a stable and simple regulation, the final users are informed about price signals, they would get a wider view from which they could define their strategy of self-consumption, sale to the grid/other community prosumers or storage devices. The latter can be considered as a fundamental enabling technology for end-user participation to the electricity market that, as many other things, could be controlled from an App on our smartphones.
Active participation by end users is of paramount importance to guarantee the success of the smart grid evolution. As said before, indeed, the level of penetration of smart technologies could be considered as the litmus test for the system’s health, for at least two reasons. First, the end user is at the end of the electricity value chain, and both his knowledge of the system and his choices are limited compared to other players in the value chain (large consumers, DSOs, TSOs), who have access to advanced methodologies to evaluate their business choices. Second, the presence of a large number of active small users is a necessary condition for markets to approach the theoretical configuration that would secure their efficient functioning, coupled with a higher likelihood of maximizing the benefits of the new system.
Differently from other systems, technical reasons require that the electric system operators “know” the overall status of electrical flows – included those from OTC contracts. In other words, nearly each electron can and needs to be mapped from source to sink to ensure the correct functioning of the system. At the same time, a future increase in the number of new and small operators can really bring the system close to its theoretical limit, distancing it from previous oligopolistic frameworks. Clearly, the actual degree of (potential) interaction with the electricity market that will be left to the end user will determine the outcome of this hypothesized “perfect market condition”. The interaction of the end users may comprise the day-ahead markets (e.g. the price forecasts for each hour of the day) and the optimization of self-consumption, while balancing and dispatching are likely to remain in the hands of BRPs (Balance Responsible Parties) and DSOs. In this case, however, to achieve market transparency every operation should be freely available to the end user, independently from the retailer’s offer he ends up choosing.
Because of the enabling power of smart grids and the IoT, the end user may soon transform into the main actor of the new system, guiding the market in place of the traditional players and their strategies. If we want it to be an effective revolution, and reap its benefits, issues such as transparency, accessibility, access to digital technology, privacy, and cybersecurity – which are indeed matters for debate within the IoT world in its entirety  – should be assigned the maximum priority during the transition process. If we manage to do so, the upcoming revolution may prove to generate an added value both in terms of efficiency, and in the streamlining of existing processes.
With electricity, we are dealing with the same electrons that William Crookes discovered in 1860 but we are attempting to direct them to shorter and shorter paths to our loads, so that the value chain we were accustomed to is cut, or at least deeply modified. The challenge, in addition to that of empowering the end user, concerns the role of the incumbents in all the sectors involved. This includes publicly-owned companies and natural monopolies, which should guarantee / should enforce the highest level of compliance and ensure a level playing field. Otherwise, a great deal of the IoT revolution potential, from the business point of view, may be lost.
But the power of the IoT revolution itself promises to upset the power of incumbents everywhere, more than any technological advance in history. It will be then just a matter of time, and – irrespective of the unforeseeable endgame to which the revolution will lead us – all actors should be warned: sooner than expected, even a single laundry machine will be able to reap the full benefits of the incoming smart revolution.
Fabrizio Armani, Consultant and Quantitative Analyst
 In particular within big companies, the adoption of smart technologies, renewable energies or the assessment of environmental impact of their products or processes (such as Life Cycle Assessments or internal carbon pricing), despite the higher initial costs, ultimately produces huge benefits regarding their image and sustainability, thus enhancing competitiveness and customer satisfaction.
 Joint Research Center, Smart Grid Projects Outlook 2014.
 United States Department of Energy, 2014 Smart Grid Report.
 McKinsey Global Institute, The Internet of Things: mapping the value beyond the hype, June 2015(Executive Summary).
 See here.
 Communication from the Commission to the European Parliament, the council, the European economic and social Committee and the Committee of the Regions, Energy 2020 a strategy for competitive, sustainable and secure energy - COM(2010) 639 final.
 See here.
 KPMG, Cyber Insights Magazine, The Internet of Things should we embrace its full potential?, March 2015.