Regulation of Smart Grids

Abstract

The market‐driven implementation of smart grid solutions and technologies depends on many factors, such as their costs and benefits relative to the alternatives, and the regulatory frameworks that apply to the relevant actors. This chapter focuses on the latter by illustrating that some countries have already started to adapt their regulatory frameworks to better incentivize power grid companies and grid users to consider smart grid solutions and technologies in the transition toward a more sustainable power system. We introduce four innovative smart grid cases: the introduction of active distribution grid management in the Orkney Isles in the north of Scotland to increase the integration of wind power on the archipelago; the deployment of smart meters in Italy to enable demand response; the development of an offshore HVDC grid in Kriegers Flak area in the Baltic sea to connect offshore wind farms to shore and to enable cross‐border trade among Denmark, Germany, and Sweden; and the demonstration of distributed system platform project in New York that integrates distributed energy resources securely and efficiently while maintaining interoperability. We discuss the main shortcomings of the conventional regulatory frameworks in relation to these cases: the bias toward cost reductions at the expense of innovation, the bias toward capital expenditures at the expense of operating expenditures; coordination issues between power grid companies; and disincentives for grid users to contribute to ongoing power grid innovation. Moreover, we provide an overview of smart regulations in other parts of the world, which are not covered in the four cases. We conclude by deriving lessons learned for other countries that still have to start adapting their regulatory frameworks to the context of smart grids.

The Impact of Regulation on a Firm’s Incentives to Invest in Emergent Smart Grid Technologies

“…This finding raises serious questions on the economic value of rolling out smart meters to all the residential customers. 6 See a discussion on the distribution of SG's benefits and costs in Meeus et al (2010). 7 We thank an anonymous referee for drawing our attention to this point.…”