This chapter seeks to explore the benefits and implications of the smart grid for electricity markets. The greater use of
ICT
(information and communication technologies) should allow consumers to receive more detailed and timely price signals, leading to more flexibility in the interaction between demand and supply. We review relevant literature and simulate the benefits of real‐time pricing in Great Britain, in the near future and in a mid‐century scenario with a large amount of electric heating and vehicle charging. The cost of providing energy could fall by around 10% if battery charging moves away from peak times and all consumers can respond to real‐time prices. There could be further savings in the provision of ancillary services if more consumers offer fast demand response as an alternative to keeping power stations part‐loaded for reserve. Dynamic pricing could solve the so‐called missing money problem of inadequate peak prices and allow energy‐only markets to fully reward‐generating capacity. New companies may be able to enter the industry with new business models, but we should be aware that the smart grid may create losers as well as winners and that the prospect of many small gains may not be enough to enthuse consumers.