Great Britain: unlocking the potential of smart grid

Great Britain: unlocking the potential of smart gridSmart grid technology looks set to change the face of future energy distribution — and create important economic benefits for Britain. But while the case for action on smart grid is overwhelming, it’s not yet clear exactly how and when progress should be made. Bill Easton and Jenny Byars report.

Smart grid is an electricity revolution in the making. Much in the same way that the internet changed communications, smart grid’s more intelligent, efficient and secure networks will enable big changes in how electricity is generated, distributed and consumed. Although delivering smart grid in Britain will require substantial investment, our report, commissioned by SmartGrid GB, shows that this expenditure will deliver significant economic benefits. Britain also has an opportunity to position itself as a world leader in smart grid, provided it acts soon. But implementing smart grid is complex, and moving forward will require a comprehensive understanding of the challenges and how to overcome them.

Benefits across the supply chainEarly-stage research, undertaken by the Smart Grid Forum (SGF) and analyzed by Ernst & Young, indicates that some £23 billion will need to be spent between now and 2050 to upgrade the networks with the technology necessary for smart grid. While this cost is significant, the same research indicates that this would represent a saving of almost £20 billion compared to the cost of increasing the network capacity without smart technologies. Importantly, the savings are projected to remain as high as £10 billion even if, for whatever reason, only low levels of decarbonization or electrification were to occur. The costs of starting soon also appear low, so there is no great benefit to delaying the development of smart grids.

This investment will also deliver benefits throughout the economy, with an expected 8,000–9,000 new jobs sustained in Britain during the 2020s and 2030s. Benefits arising from manufacturing and intellectual property exports are also expected.

Costs and risks of inactionNot moving forward with the implementation of smart grid could expose Britain to a number of risks:

• Deteriorating network performance

• Reduced growth of secondary and supply chain industries and associated export potential

• Failure to meet carbon reduction targets

• Potentially a higher cost of energy

The Department of Energy and Climate Change (DECC) has recognized that smarter electricity grids and the development of cleantech industries will play an important role in enabling the UK to meet its carbon reduction targets. If a conventional grid inhibits the growth of these industries, Britain could end up having to buy international carbon credits to reach its target levels. The country may also face further upward pressure on electricity costs if a smart grid is not deployed.

The Savings from deployment of smart grid could be

Spend required if only conventional technologies are employed

Spend required for deployment of a smarter grid

AllexpenditurefiguresareNPV(2012–2050)—decarbonized/electrifiedscenario

£19bn£46bn

£23bn

£27bn

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Complexity and uncertainty are the the biggest challengesThe report finds that the sheer complexity of smart grid and the uncertainty around when new technologies and demand patterns will develop are the dominant challenges to implementation in Britain.

Multiple complexities Major uncertainties

Some of the multiple strands highlighted included:

• The technologies that will be adopted by customers that will influence the demands they make of networks

• The technologies that influence what networks can provide to customers

• Interactions with other elements of energy policy

• Understanding of the benefits created and whether they align with the costs incurred

• The best market models and network service definitions to adopt.

Regarding the uncertainties, responses emphasized a number of themes such as:

• How quickly technologies will be adopted by customers

• How quickly new technologies will provide new capabilities on grids

• Future changes to energy policies, and whether the regulatory regime can adapt sufficiently quickly

• The location and extent of clustering impacts on the networks

• How smart meters and smart girds will interact and co-develop.

Although those interviewed for this report were concerned about the level of complexity and uncertainty that surrounds smart grid, there was approximate consensus that it would deliver substantial benefits. So the concern is not so much about the best destination — but when and how to get there.

Moving forward while balancing risk and opportunitiesThe report’s conclusions suggest that addressing the challenges of smart grid will require fresh thinking from government, regulators and industry. Specifically, although achieving clarity around energy policy is challenging, it is reasonable to expect more detail from policymakers regarding changes that may or may not be required now. Flexibility around current network standards and rules could also play a key role in reducing the costs of meeting the uncertain future demands of our networks.

Progress toward smart grid also depends on changing the mindset around the regulatory process. There is a need for increased focus on protecting customers by ensuring sufficient network investment to protect against risks. Greater engagement with customers is also required to help them understand smart grids, smart meters and the positive benefits that these will bring.

Finally, it is important that future projects do not take the current industry model as a given but rather explore alternative ways suppliers and networks can work together to better address the complexity of the challenges ahead. A coordinated national approach to building the nation’s skills is also required to help ensure that Britain can make the most of the opportunities of smart grid.

Why Britain is a natural smart grid leaderBritain has strengths that could help it assume a position of global leadership in smart grid development:

1. Positive government and regulatory initiatives are in place.

2. Legally-binding carbon budgets are seen as strong intention to deliver decarbonization and electrification.

3. The complex structure of the British energy market creates a perception that if something can be made to work well in Britain, then it will readily meet the needs of any other market.

4. Britain has strong academic research capabilities, particularly in electricity networks, combined with commercial acumen.

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For more information

The full report Smart Grid: a race worth winning? can be downloaded here

Click here

About this reportSmartGrid Great Britain (SGGB) commissioned Ernst & Young to conduct a short study to identify, characterize and, where possible, quantify the major economic benefits that smart grid development can provide Great Britain, in order to help inform the policy making process and the wider stakeholder community. The report deliberately takes a broader perspective than others, considering the wider potential benefits to Britain beyond a network perspective. The report draws on existing British and international studies, interviews conducted with relevant stakeholders and our own economic analysis.

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Bill leads the Economic Advisory team specializing in smart grid and all things regulatory across electricity, gas and water utilities.

Bill Easton Director, Transaction Advisory Services +44 20 7951 5463 beaston@uk.ey.com

Jenny is an assistant director on the Economic Advisory team specializing in climate change and energy policy development and analysis, for a range of government and corporate clients.

Jenny Byars Assistant Director, Economic Advisory +44 20 7951 5686 jbyars@uk.ey.com