Paying the price for new technology

Paying the price for new technology

Getting the right regulatory environment is vital in order to ensure the successful development of smart grids.



While governments agree on the importance of rolling out smart-grid technology, trying to create the right regulatory environment to do it is causing them a headache.

The companies that manage Europe’s energy networks, such as Enel Distribuzione in Italy and Electricité Reseau Distribution France, are warning
that they must be allowed to pass on some of the upfront costs of developing smart grids if they are to afford the investment. They say that current pricing restrictions, placed on them as regulated monopolies, prevent them from doing this.

The European Network of Transmission System Operators for Electricity, an industry association that represents grid operators, said  in March that regulators in “many EU countries” did not allow operators to recover costs incurred when pursuing “innovative activities”.

“[Addressing] this point is crucial to have effective deployment of smart-grid solutions,” it said.

European energy regulators are concerned, however, that giving in to these requests would mean higher energy prices for consumers, reducing popular support for smart grids. Energy suppliers, on the other hand, insist that any sharing of costs must include electricity users.

But regulators have argued that introducing smart-grid technology would, in the long term, save money for network operators and suppliers through improved network efficiency.

Technical standards

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Regulators also face the difficult challenge of setting technical standards for smart grids. Network operators and energy suppliers argue that detailed, EU-wide standards are vital to ensure that smart-grid technology in different member states is interoperable (thereby creating economies of scale and preventing market fragmentation), and to build confidence that expensive technology will be compatible with any changes to EU or national law.

They say that there is an acute need to prevent a repeat of what has occurred with smart meters, where different, incompatible technologies have been introduced in some member states (eg, Sweden and Italy), while the lack of EU-wide standards has discouraged investment in others.  

German energy company E.ON warned in a paper sent to the European Commission earlier this year that “the lack of standards is a significant barrier to investment [in smart grids], and smart metering is a good example of it”. 

Bob Gilligan, vice president of GE Energy Services’ digital energy business, says that “the technology exists today to start making the grid smarter”, but what is needed is “open technology standards” to apply it.

Regulators, however, are concerned that setting highly prescriptive standards for smart grids could make it harder to upgrade them later on, when new, and unforeseen, technologies become available.

Eurelectric, the association representing the EU’s electrical industry, has acknowledged that regulators face a trade-off between “quick adoption” of smart meters and the “higher potential” of future technologies.

Definition difficulties

The European Regulators’ Group for Electricity and Gas, an advisory body that brings together national energy regulators, published a report in October 2009 which identified that, far from having common standards for smart meters, the EU does not even have a definition of what one is.

John Harris, head of regulatory and governmental affairs at Landis and Gyr, one of the world’s largest manufacturers of smart meters, describes the report as “sobering”. “If you don’t even know what are talking about, how can you possibly develop policy to deal with this?” he says.

The  Commission’s enterprise and industry department last year issued a mandate to three standards-setting organisations to determine how smart
meters should communicate with grid operators and energy suppliers, and other factors important to interoperability. But the organisations are not expected to complete their work until November 2011.

A group of metering

manufacturers (including Iskraemeco, Itron and Landis and Gyr) have decided that the Commission’s mandate is too broad to deliver interoperability. They launched their own standards-setting initiative (known as IDIS) in September 2009. They say it is complementary to the Commission’s work. 

The roll-out of smart-grid technology in Europe is a massive undertaking, and its success will depend to a large extent on getting the right regulatory environment.

The EU still has much work to do to put that environment in place.

Jim Brunsden