25 April 2017
Smart Grids in Europe: Policy Drivers, Technology and Investments

By Manuel Sánchez-Jiménez and Flavia Gangale, European Commission
Summer 2015


ENERGY UNION AND THE NEEDS FOR FLEXIBILITY/SMART GRIDS

We are witnessing big changes to the way electricity is produced, transmitted and used. Those changes are driven by our EU Energy and Climate policy that aims to a cost-efficient energy transition by balancing competitiveness, sustainability and security of supply. It requires the implementation of existing legislation and market rules as well as further transformation towards more flexibility of the energy system, especially to what concerns the integration of variable renewable energy sources and the further electrification of energy uses, such as electric vehicles.

The Energy Union initiative sets the framework for efficiently managing this transformation. It is based on five mutually reinforcing and interconnected dimensions: the internal market, energy efficiency, decarbonisation, energy security and research and innovation.

Energy markets and grids have to be fit for the new requirements of the energy system. Smart grids are clearly one of the enablers for realising the Energy Union - both in terms of infrastructure and market. They are a part of the solution for managing our grids in times of ever increasing shares of renewables, decentralised generation and new loads, but also for creating new value streams (i.e. services and products). Moreover, smart technologies, including smart metering systems, will enable consumers to reap benefits from the energy market by taking control of their energy consumption and providing their flexibility to the system. This is part of the "new deal" for consumers advocated in the Energy Union.

Smart Grids are also part of an innovative and competitive Energy Union. They provide an important opportunity for European manufacturers to develop attractive smart solutions and boost their global competitiveness.

ACCUMULATED PROJECT EXPERIENCES IN THE UNION AND MATURE TECHNOLOGY AREAS

Smart metering systems are a building block of the smart grid and their deployment will facilitate the integration of new smart technologies and innovations across the grid. Many research and demonstration projects have already been set up in Europe to investigate and demonstrate these new technologies, tools and techniques. Today, smart metering is a mature technology. If Member States' plans materialise, by 2020 almost 3 out of 4 European households and businesses will have electricity smart metering systems; an investment of 35 billion Euros on ca. 200 million of meters. Additionally, about 40 millions of smart meters for gas will be installed by 2020, amounting to an additional investment of about 10 billion Euros. The key issue is whether all this equipment follows recommended functionalities and recent developed standards which make these systems interoperable.

In the last five years, the Commission's Directorate General for Energy and the Joint Research Centre have been cooperating to map smart grid projects in Europe and to identify best practices and lessons learned1. To date, c.a. 450 projects have been analysed, accounting for over 3.15 billion Euros of investments. The mapping exercise is carried out on a regular basis and it is now extending its outreach to cover smart distribution system architectures/models, laboratories and technologies on the verge of industrial diffusion.

The inventory identifies key smart grid applications in different stages of maturity. Smart network management applications have attracted the highest investments and successfully tested several solutions to improve the monitoring and controllability of the networks. The integration of distributed energy resources, particularly variable renewable generation, has also attracted much interest and projects' results show that technical solutions for their integration are becoming consolidated.

Investments in smart customer/smart home projects are also rising steadily, showing a growing attention to the interaction between the new technological solutions and end-users. Consumers' attitudes, concerns and expectations are increasingly factored in the design of the new technological solution and in the development of consumer engagement strategies. As reported in the European Commission's smart grid inventory however, even if smart customer and smart home applications have been targeted by many smart grid projects, they are still in the demonstration phase and more work is needed on their scalability and replication potential before moving to the deployment phase.

TODAY'S FINANCIAL POSSIBILITIES AND FRAMEWORK CONDITIONS

We also may need to further reflect on a regulatory framework that could better accommodate the novelty and specificities of smart grids and incentivise investments. Overall, the EU will need to invest an estimated € 480 billion by 2035 to enhance the automation and control of the networks, develop smart appliances for easy demand side flexibility and smart homes, charging infrastructure for EVs, etc.

In addition to Horizon 2020 for R&D projects, additional instruments which can be used in funding/financing smart grid projects are:

Connecting Europe Facility (CEF). Even if CEF targets primarily interconnectors and TSOs, under certain conditions also smart grids projects can be labelled as Project of Common Interest and possibly receive funding. Under the first round of funding one smart grid Project of Common Interest (between Ireland and UK) received funding support of 32 million Euros.

Structural funds. Smart Grid projects are supported under structural funds for example in Greece, Poland and Romania. The inclusion of smart grid projects remains under the responsibility of Member States.

European Fund for Strategic Investments (EFSI). This is a new lending instrument to be managed by the European Investment Bank (EIB) that is expected to be operational by summer this year and that can provide financing (loans, guarantees, equity, etc.) to commercially viable projects, including smart grids. To our knowledge, through contacts with Member States and stakeholders, we identified almost 80 smart grids projects, amounting to a total investment of 67.2 billion Euros. These projects are rather heterogeneous and range from local smart grid projects to large smart meter roll-outs with a volume of up to 5 billion Euros or national smart grids projects of up to 8 billion Euros. Approximately half of the projects relate to smart meter roll-outs while the other half covers mainly investments in automation and control systems. Those projects represent workable investments, i.e. investments that will not become stranded assets but parts of smart solutions for better, more resilient, efficient and flexible grids. To guarantee this effect, the recently adopted smart grids standards will be an important precondition as well as guarantee.


Disclaimer: This article reflects the views only of the authors. European Commission cannot be held responsible for any use which may be made of the information contained therein.