2010-09-13 15:07

We use electricity every day, but what we might not know is that most of the world's electricity today is still running on networks we used over 50 years ago. How does this impact us?

Purely in terms of costs, the US wastes $80 billion a year in power cuts, not to mention the energy waste - all due to an antiquated electricity system. In a world where we are shifting from old to new in every possible way, it isn't very smart for us to not require the same of what is vital to our everyday lives - electricity.

It is no surprise that today's world is facing a true energy dilemma: how do we deliver secure, affordable, low-carbon energy to everyone? It is widely agreed that energy conservation and renewable energy are critical to securing our energy future, but smarter electricity systems - smart grids - are imperative to tap the full potential of modern energy solutions.

A smart grid is an intelligent, digitized electricity system providing an energy network that delivers electricity in an optimal way from source to consumption, enabling better energy management, minimizing power disruptions and transporting only the required amount of power.

Just as the current grid facilitated the industrial innovations of the 20th century, smart grids could substantially support clean energy growth and innovation in the 21st century.

What a smart grid does better is maximize the contribution of clean energy and new energy solutions such as wind, solar power and electric cars. Today's grid was not built to handle large and increasing amounts of renewable energy production and send it from remote places to where electricity is consumed. Without a smart grid system, it would be virtually impossible for electric vehicles to work on a large scale. A smart and modernized grid is therefore the missing link for the use of clean energy to be within everyone's grasp.

A smart grid can also serve as a platform for innovation in energy services, which gives customers more information about their energy footprint and ways to manage their electricity consumption. There is a carbon emission reduction potential, directly through more optimal production and transmission of electricity, and indirectly through influencing consumer behavior.

We are witnessing a trend of government stimulation and industry focus on smart grids and low-carbon technologies as a cornerstone for future industrial strategy. Last year, China alone spent over $7 billion on smart grid developments focused on transmission and distribution - with a vision of building a "strong smart grid" by 2020. The US has directed $4.5 billion of its fiscal stimulus package to smart grid activities. In Europe, Japan and South Korea, significant initiatives are currently underway.

With all this, what are the chances that smart grids will succeed? A World Economic Forum report - "Accelerating Successful Smart Grid Pilots" - outlines the conditions for success and numerous challenges currently faced. The report surveyed more than 50 industry stakeholders and experts engaged to identify the factors that will determine the success, or failure, of smart grid pilots. The report emphasizes the importance of getting a larger number of ambitious pilot projects underway to test new technology and business models.

The investment and time required to deploy smart grids is significant and cannot be underestimated. For them to succeed, the government, regulators and industry players must work together to create the conditions for success by supporting pilot projects and revisiting regulation to ensure alignment with policy priorities.

Most of the regulatory frameworks that currently exist were created during the period preceding the emergence of the low-carbon agenda, with the focus on a low-cost and reliable service. Although many aspects of the regulatory framework are still valid, some actively discourage the changes that are needed to transition the electricity systems toward a smart grid.

To make a smart grid a sound investment for electric utilities and other companies, the business case in many countries must be strengthened - regulation will be the key. Also, there are important issues around setting standards for technology and tackling data security that must be addressed and will determine whether or not smart grids will be a success.

Globally, we are at a critical point where clean energy will play a prominent role. Electricity systems will need to be flexible to allow for the incorporation of new low-carbon technologies, and customers will want more visibility and control of their energy consumption. Smart grids will play an important role in making electricity go smart, but the journey will be long and challenging.

The author is senior director and head of energy industries at the World Economic Forum.