What is a Smart Grid?

Want to learn more about the "smart grid" and what it is? We offer the ultimate explainer on smart grids and smart grid technologies, as well as the solutions and players involved

Nicholas Delate


Nicholas Delate


Aug 3, 2023

What is a Smart Grid?

What is the smart grid?

In the face of escalating climate change impacts and mounting energy demands, the future of energy is being redefined by smart grids — systemic, open, and collaborative approaches to energy dispersion. 

In an era where the clean energy transition is triggering substantial increases in electricity demand and the widespread rollout of variable renewables such as wind and solar, smart grid technologies have emerged as the solution to managing these shifts without necessitating costly new infrastructure.

While previously more energy needs were addressed by ramping up coal or gas-fired power stations, the move towards renewable energy requires a more intelligent and flexible approach to demand.

Future energy systems need to involve consumers and their energy usage patterns, with the goal of maintaining balance between supply and demand.

What is smart grid technology?

The smart grid represents a future-oriented approach to managing energy resources. At its core, a smart grid utilizes digital technology to monitor and manage electricity from all generation sources to meet the varying electricity demands of end users. 

Harnessing digital technologies, sensors, and sophisticated software, these advanced electricity networks can align real-time supply and demand, maintaining grid stability and reliability while reducing costs.

Understanding smart grids: the backbone of future electricity networks

A smart grid goes beyond a conventional electricity network by integrating advanced digital and other technologies to monitor and control the transport of electricity from all generation sources to end-users. It synchronizes the needs and capabilities of all stakeholders - generators, grid operators, end-users, and electricity market participants - to run the entire system efficiently. 

This optimizes cost-effectiveness and environmental impacts while enhancing system reliability, resilience, flexibility, and stability. With most of the technologies involved having reached maturity, tracking investments can provide insights on levels of deployment.

Why do we need a smart grid? 

Currently, the U.S. can produce up to 1.2 million megawatts of electricity and deliver it to 330 million people over more than 600,000 circuit miles of transmission lines and 5.5 million miles of distribution lines. Despite this existing, vast network of transmission and distribution lines, future power systems and clean energy transitions require more.

The integration of variable renewables and electrification of other sectors is quickly increasing, leading to stresses and pressures in power systems. As the clean energy transition gains momentum, electricity demand is skyrocketing along with the proliferation of variable renewables like wind and solar energy. Such shifts exert more pressure on power grids, so smart grid technology is essential to manage these demands, lower the need for costly new grid infrastructure, and enhance grid resilience.

Energy consumption soared by 389 terawatt hours in 2022 (a 3% rise compared to the first half of 2021). And global temperatures continue to hit record levels. Today's conventional energy grid design, characterized by centralized sources and a one-way power flow, is becoming increasingly unsustainable. Despite having served us well for decades, such grids lack the flexibility and openness to accommodate emerging renewable technologies and effectively respond to acute demand spikes.

As an example, nearly 70% of the U.S. grid is more than 25 years old, and to meet future renewable generation and electrification needs, the U.S. needs to increase electricity transmission systems by 60% by 2030 and potentially triple it by 2050.

Benefits of a smart grid

A smart grid, on the other hand, offers a promising alternative, incorporating distributed clean renewable energy sources and ensuring bidirectional energy flow. A smart grid combines traditional power generation and transmission equipment with cyber innovations, such as sensors, computing power, automation, advanced metering and control, and data management, turning a highly centralized operating environment into a two-way information stream.

Smart grids will be integral to the deployment of clean, reliable, and resilient electricity systems at scale. Smart grids increase transmission efficiency, reduce restoration times, lower operational costs, and increase the integration of renewable energy sources.

With its ability to integrate and manage fluctuating energy inputs from renewables such as solar and wind, a smart grid promises real-time energy balancing and more efficient energy distribution.

It equips consumers with the necessary information to make eco-friendly and cost-effective energy choices. And smart grid technologies provide real-time system health knowledge, enabling fuller utilization of existing resources and making it easier to contain system failures into smaller areas, preventing cascading power outages.

How do we upgrade our grid to a "smart grid?"

Upgrading our existing grids to this new, smarter model is a complex task, demanding advanced computing deployments at the grid edge and a total system approach to balancing energy sources and consumption levels. A systemic, collaborative model can successfully address these complexities.

The scale of the challenge necessitates significant investment and cooperation. According to the International Energy Agency, the global energy sector needs to average around $600 billion annually in electricity grid investments through 2030 to achieve net-zero carbon emissions by 2050.

Investments in smart grid technology were $6.4 billion in 2018 and are expected to grow to $16.4 billion annually by 2026. Public utilities are expected to install residential smart meters at a 90% penetration rate by 2030. These meters provide a data stream back to the utility, enabling it to monitor daily and hourly consumption.

Smart grid solutions

Smart grid solutions are advanced technological approaches designed to modernize the traditional power grid infrastructure. They involve the integration of digital communications and information technology with the existing power system to optimize the generation, distribution, and consumption of electrical energy. 

Key features include: 

  • Two-way Communication: Unlike traditional grids, which have a one-way flow of electricity and information, smart grids use two-way communication. This allows for real-time monitoring and control of energy flows, improving the grid's efficiency, reliability, and sustainability.
  • Grid Automation: This involves automating various functions of the grid such as demand response, distribution automation, and advanced metering infrastructure. For instance, smart meters can communicate usage data in real-time, enabling dynamic pricing and demand-side management.
  • Integrating Renewable Energy: Smart grids can better manage the integration of renewable energy sources such as wind and solar power. They can handle the variability and decentralization of these energy sources, balancing supply and demand, and storing excess energy for later use.
  • Enhancing Grid Reliability and Resilience: Through real-time monitoring and predictive analytics, smart grids can anticipate, detect, and respond to system faults, thereby improving service reliability and reducing outage times. They can also better withstand and recover from various natural or man-made disruptions.
  • Empowering Consumers: Smart grid solutions give consumers more control over their energy usage and costs. With real-time information, they can adjust their consumption based on energy prices or participate in demand response programs.
  • Edge computing: Although in its infancy in the sector, is being recognized for its potential advantages in managing data from smart meters, predictive maintenance algorithms, and outage sensors.

Recent smart grid solutions in action

Duke Energy and AWS team up

A recent example of smart grid solutions in action was the collaboration between Duke Energy and AWS to develop new smart grid software. Through the AWS cloud, Duke Energy aims to run extensive power flow simulations faster and more cost-effectively. The data-driven approach can predict peak demand areas on the grid and identify the most cost-effective solutions to meet customers' needs. 

A key component of these smart grid solutions is running extensive power flow calculations – simulations that traditionally took weeks with standard IT hardware. Now, these simulations are expected to be executed in 15 minutes or less. This data-driven approach enables the identification of the most cost-effective solutions to meet the ever-changing needs of customers.

This initiative forms part of Duke Energy's wider strategy to modernize the nation's largest electric grid and prepare it for increasing renewable energy and electric vehicle adoption. The utility is set to invest $145 billion over the next decade in capital projects, primarily focusing on modernizing the nation’s largest electric grid.

New York gets a smart grid edge

In another example, a group of utilities has developed a next-generation architecture, the Open Field Message Bus, that combines edge computing with traditional supervisory control and data acquisition (SCADA) software systems.

The New York Power Authority is now using in situ sensor analytics on its power lines where network or cellular bandwidth isn’t sufficient.

National Grid pilots demand flexibility

And in the UK, National Grid ESO ran an innovative trial called the Demand Flexibility Service (DFS). The goal was to support the grid when under strain, preventing potential blackouts, and it involved over one million UK households in an attempt to demonstrate that consumers are willing and reliable in shifting their energy consumption outside of peak periods in exchange for payment.

The DFS trial succeeded in delivering nearly 3-gigawatt hours (GWh) of reduction from the grid, equivalent to the electricity required to make every person in Great Britain a cup of tea. It also saved over 680 tons of carbon emissions, comparable to taking 450 cars off the road for a year.

To scale a smart grid solution like this to millions more households, factors such as price, weather, and notice period need to be surveyed to understand how they all influence people's willingness to flex their energy use. For the whole system to scale, it needs to become automated and supported by smart, low-carbon technologies.

As the writer Izzy Woolgar wrote for Reuters, the UK spent 215 million pounds in 2022 turning off wind farms and another 717 million pounds powering up gas plants to replace the lost wind power, resulting in an extra 1.5 million tons of CO2 emissions. Flexibility is necessary to harness abundant, cheap wind energy rather than wasting it.

A fully flexible energy system like the DFS trial could reduce the cost of achieving net-zero emissions by up to 16.7 billion pounds a year in 2050. Even households not directly participating in flexibility would benefit through lower energy bills due to overall system operating cost reductions and avoided grid reinforcements.

Leading smart grid companies and their innovations

Here's a roundup of some of the key players and their recent breakthroughs (via Amber Jackson of Energy Digital):

  • Enphase Energy: As a global energy technology firm, Enphase Energy has installed approximately 58 million microinverters on over 3 million homes in more than 145 countries. They work closely with utilities and grid operators to roll out grid service programs that reduce power plant usage.
  • Siemens: Siemens brings intelligence to the grid with their Xcelerator portfolio. Earlier in 2023, they partnered with EnergyHub to create a holistic and scalable solution for power utilities, aiming for a sustainable and affordable energy landscape.
  • Itron Inc.: Active in over 100 countries, Itron is enhancing grid reliability and resilience using intelligent analytics at all grid points to prevent unsafe conditions.
  • Octopus Energy: As one of UK's top energy suppliers, Octopus has made strides in smart grid technology. They power over 5 million homes and businesses globally, and manage a power capacity exceeding the largest battery on the UK grid through their smart tariff 'Intelligent Octopus'.
  • ZOLA Electric: Known for their distributed energy solutions, ZOLA has expanded its reach to 10 countries across four continents, supplying affordable clean energy to over 2 million individuals, schools, clinics, and businesses. They raised $90M in 2021, and in 2023, they unveiled ZOLA FLEX MAX, the world's largest solar home solution and just raised $90M 
  • Deveci Tech: The Turkish company's ENLIL project uses its unique vertical wind turbine design to generate power from natural wind and vehicle-created wind. The turbine is equipped with a SMART system for managing traffic, detecting earthquakes, and monitoring climate and CO2 levels.
  • SparkMeter: The company provides smart grid solutions catered to emerging markets. With operations in more than 30 countries, SparkMeter recently raised $10 million to accelerate its metering growth, with a mission to provide affordable, reliable, and clean power.
  • S&C Electric Company: A century-old company, S&C provides solutions for switching, protection, and control in power systems. In 2023, they increased manufacturing capacity to meet the rising demand for grid technology.
  • Schneider Electric: The company claims to be transforming the energy landscape with their EcoStruxure Grid, which helps electricity utilities navigate towards a more sustainable future.
  • Cisco: Known for its pervasive communications network, Cisco's solutions focus on system efficiency, resiliency, and security for utilities. They also provide smart water solutions to manage storm and wastewater systems.

What initiatives to develop smart grids are underway? 

In Europe, initiatives such as the Edge for Smart Secondary Substation Alliance (E4S) are already taking shape, involving partnerships between major utility providers and companies. 

Creating open industry standards is another crucial element to ensure smart grid communication, which involves interconnected devices sharing information via common frameworks. Companies like Intel and Dell are developing open, interoperable software-defined solutions that set new standards for the smart grid ecosystem.

The smart grid concept is rapidly gaining momentum in the U.S. The United States Department of Energy announced a $10.5 billion program for smart grids and other grid-strengthening upgrades in 2022.

The Biden administration has already allocated more than $12 billion to USDA for loans and grants to expand clean energy and transform rural power production. And just recently, it announced a $2.7 billion investment to bolster rural grid security and smart grid technologies. Here's what you need to know:

The U.S. will invest $2.7B into "Rural Grid Security"

The US government is investing $2.7 billion across 64 projects to expand and modernize the rural electric grid, including $613 million earmarked for the installation and upgrading of smart grid technologies. The investment, which spans several states, aims to make energy "more efficient, more reliable, and more affordable," according to USDA Secretary Tom Vilsack.

The funding will be channeled through the Electric Loan Program for rural areas across multiple states including Alabama, Arkansas, Colorado, Florida, Georgia, among others. This funding is expected to be followed by additional energy infrastructure financing in the coming months. 

The loans primarily finance the construction of electric distribution facilities in rural areas, and also support generation, transmission, and distribution facilities. Local utilities leverage these loans to deliver affordable power to residential, commercial, and agricultural consumers. Notably, nearly half of the awards will finance infrastructure improvements in underserved communities. 

International investments in Smart Grids 

Intensifying efforts to meet climate objectives, countries across the globe have made substantial investments in smart grid technologies.

In 2022, the EU presented an action plan for the “Digitalization of the energy system,” predicting investments of about $633 billion in the European electricity grid by 2030, which includes $184 billion for digitalization. Meanwhile, China has pledged to modernize and expand its power grids, committing to a staggering $442 billion investment for the period 2021-2025.

Japan, India, the US, and Canada have also announced hefty funding programs to promote smart power grid investments, with a particular emphasis on smart meters and grid management technologies.

The rising tide of investments in smart grids

In 2022, investment spending on electricity grids escalated by approximately 8%, with both advanced and emerging economies ramping up investment to enable the electrification of buildings, industries, and transport. The move also accommodates the incorporation of variable renewables into the power system.

Investment in innovative digital infrastructure in electricity grids, both in distribution and transmission, is growing, with around a 7% increase in 2022 compared to 2021. The distribution sector accounts for around 75% of all investment in grid-related digital infrastructure, including the deployment of smart meters and the automation of substations, feeders, lines, and transformers.

In January 2023, China's State Grid Corporation declared an investment of $77 billion in transmission for 2023 and a total of $329 billion for the 14th Five-Year Plan period (2021-2025). India's ambitious scheme to modernize and strengthen its distribution infrastructure in 2022 involves the installation of smart meters, set to cover 250 million devices by 2025.

There's been significant investment and progress in electric vehicle public infrastructure, which grew by more than 75% in 2022. Smart grids can seamlessly integrate electric vehicle charging into the grid, providing the visibility and control needed to mitigate grid bottlenecks.

The World Bank Group, alongside other development agencies, launched an initiative in late 2022 to bolster private investment in distributed renewable energy systems, primarily targeting electrification in Africa.

Notably, large-scale interconnectors — vital for balancing supply and demand across regions, accessing remote energy resources, and integrating variable renewables — continue to attract investment in transmission, with ongoing or planned projects in Europe, China, North America, India, and Australia.

The critical role of international collaboration in smart grid growth

Smart grids are pivotal to the future of clean, reliable, and resilient electricity systems, and the global community's commitment to their advancement is a promising sign for sustainable energy transitions worldwide.

International collaboration programs for smart grids serve as significant facilitators for sustainable smart grid development. These partnerships strive to share knowledge and best practices globally, fostering the creation of international standards for smart grids, stimulating manufacturers to develop and export their smart grid products, and boosting user acceptance.

Under the Net Zero Emissions by 2050 Scenario (NZE), electricity grid investments need to nearly double by 2030. The current annual investment level of around $300 billion must rise to approximately $600 billion to stay on the NZE Scenario trajectory.

This is particularly critical in emerging markets and developing economies. Regional shortfalls are considerable, with an annual deficit of around $120 billion in advanced economies, over $105 billion in China, and nearly $33 billion in emerging markets and developing economies.

Several major economies have announced substantial new funding to modernize and digitalize their electricity grids. For instance, the European Commission presented the EU action plan "Digitalization of the energy system" in late 2022, projecting about 584 billion euros of investments in the European electricity grid by 2030. Among these, 170 billion euros would be dedicated to digitalization.

International collaboration programs, such as the International Smart Grid Action Network (ISGAN) and the Digital Demand-Driven Electricity Networks Initiative (3DEN), are already playing a crucial role in addressing these gaps.

Meanwhile, large-scale interconnectors remain of paramount importance for the decarbonization of certain regions, serving as a crucial tool for international power trading and flexibility. For instance, the Western African Power Pool (WAPP) serves as a model of technical integration, with 14 member countries that exchanged 6 TWh in 2021, or 7% of total power generated.

Grid disaster resilience is also gaining increasing importance. New digital technologies such as Spark Prevention Units and geographic information and satellite image analysis tools are being deployed to predict and mitigate potential grid damage.

Energy Storage: a key pillar of the future smart grid

A key theme at the 2023 European Sustainable Energy Week was the evolving needs of the energy system. Energy storage solutions are stepping into the limelight as an essential component of tomorrow's smart grid – a system designed not just to handle an increasing load of renewable energy, but also to dynamically and efficiently manage this energy for an optimal net-zero scenario.

Energy Storage as a Solution

Energy storage is regarded as one of the premier solutions for providing flexibility in the energy system. This becomes increasingly significant considering the rapid advancement of renewables in outpacing fossil fuels. According to Walburga Hemetsberger, CEO of SolarPower Europe, there is a pressing need to have all the renewables integrated into the grid 24/7 and to have solutions in place to handle intermittency.

As reported by Smart Grid International, Hemetsberger suggests that "we need massive assets – flexibility and storage". For PV specifically, she indicates that 200GW of energy storage will be required in the EU by 2030. As outlined in a whitepaper by SolarPower Europe, this proposed capacity would cover 18% of the REPowerEU plan's desired renewable capacity of 1,236 GW by 2030.

The policy landscape

Significant policy actions are needed to facilitate these advancements in energy storage in the EU. The establishment of non-binding EU electricity targets for 2030 and the development of storage strategies are among the initiatives recommended.

In terms of grid stability, there is a call for large co-located solar and storage installations, referred to as 'grid-intelligent solar'. The European Commission has already proposed to have Distribution System Operators (DSOs) establish flexibility needs and demand response targets, and to improve rules relating to capacity mechanisms and the development of prosumer models.

However, Hemetsberger identifies two areas that need urgent attention: the removal of double charges for battery storage and allowing solar and storage and wind and storage to charge from the grid. The industry continues to strive toward solutions that can provide grid services involving charging from the grid, such as bi-directional frequency response. However, current regulations present challenges for units that form part of a renewable generation unit receiving financial support from withdrawing electricity from the grid. Overcoming these regulatory hurdles will be crucial in unlocking the full potential of energy storage in the smart grid of the future.

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