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What are smart grids?

Smart grids are electricity network that use digital technologies, sensors and software to better match the supply and demand of electricity in real time while minimizing costs and maintaining the stability and reliability of the grid.

Why are smart grids important?

Clean energy transitions entail large increases in electricity demand and the widespread rollout of variable renewables like wind and solar, placing greater demands on power grids. Smart grid technologies can help to manage this transition while reducing the need for costly new grid infrastructure, and can also help to make grids more resilient and reliable.

Where do we need to go?

Despite some recovery from the economic disruption caused by the Covid-19 pandemic, investment in smart grids needs to increase substantially to get on track with the Net Zero Emissions by 2050 Scenario, especially in emerging market and developing economies.

Smart grids are electricity network that use digital technologies, sensors and software to better match the supply and demand of electricity in real time while minimizing costs and maintaining the stability and reliability of the grid.

Clean energy transitions entail large increases in electricity demand and the widespread rollout of variable renewables like wind and solar, placing greater demands on power grids. Smart grid technologies can help to manage this transition while reducing the need for costly new grid infrastructure, and can also help to make grids more resilient and reliable.

Despite some recovery from the economic disruption caused by the Covid-19 pandemic, investment in smart grids needs to increase substantially to get on track with the Net Zero Emissions by 2050 Scenario, especially in emerging market and developing economies.

Tracking Smart Grids

More efforts needed

A smart grid is an electricity network that uses digital and other advanced technologies to monitor and manage the transport of electricity from all generation sources to meet the varying electricity demands of end users. Smart grids co-ordinate the needs and capabilities of all generators, grid operators, end users and electricity market stakeholders to operate all parts of the system as efficiently as possible, minimising costs and environmental impacts while maximising system reliability, resilience, flexibility and stability. Most of the technologies involved have already reached maturity, and so tracking investments provides insights on levels of deployment. 

Investment in smart grids need to more than double through to 2030 to get on track with the Net Zero Emissions by 2050 (NZE) Scenario, especially in emerging market and developing economies (EMDEs). 

Several major economies have announced substantial new funding to modernise and digitalise their electricity grids

Countries and regions making notable progress in deploying smart grids include: 

  • The European Commission presented the EU action plan “Digitalisation of the energy system” at the end of 2022. The Commission expects about EUR 584 billion (USD 633 billion) of investments in the European electricity grid by 2030, of which EUR 170 billion (USD 184 billion) would be for digitalisation (smart meters, automated grid management, digital technologies for metering and improvement on the field operations). 
  • China plans to modernise and expand its power grids with USD 442 billion in investments over the period 2021-2025.  
  • Japan announced in 2022 a funding programme of USD 155 billion to promote investments in smart power grids.  
  • India launched in 2022 an INR 3.03 trillion (Indian rupees) (~USD 38 billion) scheme to support power distribution companies and improve distribution infrastructure.  
  • The United States announced in 2022 the Grid Resilience Innovative Partnership (GRIP) Program, with a funding opportunity of USD 10.5 billion to support the upgrade and expansion of US electric grids. 
  • Canada is investing USD 100 million through its Smart Grid Program to support the deployment of smart grid technologies and smart integrated systems. 

Clean, reliable and resilient electricity systems need smart grids more than ever

Deployment to date of residential smart meters, 2021

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With around 80 million km of transmission and distribution lines in place world wide today, electricity networks are the backbone of secure and reliable power systems. Over the coming decade, transmission and distribution grids are expected to capture a rising share of total power sector investment in the NZE Scenario, in recognition of their critical role in supporting modern power systems and clean energy transitions. 

Building electricity networks, especially high-voltage interconnections, is very complex, both in terms of permitting and construction. Line route plans and reports have to be drawn up covering the entire length of the network, conditions and specifications have to be assessed, and stakeholders must be engaged. This results in long lead times for these projects.  

Meanwhile, deployment of variable renewables and electrification of other sectors is moving fast, leading to strains and pressures in power systems. Real‐time knowledge of system health through the use of smart grid technologies allows for fuller utilisation of existing resources, enables networks to operate closer to their true limits without sacrificing reliability, and makes it easier to contain system failures into smaller areas and prevent cascading power outages. 

While the transmission grid is already well-digitised, digitalisation of the distribution grid is still lagging in many countries, limiting the availability of real-time information. Despite the deployment of residential smart meters having advanced in recent years and even having reached 100% in some economies, such as China, the share is still very low in many countries.  

Digital infrastructure in electricity grids is growing

Innovative digital infrastructure is gaining prominence in electricity grids, both in distribution and transmission, with around 7% growth in investment in 2022 compared to 2021. 

The distribution sector accounts for around 75% of all investment in grid-related digital infrastructure, through the rollout of smart meters and the automation of substations, feeders, lines and transformers via the deployment of sensors and monitoring devices.  

Investment in digitalisation in distribution also includes specific digital tools, such as Distributed Energy Management Systems (DERMS). These are able to exploit the potential of the increasing volumes of flexibility resources such as small-scale renewables plants, EV charging points and battery energy storage systems to solve local network issues for short-term grid needs, such as voltage regulation and congestion management. In addition, such tools can help distribution system operators (DSOs) to optimise their long-term investments, considering the flexibility potential of Distributed Energy Resources (DER) as an alternative to network reinforcement, including in grid-planning activities. 

Considerable investment and progress has been made in electric vehicle public infrastructure, which continued to grow significantly in 2022, rising by more than 75% during the year. Smart grids can effectively integrate electric vehicle charging into the grid by providing the visibility and control needed to mitigate grid bottlenecks.  

In the transmission sector, digital investment is devoted to the digitalisation of equipment such as power transformers, the automation of substations and the development of flexible alternating-current transmission systems (FACTS) and advanced sensors as phasor measurement units, allowing for faster and more flexible operation and improved control, monitoring and optimisation of the power grid.  

Another aspect that is becoming increasingly important is networks’ disaster resilience. More and more new digital technologies are being deployed, such as Spark Prevention Units that help prevent forest fires (such as bush fires in Australia) or technologies that combine geographic information and satellite image analysis to predict potential damage to grid assets, e.g. damage from falling trees or branches near power distribution lines. 

Investment in digital infrastructure in transmission and distribution electricity grids, 2015-2022

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Investment in electricity grids is growing, with more ambitious network plans to facilitate the electrification of the economy and the integration of renewables

Investment spending on electricity grids, 2015-2022

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Investment in electricity grids increased around 8% in 2022, with both advanced and emerging economies accelerating investment to support and enable the electrification of buildings, industry and transport, and to accommodate variable renewables in the power system. For example: 

  • The European Union action plan published at the end of 2022 envisages investment of about EUR 584 billion (USD 633 billion) in the electricity grid by the end of 2030, of which around EUR 400 billion (USD 434 billion) are earmarked for the distribution grid, including EUR 170 billion (USD 184 billion) for digitalisation.  
  • In January 2023, China's State Grid Corporation announced investments of USD 77 billion in transmission in 2023 and USD 329 billion over the entire period of the 14th Five-Year Plan (2021-2025). China Southern Power Grid will contribute USD 99 billion, which – added to contributions from some regional companies – brings the total nationwide investment to USD 442 billion.  
  • Japan announced in 2022 the creation of a YEN 20 trillion (USD 155 billion) fund to encourage investment in new power grid technologies, energy-efficient homes and other carbon footprint-reduction technologies, with a focus on smart grids as well as better connections between regional power grids. 
  • India launched in 2022 an IRN 3.03 trillion (USD 36.8 billion) scheme for power distribution companies to modernise and strengthen distribution infrastructure, including the mandatory installation of smart meters, which is expected to cover 250 million devices by 2025.  
  • In late 2021, the United States Department of Energy (DOE) sought input on a USD 10.5 billion programme for smart grids and other upgrades to strengthen the electricity grid. USD 2.5 billion of this funding is allocated for grid resilience, USD 3 billion for smart grids and USD 5 billion for grid innovation.  
  • The World Bank Group together with the Multilateral Investment Guarantee Agency (MIGA), the International Finance Corporation (IFC), and other development agencies announced at the end of 2022 an initiative to promote private investment in distributed renewable energy (DRE) systems to electrify targeted areas in Africa quickly and efficiently. 

But investment in electricity grids needs to nearly double through to 2030 in the NZE Scenario

Average annual investment spending on electricity grids in the Net Zero Scenario, 2015-2030

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Investment in electricity grids needs to average around USD 600 billion annually through to 2030 to get on the NZE Scenario trajectory. This is almost double the current investment levels, at around USD 300 billion per year. 

The shortfalls on a regional basis are striking, with a annual gap of around USD 120 billion in advanced economies, more than USD 105 billion in China and nearly USD 33 billion in EMDEs. 

International collaboration programmes for smart grids are a key enabler for their sustainable development

International partnerships in the area of smart grids address specific needs of the systems across the world, with the main goal of sharing knowledge and best practices on technologies and business models, and discussing the results of implementation in each partner country within the network. Programmes focus on developing engagement between countries to co-operate on the creation of international standards for smart grids, on stimulating manufacturers to develop and export their smart grid products, and also on increasing user acceptance.

Examples of existing international collaboration programmes on smart grids include: the International Smart Grid Action Network (ISGAN), the Digital Demand-Driven Electricity Networks Initiative (3DEN), the Global Smart Energy Federation (GSEF), the International Community for Local Smart Grids (ICLSG), the ERA-Net Smart Energy Systems (European Transnational Programme Cooperation), the Smart Grids D-A-CH (Germany-Austria-Switzerland) and the European Task Force on Smart Grids.  

Large-scale interconnectors are of vital importance for the decarbonisation of certain regions

Large-scale interconnectors remain a principal focus of investment in transmission, with projects under construction or planned in Europe, China, North America, India and Australia. They are a valuable tool to balance supply and demand across regions, access remote energy resources and integrate variable renewables. In the European Union, the REPowerEU plan, released in 2022, proposes additional investment of EUR 29 billion in distribution and transmission grids by 2030, to support the increasing elecrrcity production, including the development of interconnectors. China is planning a massive 455 GW wind-solar complex to be in operation by 2030, with the potential for further expansion. This necessitates the construction of high-voltage DC (HVDC) and ultra-high voltage DC (UHVDC) infrastructure, with investment estimates of USD 15 billion for converters and USD 66 billion for ultra-high voltage AC (UHVAC) and UHVDC lines until 2030. 

Interconnectors are also important as a tool to boost international power trading and power flexibility, which can allow for efficient resource sharing, particularly for hydropower, solar PV and wind. The Western African Power Pool (WAPP) is a good example, where technical integration of the 14 member countries covered by WAPP is almost complete. Interconnected WAPP countries exchanged 6 TWh in 2021, or 7% of total power generated.  

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