Power grids faced simultaneous challenges: rising demand, large-scale renewable integration, the arrival of electric vehicles. Meeting those objectives through the traditional reinforcement approach would have required considerable investment. Smart grids emerged as an alternative, optimising investment through automation, IT and telecommunications.
Smart metering was universally identified as the trigger application. We chose to focus the analysis on the next link, distribution, from HV/MV substations to the meter, the meter itself excluded.
A distribution network described as blind
The starting observation is stark. Distribution was historically a passive connecting segment between transmission and customers. It is becoming a central node required to integrate distributed generation, storage, balancing and charging infrastructure.
Yet compared with transmission, generally considered smart thanks to advanced monitoring and automated control, distribution could be described as blind. Most operators only learned that an outage had occurred when disconnected customers rang to report it.
€150 billion by 2025
Our modelling puts the incremental investment needed to make distribution smart at more than €150 billion worldwide by 2025, split between €50 to 60 billion in North America, €40 to 50 billion in Europe, €30 to 40 billion in Asia and €10 to 20 billion for the rest of the world.
That figure stays moderate against the $5,000 billion of transmission and distribution investment expected by 2030 according to the IEA. That is the key point: smart grids are a revolution in approach, but only an evolution of the assets.
The method distinguishes three kinds of justification: investments resting on purely economic logic, those finding their rationale in monetised externalities such as CO2, and those required by regulators or public policy.
Three deployment patterns by geography
This is the study’s most structuring finding. Local specificities, network quality, regulatory framework, energy policy priorities, produce markedly different deployment patterns.
- Quality catching-up, characteristic of North America. Decades of underinvestment degraded service quality, with the Department of Energy estimating the impact of outages on US business at at least $150 billion a year. With average transformer age close to 40 years, smart grids are the cheapest way to extend asset life while holding an acceptable quality level. Regulatory constraints account for 51 % of investment there.
- The environmental challenge, dominant in Europe, where more than €40 billion will be mobilised mainly to meet the 20/20/20 commitments. The passive network must evolve to actively integrate intermittent sources and handle bidirectional flows, whereas its radial structure was designed around large power plants and one-way flows.
- The technological leap, in developing countries, where smart grids offer a way to keep pace with economic growth, improve service quality substantially, cut non-technical losses at limited cost and shorten deployment times. In Asia and the rest of the world, these deployments will concentrate in cities, where benefits are directly observable.
Local specificities drive even the technical choices
Regional analysis is not a methodological refinement, it is a necessity. One example makes the point: customer density and low-voltage network architecture, three to four customers per transformer in California against several dozen in most European countries, determine the choice between radio and power line communication for meters.
Likewise the regulatory framework, cost-plus or asset-based, shapes operator behaviour and technical choices, since smart grid solutions allow precisely an arbitrage between capex and opex.
Four families of solution were modelled, remotely operated switching devices, substation automation and voltage control, sensors and distributed storage, supported by two categories of shared enabler, IT and the telecommunications network.
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