Smart Grid – How intelligent power grids enable the energy transition
Smart Grids are often seen as the backbone of a successful energy transition. But what exactly are they, and why is it so important for our power grid to become “intelligent”?
The smart grid connecting key players in the energy system.
What is Smart Grid?
The term “Smart Grid” encompasses a wide range of new technical solutions within the energy system. It goes beyond just the power grid responsible for transmission and distribution; it also includes the integration of producers, consumers, and storage systems. The grid is designed to become smarter by incorporating additional measurement, control, and communication technology. At its core, each device becomes a “plug & play” component seamlessly connected to the system.
What is the status quo of the power grid?
To understand the technology’s current state, it’s useful to consider the grid’s evolution. Before the rise of renewable energies, electricity flow in the grid was largely centralized and linear. Large, conventional power plants generated electricity and fed it into the transmission level (the highest-voltage level). From there, electricity flowed through various voltage levels in the distribution grid until it eventually reached the low-voltage level (e.g., for households).
Distribution networks were often built oversized, with thicker cables and high-capacity transformers to ensure supply security even in exceptional situations. Since electricity flow was unidirectional (moving only in one direction), lower voltage levels in the distribution grids required minimal measurement technology and control systems.
However, this changed significantly after 2009 with the introduction of the Renewable Energy Directive (RED) and its subsequent revisions. The directive set binding national targets for all EU member states, initially aiming to reach a significant renewable energy share in the EU’s energy mix by 2020 (RED I) and later setting more ambitious goals for 2030 (RED II).
Interestingly: Germany had introduced its Renewable Energy Sources Act (EEG) in 2000, nearly a decade before the EU’s first RED. The EEG surcharge helped wind and solar energy gain traction in Germany, influencing the EU’s broader approach to renewable energy and contributing to the development of the RED.
The energy transition has made the grid system far more complex. Generation has become increasingly decentralized, especially with the expansion of:
- Photovoltaic systems
- Wind turbines
- Combined heat and power (CHP) plants
Renewable energy sources are also volatile, meaning that fluctuations in load and generation now vary more strongly and irregularly than before. Furthermore, many small producers now feed directly into the distribution networks at lower voltage levels, sometimes causing electricity to flow “backwards” between voltage levels.
Several “smart” solutions address the resulting voltage issues:
- Thicker cables: Roads could be dug up to replace existing cables with thicker ones, although this approach is costly.
- Controllable transformers: An “On-Load Tap Changer” (OLTC) can adjust the output voltage as needed.
- Intelligent controls: Connected household battery storage and flexible electric vehicle charging times can optimize grid usage. Artificial intelligence and variable electricity tariffs help make power consumption more affordable and grid-friendly.
As more electricity is generated decentrally from renewable sources (and with growing e-mobility), grid transparency, load balancing, and load flow control are becoming increasingly essential.
The image illustrates the Smart Grid as a communication link between participants in the energy supply network, covering generation, transmission, storage, distribution, and consumption:
The future of smart grid
Achieving greater grid transparency — particularly in understanding distribution network activity — requires more data. Smart meters play a crucial role here.
A smart meter is an advanced electricity meter with a communication interface that transmits measurements at specified intervals. Eventually, smart meters will capture not only electricity consumption (i.e., power) but also other grid state parameters, such as voltage.
Currently, smart meter implementation across the EU varies widely. In nearly half of the countries, over 80% of households already have smart meters, enabling grid operators to enhance energy monitoring and management. However, other countries, including Germany, have made little progress in deploying smart meters.
A good example
A strong example of intelligent data processing through Smart Meter Gateways is demonstrated by the Estonian distribution network operator Elektrilevi. Working with grid management service provider envelio’s Intelligent Grid Platform, Elektrilevi created a digital twin of its grid.
Data collection forms the foundation of the Smart Grid concept. Beyond smart meters, equipping grids and their assets with sensors and communication technologies is essential.
Grid operators also need intelligent tools to turn data into actionable insights. Information alone is of limited use if isolated in silos.
Digital twins of the grid are central to Smart Grids, especially at the distribution network level. They combine process and topology data and place insights in context. Unlike traditional simulations, digital twins update dynamically and respond in real time to various grid events.
A digital twin provides high transparency into the grid’s current state and serves as a precise foundation for grid simulations and strategic grid planning processes.
Flexibility management promotes smart grids
Flexibility management is crucial for integrating renewable energy sources (RES) into the electricity grid, especially at the distribution level, which often wasn’t initially designed for RES variability. Flexibility management focuses on balancing supply and demand to ensure grid stability despite fluctuating resources.
Increasingly, energy experts view flexibility management as vital to preventing grid overloads (see Eurelectric’s September 2023 report, “Keys to Delivering Capacity on the Distribution Grid”).
Flexibility management involves two main types:
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- Consumer-side (or demand-side) flexibility management involves adjusting or incentivizing consumer demand to align with grid needs, such as shifting energy use to times of high renewable generation.
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- Grid-side (or supply-side) flexibility management focuses on the grid operator’s ability to adjust supply or consumption by activating storage systems, rerouting power flows, or controlling consumption sources. For example, in Germany, the Energy Industry Act (“Energiewirtschaftsgesetz”) includes provisions that allow DSOs to implement measures affecting behind-the-meter devices to ensure grid reliability.
Enabling flexibility management requires smart meters and sensors for data, along with data analytics and automated demand-response systems to drive actionable insights. Flexibility management thus promotes the “smartification” of distribution grids by integrating advanced digital technologies and automation to monitor, control, and optimize grid operations in real time.
Conclusion: Why are smart grids essential for the future?
An intelligent, decentralized, and flexible energy system is critical for addressing climate change. Smart Grids enable more efficient integration of renewable energies and improve supply security. By optimizing energy distribution, Smart Grids reduce CO₂ emissions and accelerate the transition to a climate-neutral future. Deploying these technologies quickly is essential to creating a sustainable energy system that protects our environment long-term.
This vision of a decentralized energy system also encourages consumers to actively participate in the energy market. Through digital platforms, households can sell surplus electricity at certain times or purchase energy at lower prices, fostering a “prosumer society” where consumers become producers. In the long term, this development strengthens the resilience of the energy system and prepares it to meet the challenges of a sustainable future with a high share of renewable energy.
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Dr. Tobias Falke
VP Global Sales & Marketing
FAQ about Smart Grid
What is the concept of Smart Grids?
In simple terms, Smart Grids refer to various tools and measures within the power grid that provide a comprehensive view of the grid and its ecosystem. They enable reliable electricity transport from both central and decentralized sources and allow bidirectional power flow between the grid and prosumers.
The “smart” aspect is more about enhanced data collection, communication, and analysis rather than increased grid intelligence itself. While some interpretations of Smart Grids depict them as autonomous systems capable of independent actions, that’s not yet the case. Therefore, such views should be taken with some caution.
Why do grid operators need intelligent tools?
Several factors are driving the need for smarter grids. First, the grid ecosystem is becoming increasingly dense and interconnected, involving not just the grids and their infrastructure but also numerous decentralized sources, like rooftop solar panels, heat pumps, and EV charging stations. Intelligent tools help operators identify where grid reinforcement or expansion is most urgently needed by providing a complete view of the grid and the elements affecting its condition.
Additionally, a growing shortage of skilled personnel highlights the need for greater process automation and transparency. This helps reduce manual tasks, freeing up resources, and supporting younger, less experienced grid operators. Achieving this level of automation and transparency requires a high degree of grid digitalization and precise power grid models that respond to changes in real time.
What are the main use cases for Smart Grids?
A lack of visibility in the low-voltage network ecosystem is one of the biggest challenges for effective grid management, as well as for operational and strategic planning. Since Smart Grid technology offers a holistic view of the grid and its components — such as PV systems, heat pumps, and EV chargers — it helps increase grid reliability, operational efficiency, and supports data-driven grid development.
Especially for long-term planning, Smart Grids provide valuable insights into where grid reinforcement and modernization efforts are most urgent or where bottlenecks can be alleviated through other means, providing a solid foundation for investment planning.
How does a Smart Grid differ from a traditional power grid?
Traditional grids are centrally organized with limited information about grid load. In contrast, Smart Grids continuously collect and analyze data on generation and consumption, allowing for flexible responses to fluctuations and more efficient energy distribution.
What technologies are used in a Smart Grid?
Smart Grids rely on a variety of technologies, including:
- Smart Meters: Real-time consumption measurement devices.
- Sensors and Automation: Tools to automatically monitor and control grid processes.
- Artificial Intelligence and Big Data: Systems to optimize energy distribution and improve demand and production forecasts.
- Communication Networks: Networks connecting devices and systems to securely transmit data.
How do consumers benefit from a Smart Grid?
Smart Grids allow consumers to actively participate in energy management, such as by using solar energy and battery storage. Additionally, flexible tariffs enabled by Smart Grids allow consumers to save money by adjusting their energy use during peak times.
What is the difference between a Smart Grid and a Smart Meter?
A Smart Meter is a device that measures the real-time energy consumption of a household or business and sends this data to the energy provider. A Smart Grid, on the other hand, is the entire network that integrates such devices and intelligently controls energy distribution.
What challenges exist in implementing Smart Grids?
Key challenges include:
- Infrastructure costs: Installing and maintaining sensors, Smart Meters, and communication systems is expensive.
- Data security and privacy: Managing and storing large data volumes requires stringent security.
- Regulatory and political frameworks: Regulations need adaptation to support Smart Grid integration and operation.
How do Smart Grids help with grid stability?
Smart Grids detect surpluses or deficits almost in real-time and adjust energy distribution accordingly. They prevent voltage fluctuations and can use distributed battery storage to save excess energy and release it when needed.
What is a virtual power plant in the context of a Smart Grid?
A virtual power plant networks decentralized energy sources — such as photovoltaic and wind power plants, battery storage, and backup generators — into a large, flexible system that can balance peak loads as necessary.
How are Smart Grids financed?
Smart Grids are typically funded through a mix of public and private investments, often with government support programs. Energy providers also contribute, as Smart Grids enable efficiency gains and long-term cost savings.
What role does AI play in Smart Grids?
AI-driven solutions in Smart Grids, such as machine learning models and automation tools, are particularly effective in tasks like optimizing energy distribution, predicting demand, and balancing loads based on historical data. However, while these solutions rely on complex algorithms, they generally lack the autonomous, adaptive intelligence that “true AI” would imply. It’s worth noting that “AI” is often used rather loosely in the context of Smart Grids.
How do Smart Grids contribute to environmental sustainability?
By increasing the share of renewable energies and reducing energy consumption through efficient distribution and control, Smart Grids lower CO₂ emissions and reduce the need for fossil fuel power plants to cover peak loads.
What does the future hold for Smart Grids?
Future developments will likely center on AI integration, advanced energy storage, electric vehicles, and the formation of energy communities. Eventually, Smart Grids could connect consumers, producers, and storage units in a fully interactive energy system, paving the way for an environmentally friendly, efficient, and sustainable energy supply for the future.
Smart Grids promise an environmentally friendly, efficient, and sustainable energy supply for the future.