Overview of Socio-Economic Issues for Smart Grids Development

Simona Bigerna

, Carlo Andrea Bollino

and Silvia Micheli

Department of Economics, University of Perugia, via A. Pascoli 20, 06123, Perugia, Italy

Department of Economics and Business Science, Guglielmo Marconi University, Via Plinio, 44, 00193 Rome, Italy

Keywords: Social Acceptability, Smart Grids, Policy.

Abstract: The electrical world system is experiencing many challenges, including the increasing presence of

renewable energy sources characterized by high variability, the call for actions to mitigate climate change,

the need to restructure the infrastructure already aged and then the development of smart grids. Smart grid

projects have been launched in various countries around the world. The transition to the smart grid is

affecting primarily the European Union and the United States, but also emerging markets such as China and

India are strongly investing in the smart grids. In this paper we analyze the socio-economic aspects that are

among the key variables towards the feasibility of smart grid projects. Construction of new infrastructures

generally rises acceptance problems. Social acceptance of consumers is important for the adoption of new

technologies. We advocate that multidisciplinary cooperation is needed to develop scientific research on

smart grids.

1 INTRODUCTION

We are in the midst of a historical paradigm shift in

the energy market linked to the synergy between

energy and Information and Communication

Technology, i.e., the smart grids. “A smart grid is an

electricity network that can cost efficiently integrate

the behavior and actions of all users connected to it

– generators, consumers and those that do both – in

order to ensure an economically efficient,

sustainable power system with low losses and high

levels of quality and security of supply and safety”

(European Commission Task Force for Smart Grids,

2010).

The traditional operation of the electric grid was

based on a top-down hierarchical approach, whereby

electricity flows from few large generation plants to

the large community of millions of final consumers

(firms and households). This was the old world of

large efficient fossil and nuclear plants, which

needed a centralized dispatching control in order to

ensure the transmission network security.

Nowadays, the surge of renewable energy sources

(RES) and other small scale efficient generation

units has revolutionized the concept of the electric

grid operation. Management and control needs to be

performed at all levels of the electric system in a

simultaneous fashion. It is sufficient to consider that

a sudden increase in a photovoltaic unit generation,

which is embedded in the low voltage distribution

network, produced a feedback of lower load signal

to the primary high voltage transmission network.

All this needs to design a new grid architecture, such

as sophisticated information technology, new cyber

security, new opportunities for investment and

consumption management. For instance, a new

proposal is the development of a distributed system

platform as a smart interface between production

and costumer need, in the New York system (New

York State Department of Public Service, 2014).

A change of the electricity grid model and an

evolution of the current system highly needs several

factors, such as the liberalization of energy markets

and the necessity for sustainable development,

which can be achieved through energy efficiency,

emissions reductions, the reduction of the

massive use of fossil fuels and the increase of RES

production.

The aim of this paper is to analyze the socio-

economic aspects of smart grids, from the viewpoint

of social acceptance: consumers’ acceptability,

privacy, costs, cyber security and regulatory aspects.

They have a significant impact on the development

of smart grids technologies. Indeed, electricity

consumers play a key role in smart grids

development: they are called for a transformation of

their role of consumers from passive to active, aware

of their consumption and able to handle it according

271

Bigerna S., Andrea Bollino C. and Micheli S..

Overview of Socio-Economic Issues for Smart Grids Development.

DOI: 10.5220/0005477402710276

In Proceedings of the 4th International Conference on Smart Cities and Green ICT Systems (SMARTGREENS-2015), pages 271-276

ISBN: 978-989-758-105-2

 2015 SCITEPRESS (Science and Technology Publications, Lda.)

to the availability of energy. The analysis of socio-

economic aspects of smart grids in important for

understanding how to induce consumers to enter into

a contract and implement virtuous and useful

behavior to optimize the operation of the electricity

grid.

The development of scientific research on smart

grids requires a broad multidisciplinary and

interdisciplinary cooperation, involving different

actors, both public and private, ranging from

universities and research organizations, to electricity

producers and operators of electrical grids, agencies

and companies on new communication technologies,

to the consumer organizations.

For the realization of smart grids, it is necessary

that all stakeholders are equally involved, thus

incorporating RES industry, small producers who

are also consumers, trade and territorial associations.

We first discuss smart grids in terms of

opportunities for climate change mitigation. Next,

we provide an overview of the socio-economic

aspects for smart grids development. Finally, we

present architecture policies of the major countries

that are investing in smart grids.

2 SMART GRIDS FOR CLIMATE

CHANGE

Currently we see the impact in everyday life and in

the economic balance of everything that is related to

the perceived quality of life, the environment, the

development of the person and of the economic

system and the necessary infrastructure to produce

and deliver energy. Everything related and

connected in a large system that is the planet we live

in. The real news of the last few decades is the

choice to reduce the use of fossil fuels and increase

more and more the RES production. This is a new

way of thinking the supply and distribution of

electrical energy, particularly in terms of CO

emissions reductions. The international community

has become aware of the serious and concrete

problem of polluting emissions, then implementing

several international environmental agreements. As

the source of more than two thirds of global

polluting emissions, the energy sector is crucial to

tackling climate change. RES are one of the most

important drivers for climate change mitigation, as

well as other measures such as energy efficiency,

carbon capture and storage.

In the “New Policy Scenario” issued by IEA,

which explores the evolution of energy markets on

the basis of the continuation of existing policies and

those implemented until mid-2014, the RES growth

will be approximately 3 times higher than that

occurred in the period 1990-2012. Although fossil

fuels will still dominate the energy mix, in 2040

RES could provide about 23% of the electricity

consumed in the world against the current 3.3%

(IEA, 2014a) (Figure 1).

In the "smart" development model, RES are no

longer necessarily linked to a few producers but

increasingly become a production and consumption

option available to large sections of the population.

Electricity production increasingly widespread and

irregular requires the development of flexible and

smart grids, able to handle peak and distribute the

most of the energy produced. Then, smart grids

could become a key element to increase the use of

RES.

Figure 1: Electricity generation (TWh) (IEA, 2014a).

3 SOCIO-ECONOMIC ISSUES

The smart grid technologies use innovative products

and services combined with advanced technologies

for monitoring, control and communication, in order

to integrate distributed generation from RES. They

provide customers with tools to optimize their

consumption and improve the functioning of the

global system, promote a charging infrastructure for

electric mobility, reduce significantly the

environmental impact and increase the degree of

reliability. These are at the same time the incentive

factors for the development of smart grids

worldwide (Figure 2).

Indeed, benefits of smart grids are related both to

the environment and to the final consumers. They

allow reliability and quality in the supply of

electricity, effectiveness in the distribution of energy

flows and flexibility in managing peak demand,

environmental protection, support the deployment of

RES and electric mobility, contributing to the

reduction of CO₂ emissions, greater awareness for

the final consumers of their own consumption style.

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Figure 2: Smart grids incentive factors.

For instance, it is experiencing the diffusion of

small plants related to RES production, scattered

across regions and often placed on the distribution

networks in medium and low voltage. In these cases

there is a high electricity consumption in the site.

This phenomenon has led to the occurrence of a

paradigm of production and consumption contextual

of electricity: electricity consumers are evolving in

“prosumers” because they not only consume, but

also produce and store electricity (Grijalva and

Tariq, 2011; Kanchev et al., 2011). The prosumer is

a hybrid figure which, according to market signals

and systems management, through smart decision,

automatically and in real-time, he decides if it is

more convenient to self-consume the energy

produced or to enter the grid and sell it.

Notwithstanding benefits related to smart grids

technologies, it is unclear whether final consumers

are willing to accept smart grids technologies, that is

changing their energy behavior. Smart grids require

a complete rethinking of how to introduce new

technologies. This is not an easy process, because it

involves more than just providing solutions to

technical issues. Development of smart grids as a

new infrastructure affects significantly the entire

value chain and then bring about shifts in consumer

behavior, culture, and practice, i.e., a whole range of

new socio-economic aspects, including the crucial

issue of new ways of actively contributing to climate

change mitigation. Successful introduction of smart

grids require support of final consumers and

households (Verbong et al., 2013).

There are socio-economic barriers that are not

deeply analyzed by the social sciences, or that are at

a very early stage of study, but that could

significantly influence smart grids deployment:

consumers’ acceptability, privacy, costs, cyber

security and regulatory aspects. These are the main

determinants of acceptance. In the energy sector,

social acceptance of new technologies has been

discussed mainly with respect to nuclear energy and

RES technologies (Semadeni et al., 2004; Kaldellis,

2005). Oppositions to new infrastructures are

generally related to the Not-In-My-Back-Yard

(NIMBY) syndrome, as in the case of wind power.

For instance, it is widespread there is quite strong

overall public support for wind power but when the

projects become concrete, people suffer from the

NIMBY syndrome (Wolsink, 2000).

Some studies on smart grids acceptability are

carried out through public opinion surveys. These

studies allow to understand how electricity

consumers perceive the possible development of

smart grids and how their behavior changes

accordinlgy. Most of the opinion surveys report that

consumers have a positive attitude with respect to

smart grids as a solution to energy problems, but

they are sensitive to possible tariff increases. Given

the complex issue of smart grids, involving home

energy management up to the physical installation of

new technologies in home, final consumers may

resist smart grids. Complexity makes people

uncertain about the consequence of a choice, so it

might be that fear that there are risks related to smart

grids brings final consumers doing nothing, i.e., do

not participate in smart grids (Anderson, 2003;

Broman Toft et al., 2014).

An ongoing problem with respect to social

acceptation of smart grids is the consumer privacy

issue. The main consequence of smart grids’

introduction is the possibility of large accumulation

of data from smart devices. Data availability in the

hands of energy utilities will show the largest

increase since electrification (Rusitschka et al.,

2010). The smart grids are able to detect not only the

energy consumption of consumers but also to

recognize its use. These are sensitive users data,

which should definitely be protected but at the same

time they are very interesting for the purposes of

energy savings. Data control on the amount of

energy consumed can lead to monitoring the

behavior of a consumer with every imaginable

consequence: it is possible to know how long the

consumer sleep, when and for how many hours he

use appliances, when and for how much time

watching TV, etc. For instance, the main privacy

concerns related to smart meters in a dwelling

context where people expect their activities to be

private. Consumers’ sensitive data might be used for

illegal uses, commercial uses, uses by law

enforcement agencies, uses by other parties for legal

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purposes, use by family members and other co-

inhabitants (McKenna et al., 2012). The privacy

risks exist as well by translating the same

phenomenon in the context of a firm. In fact,

considering the activities carried out by a firm, even

through the monitoring of data on electricity

consumption, it is possible to know the operational

procedures of that specific firm. All this, however, is

related to the security measures to transmit

information relating to the individual users directly

to the energy supplier (Rial and Dazenis, 2011).

High initial costs for smart grids’ development

can constitute a socio-economic aspect that can act

as a deterrent to social acceptance of smart grids. As

young technologies, smart grids require significant

investment and a distribution of costs in the short

term, while there will be some long-term benefits for

the various stakeholders of the sector. The

quantitative assessment of costs to implement the

smart grids is mainly provided by institutional

entities. Some literature highlight the importance of

policy makers in designing effective dynamic tariff

programs involving the largest number of

consumers. Indeed, dynamic pricing rate designs

may represent a solution offered by smart grid

technologies to reduce the bill paid by consumers.

For instance, consumers can change their pattern of

electricity usage by lowering consumption during

the most critical hours. Some literature highlights

the existence of many benefits that are not monetize

in quantitative terms, such as reduced electricity

outage times, the greater use of RES (Faruqui et al.,

2010; Schwister and Fiedler, 2014).

The social/psychological risk of cyber security

threats is the key risk that consumers experience and

it is a real barrier to the deployment of smart grids.

The security issue is related to the digital technology

typical of smart grids and mainly to the related

possibility of cyber-attacks. The targets of cyber

attacks are: compromising and control devices

control the grid, often as a first step for deeper and

complex attacks, enter data traffic contradictory, edit

or delete them in order to force bad decisions in

response systems, obtain private information on user

data, sabotage the system of communication and

data processing to delay or send it into a tailspin.

Anyway, there are countermeasures to be

implemented for information security, such as

actions to build communication secrecy, through

secret keys sharing or designing a highly resilient

communication architecture for smart grids

(Ericsson, 2010; Park et al., 2014).

Regulation has a key role for developing smart

grids. Given the climate of uncertainty that leads to

postponing investments, the economic theory

investigates regulatory measures that give incentives

to enable investments (Clastres, 2011). Indeed,

regulation affects market structure, the behavior of

the different actors, in particular through the choices

of return on investment, but also through

administrative decisions.

Then, from an economic point of view, the

development of the smart grids is mainly inserted in

view of public policies to be implemented for their

deployment. To the final consumers should be

transmitted both the important benefits from the

socio-economic point of view and the

"environmental" values related to smart grids for

climate change mitigation. Moreover, smart grids

contribute to rural development, lowering health

costs linked to air pollution and allowing energy

independence; this reinforce the need for smart grids

also in developing countries (Fadaeenejad et al.,

2014).

4 INSTITUTIONAL

ARCHITECTURE

The adoption of smart grid technologies varies

across countries and depends on many factors

including governmental policies, regulatory

incentives, and technology experience levels within

utilities. It is important to understand how

government policies are moving for encouraging

smart grids development. The development of smart

grid projects is also a policy and financial problem.

According to the New Policy Scenario, global

investments forecasted amount to $16.4 trillion

between 2014 and 2035, of which about 58% is used

for the construction of new power plants and the

remaining for transmission and distribution

infrastructures (IEA, 2014b). Investments in power

plants are mainly aimed at non-hydro RES, mostly

wind and solar photovoltaic, because their capacity

is projected to increase over time, in spite of fossil

fuels. Investments in transmission and distribution

infrastructures clearly involve also smart grids. At

the regional level, China is supposed to be the

largest investor in the power sector, followed by the

European Union (EU), the United States (USA),

India and Southeast Asia (Figure 3).

Smart grid projects has been launched in various

countries around the world. The transition to the

smart grid is affecting primarily the EU and USA,

but also emerging markets such as China, India and

Brazil are investing strongly in the smart grid. It

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Figure 3: Cumulative global power sector investments in

selected regions (trillion dollars, 2012) in 2014-2035

(IEA, 2014b).

follows a brief description of the main national

smart grids initiatives.

With reference to the EU, most of the ongoing

projects (and over 70% of investments) are relating

to smart meters. In the period 2008-2013 investment

in smart grids have been consistent and

approximately € 200 million per year; they mainly

come from private capital (49%), EU institutions

(22%), national governments (18%) and regulatory

agencies (9%), with the remaining 2% funding

unclassified. According to the Third Energy Package

(a legislation package on internal electricity and gas

markets fully applicable since March 2011), there is

the target of rolling out 80% market penetration for

electricity by 2020. The European Commission

forecast the installation of 200 million smart meters

for electricity (that are 72% of EU consumers) for an

investment of around € 45 billion by 2020

(European Commission, 2014). The geographical

distribution of projects in the EU is quite

unbalanced. Almost 90% of the projects are

implemented in the old EU-15, while a few marginal

projects are present in countries entered for the last

members of the EU 28. This inequality may create in

the future, not only difficulties of cooperation

between the different EU countries, but also fracture

within the EU between more and less

technologically advanced countries, with

consequences that would endanger both the

achievement of the EU objectives of sustainable

development in the energy sector and the EU

cohesion.

Net investments to implement smart grids in

USA are estimated to range between USD 338

billion and USD 476 billion over 20 years (United

States Department of Energy, 2014). Their main

objectives are the development of smart grid

technologies in the transmission and distribution

systems and the provision of more information to

consumers so that they can better manage their

electricity consumption and therefore costs. Over the

last years, the production of electricity from RES has

risen in USA, especially with reference to solar

photovoltaic, with California heading the RES

market. Even the small wind, biomass and

geothermal are going through a phase of

development. The growth of RES requires greater

integration of these into the electrical system. In

addition, the utilities want to exploit the US smart

grid to reduce the effects of grid outages due to

storms and fires. In 2013, some utilities located in

Georgia, New York and Colorado announced their

intention to produce 840 MW of solar energy by

2016 (GSGF, 2014).

Although smart grid projects have been

developed mainly in the US and the EU, many other

countries around the world are beginning to explore

smart grids deployments and in some cases the

projects have already taken hold. BRICS’s countries

(Brazil, Russia, India, China, and South Africa)

account for 24% of global smart grids market in

2012. In particular, China drives the growth of smart

grids among BRICS’s countries: the development of

smart grid is high in the Chinese agenda because it is

important to keep pace with the rapid economic

growth. Smart grids are seen also as a way to reduce

carbon emissions through energy efficiency of

power generation (The Smart Grid Observer, 2013).

Both the developed and the emerging countries

are moving to the deployment of smart grids. There

is awareness worldwide by governments that to the

population increase corresponds growth in electricity

demand, but the compelling need remains to reduce

electricity consumption for climate change

mitigation.

5 CONCLUSIONS

In this paper we have analyzed the socio-economic

aspects for the feasibility of smart grids

development. We have identified five crucial

aspects: consumers’ acceptability, privacy, costs,

cyber security and regulatory aspects. We deem that

these are the crucial issues that need to be

understood and solved, in order to ensure a realistic

smart grid technology deployment in the long run.

The inclusion of consumers in the energy market

will be, primarily, through the diffusion of

consumption’s monitoring and choice of flexibly

time of use rates. Informed choices of consumers

will generate a boost to optimize electricity

consumption. Our socio-economic analysis

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highlighted the need to complement technical issues

with a comprehensive search for all the solutions

that can be made available to customers/users, in a

framework of convenience for them and for the

operators. Thus, the responsibility of policy makers

is to adopt a multidisciplinary approach in order to

transform the electricity system in proactive and

crucial component of climate mitigation and

adaptation strategy. Such transformation goes

through smart grids. The inclusion of conscious

consumers in the process is of fundamental

importance.

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