The Economic Impact Model for Smart Grids

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Smart grids are introduced as a promising concept to facilitate the future energy supply system without excessive distribution grid reinforcement, while maintaining the same level of reliability. Load management is expected to enable a higher grid capacity utilization, thereby deferring or eliminating the need for asset reinforcements and corresponding capital expenditures. However, estimation of the potential economic benefit is difficult, due to a high degree of uncertainty surrounding the electricity distribution grids. It is for instance uncertain what the future energy system will look like in terms of the penetration of new technologies and energy demand. Furthermore, it is unknown what the technical consequences of load management on the distribution grid assets are. A model was developed suitable for analysis of the economic consequences of smart grids on the medium voltage electricity distribution grids, in different environmental scenarios over the next three decades. The model takes capital expenditures as a result of grid reinforcement and costs of energy losses into account. Simulation shows that the economic benefit of smart grids with the goal of maximizing grid utilization is not guaranteed. Though smart grids induce significant capital expenditure savings resulting from peak shaving, they increase the costs of energy losses. The economic potential is highly dependent on the energy-transition scenario, more specifically on the degree of load flexibility of all consumers connected to the grid. The model can be improved in several areas, most notably by the technical implications of a ‘smart’ load profile on the distribution grid assets.