Socio-Economic Challenges for the Smart Grids Vision

M. Schmidthaler, J. Reichl and K. de Bruyn

Energy Institute at the J. Kepler University Linz

A holistic investigation of future European smart grids requires a number of economic and societal analyses apart from the consideration of the technical and legal challenges. This becomes more obvious in light of the societal dimension of supply security and the – hitherto unknown – public perceptions of new energy technologies, such as smart grid technologies.

The socio-economic work carried out in SPARKS thus provides a comprehensive assessment for designing a beneficial long-term system. Among these challenges are issues related to cyber security which have not been investigated on a broad basis. For smart grid components to be successfully implemented cyber security issues are of great importance. This is due to the fact that – while the possible contribution of smart grids to increasing the efficiency of the overall energy system is unrivalled – their impact on supply security, on data integrity and thus their total macroeconomic effect is heavily debated.

Securing the power grid against malicious attacks is thus one fundamental obligation considering the devastating effects an outage of the electricity infrastructure would have on all levels of the affected society. As a matter of fact, measures to prevent such attacks from having impacts on the electricity supply are intensively researched in engineering and other associated disciplines. The socio-economic work carried out in SPARKS goes beyond these known pathways and aims at providing the best-possible support for the implementation of technological solutions. The subsequent figure displays this triangle of technical, socio-economic and legal inputs, which are investigated throughout SPARKS.

Smart grid security research as comprehensively multidisciplinary approach
Smart grid security research as a comprehensively multidisciplinary approach

With special regard to the outlined “economic ramification”, the scientific challenge lies in the objective assessment of macroeconomic opportunity costs associated with the failure of infrastructure to provide the required output, as well as the societal dimension of smart grid technologies in general. The former affects the overall electricity system, while the latter concerns specific aspects thereof, such as the secure acquisition, storage and transmission of personal power consumption data (i.e. data integrity and security).

The threat of cyber-attacks, for instance, could cause problems in maintaining a certain level of electricity supply security as well as with securing data integrity. Measures which are being developed – in SPARKS and elsewhere – aim at reducing this threat, but come at a cost. These costs then have to be compared to the benefits of smart grid technologies in general as well as uninterrupted power supply and data integrity in particular. The economic team in SPARKS thus assesses these opportunity costs by means of three economic tests in collaboration with stakeholders and distribution system operators as well as by a beyond-state-of-the-art economic experiment.

For the first part, a generic software tool for the assessment of power outage costs in the European Union has been developed by the project team. It is available to the public at Applying this tool, the user can simulate a range of self-designed power outages and obtains estimates of the economic impact of the simulated scenarios. These results are then used as input for benefit-cost analyses or further discussions on the efficacy and efficiency of protective measures. The second part of the socio-economic research carried out in SPARKS thus assesses the economic value of data integrity and technological measures with the aim of ensuring security and privacy of data at the macro and micro levels.

Summarizing the planned efforts of the socio-economic research to be carried out in SPARKS, a better understanding of the non-technical implications of smart grids and measures for their protection will be investigated. Particular emphasis will be given to developing a better understanding of the costs and benefits of security in terms of supply reliability and data integrity. These are assessed from an economic welfare point of view. While engineers and project planners understand as costs only those identifiable through bills and accounts, effects of smart grid projects will usually have broader impacts on the well-being, perceived risks and satisfaction of consumers beyond the accounting perspective but with macro- and microeconomic relevance. As an example thereof we emphasised the change of current privacy levels introduced through the interconnection between power grid and an information network. Such changes manifested in privacy levels, e.g. through smart metered electricity consumption, have to be considered as costs if associated with welfare losses for parts of the society. When policy decisions about architectural aspects of the smart grid or its functionalities are made, these welfare losses (or gains) should be incorporated into the decision making process.

The smart grid vision promises significant support for the envisaged transition to a low carbon society. Whether this holds, and whether or not its achievement comes in an economically efficient way which brings benefits to a large portion of the society while respecting the heterogeneous requirements of the population, will be a matter of comprehensively balancing the different viewpoints and staying open minded for unexpected adaptions where needed. Science is key and thus we strive for a collaborative effort of all related disciplines.