In addition to technical changes, smart grid innovations can require institutional changes in market design, actor roles, and responsibilities. Different actors involved in the electricity sector might have diverse interests in smart grid developments. Those different actors are, for example, the (public) service utilities, DSO, retailers, aggregators, and electricity customers. Smart grid assets relate to different technical functionalities, which can provide benefits and costs for (some of the) actors involved. Investment in smart grid assets simultaneously influences targets related to affordability, sustainability, and

reliability (JRC and DOE 2012). For example, distribution automation has many benefits for reliability due to the automated/self-healing ability of the network, but can also reduce expenses for network expansion (affordability). At the same time, with large DG penetration, distribution automation can help reach sustainability targets. Alternatively, depending on the way in which the dynamic tariff takes account of policy goals, smart metering and smart appliances can reduce costs for electricity usage, and help support reliability and sustainability objectives. Therefore, due to its multiple functionality, a smart grid can present a different ‘toolset’ for each of the actors involved.

The actors themselves operate within the context of the industry structure. Depending on the structure applied, more or less room is given for competition between actors. Figure 17.1 presents examples of the most common industry structures. In the US the integrated utility structure prevails (Brooks 2015). In Europe, retail competition is applied due to the European Commission’s laws regarding functional and legal unbundling of network operators (Newbery 2002; CEER 2013). Unbundling refers to splitting network operation from supply or production activities in order to allow nondiscriminatory grid access to all market parties. Switzerland, however, is not part of the European Union (EU) and currently has a wholesale competition model. In China, a single buyer model is applied, where there are two state- owned utilities that deliver electricity in their service area. Due to this diversity, the actors involved are motivated by different interests on smart grid investments. This issue will be further described in Section 17.4.1.

Possible industry structures due to sector liberalization

Figure 17.1. Possible industry structures due to sector liberalization.

Source: Authors’ illustration adapted from Batlle and Ocana (2013).

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