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SAP AG

SMART GRIDS
HEADLINE TITLE
FOR
RUNS
EUROPE
HERE AND HERE
AND HERECHALLENGES, AND BEST PRACTICES
BENEFITS,
SUBHEADLINE TITLE RUNS HERE AND HERE
The
AND SAP Perspective
HERE
January 25, 2011
FOREWORD

The power of digital information and communications technologies
(ICT) continues to grow and transform our world. There are few ICT-
driven transformations that are as promising as “Smart Grids” in
order to meet the urgent Europe’s energy challenges. The prospec-
tive benefits of Smart Grid transformation will extend not just to
energy consumers and energy industry participants but also more
widely throughout our economies and societies.

The priority of energy sector transformation in Europe has been
endorsed at the highest political level. In June of 2010, EU heads
of state and government adopted the European Commission’s pro-
posed “Europe 2020” strategy for jobs and smart, sustainable and
inclusive growth, “starting with innovation and energy policies.”
This endorsement is likewise reflected in the growing political priority
of energy in most EU Member States, and increasingly around the
world as well.

This White Paper is addressed to the political leaders in the EU insti-
tutions and Member States. At SAP we are deeply committed to a
leadership role in the development and application of ICT tools and
technologies able to turn the Smart Grid vision into reality, building
on our long-standing partnership with SAP customers on both the
supply and demand sides of energy markets. This deep involvement
with all important actors and stakeholders, gives us a unique position
both to assess Europe’s Smart Grid progress and to offer recommen-
dations to European policy-makers for ways to accelerate progress.

Europe enters the Smart Grid era in a position of strength. Our
energy industries and infrastructures are strong. On the policy side,
the European Union offers the political framework for aligning our
efforts to take full advantage of our continental scale alongside other
major players of similar scale around the world. Provided we do so,
Smart Grid transformation promises to be a major European success
story. SAP is prepared to help accelerate the transformation.

Jim Hagemann Snabe, Co-CEO SAP AG

2 Smart Grids for Europe – Benefits, Challenges, and Best Practices
CONTENT

Foreword 2

Introduction 5

1. Challenges Facing the European Energy Sector 6

2. What Is a Smart Grid? 8

3. How Smart Grids Will Benefit Europe 10

4. Smart Grid Investment Challenges and Opportunities 14

5. Status of Smart Grid Development in Europe 15

6. Recommendations 19

Annex

SAP Engagement in the Energy Sector and
in Smart Grids Development 25

Summary of Benefits of Smart Grids 26

Summary of Recommendations 27

Smart Grids for Europe – Benefits, Challenges, and Best Practices 3
INTRODUCTION

Europe is at the dawn of an historic global competitiveness of Europe’s en- This White Paper first sets out the
transformation of our energy sectors ergy and energy-intensive industries. new constellation of challenges driving
and systems, driven by a new constel- Smart Grid development, followed
lation of challenges: steadily growing The good news is that multi-stakeholder by the core elements and benefits of
demand, aging infrastructure, Europe’s engagement in Smart Grid development Smart Grids. We then assess the
climate change and related long-term is spreading across Europe at the na- status of European Smart Grid devel-
energy policy goals, growing demand- tional level, typically in response to opment and end with our recommen-
side activism, and industry unbundling national political leadership. Similar dations for further EU-level policy
due to European energy market efforts are advancing elsewhere in action. Our focus here is primarily on
liberalization. the world, notably in the US and China. electricity because that is the current
The fundamental policy question for focus of most Smart Grid development.
Supportive public policies and initiatives, Europe today is whether or not our But Smart Grid solutions will evolve
particularly in the EU framework, will current policy framework is sufficiently for the energy sector more broadly,
play a decisive role in Europe’s ability stable and creates incentives sufficient notably for natural gas and heating.
to turn these challenges into new drivers to attract the scale of investment nec-
of economic and social progress across essary for smart solutions. The dilemma Our views are rooted in SAP’s long
our continent. The recommendations we face at the moment is that the busi- engagement in energy industries as a
set out in this White Paper are intended ness case may be weak for any one provider of enterprise software solutions,
to help stimulate and accelerate the energy sector player to invest in isola- and thus in Smart Grid development
identification, adoption, and implemen- tion, but strong once many others also from the beginning. We work on Smart
tation of just such measures. do, so that the wider system reaches Grid development with customer organ-
an attractive level of Smart Grid izations throughout the value chain and
Europe’s energy industries and infra- functionality. around the globe, advise governments
structures have emerged from the on Smart Grid strategies, and participate
20th century in positions of enviable Viewed in this light, Europe has yet to actively in EU and Member State re-
strength. We are thus well-positioned take full advantage of the EU frame- search and pilots now underway. As a
to lead the transformation of these work to ensure that we leverage our global ICT industry leader of European
sectors here in Europe – and around continental scale and single-market origin that has built its historical success
the world – to meet the new challenges. Smart Grid potential to maintain our on the standardization of business pro-
This transformation has become widely historic strength in energy. This is cesses in enterprises and whole supply
known as “Smart Grid” because it will now our most urgent task. Important value chains, we are entirely committed
be based on the pervasive application of EU-level Smart Grid processes have to reinforcing the historic strength of
digital information and communications been put in place. These now need to European energy industries and infra-
technologies (ICT). Much is at stake. be accelerated and brought together structures through European Smart
Smart Grids will not only deliver bene- with a number of new initiatives in a Grid leadership.
fits to the supply and demand sides of coherent “EU Road Map for Smart
energy markets, but they will be vital for Grids,” together with implementing
Europe’s climate change and energy policy instruments.
security goals, as well as the wider

Smart Grids for Europe – Benefits, Challenges, and Best Practices 5
1. CHALLENGES FACING THE EUROPEAN
ENERGY SECTOR

Europe’s energy services industries Times are changing. The policy goal of far more cost-conscious industrial
and infrastructures have emerged from of affordable, reliable, secure energy and individual consumers.
the 20th century in positions of envi- remains, but the constellation of political,
able strength. The ubiquitous provision economic, social, and technological • Aging infrastructure: Europe’s electric
of reliable, affordable electric power factors underpinning what has long power industries will need to increase
has been one central pillar of this been the paradigm of European energy overall capacity to meet rising demand
strength, driving economic, industrial, is evolving rapidly and radically, adding while at the same time replacing aging
and social progress across the Europe- new challenges for European energy electric utility infrastructure, which
an continent for more than a century. policy and energy industries. This is in most of Europe (and much of the
particularly true for electricity: world) is between 60 and 80 years
The electric power sector in Europe old.4 The required increase in net
(as in most countries around the world) • Growing demand and rising prices: generation capacity5 equals 31% of
has developed largely through central- Europe’s electricity consumption the present generation capacity, or
ized infrastructures in which relatively continues to grow more quickly than some 227 GW – and more in some
few high-output power plants sit in the total energy consumption and more Member States. In Germany, for
middle of national grid transmission and quickly than any other major form of example, the BDI estimates that
distribution systems. This supply-side energy consumption. This trend is almost half of the country’s power
structure reflects not only the evolution expected to continue, the conse- plant capacity will have to be re-
of power generation and distribution quence notably of the attractiveness placed by 2020.6
technologies over the past century but of electricity as an energy carrier, the
also the long-standing political paradigm growth of Europe’s service sector – a • Climate change and sustainability:
of European energy – sovereign states major consumer, and the proliferation EU energy policy now incorporates
exercising full sovereignty over energy of electricity-consuming household the interrelated goals of reduced
policy, typically also with state owner- equipment.2 The technical ability to greenhouse gas (GHG) emissions,
ship of vertically integrated electricity “co-generate” heat from electric increased energy efficiency, reduced
industries. power plants creates additional dependence on foreign energy
demand-side pull. European Commis- suppliers, and reduced dependence
These policies, together with European sion forecasts indicate that electricity on finite fossil fuels. The European
leadership in the core energy technolo- will grow by 38% through 2030.3 Union is committed to a 20% reduc-
gies, have served admirably to deliver tion in total GHG emissions by 2020,
the corresponding public policy goal over At the same time, upward pressures with growing pressure to raise the
many years – of affordable, secure, on electricity prices may be expected target to 30%, and a 20% increase
and reliable1 supply of electricity within to intensify in line with growing demand in energy efficiency.
national borders. By the same token, over the longer term, if and as the price
on the demand-side consumers have of fossil fuels for power generation
had until very recently little incentive rise and align with the cost of new
to consider energy savings and envi- sources of renewable power. This
ronmental impacts. trend will in turn give rise to an era

1. Germany, for example, has the lowest number of power failures in the world.
2. http://sunbird.jrc.it/energyefficiency/pdf/EnEff_Report_2009.pdf The European Commission projects electricity’s share of total final EU-27 energy
consumption to grow from slightly over 21% today to close to 30% by 2030. This rising demand is expected to translate on the supply side to
a 35% increase in capacity between 2005 and 2030. The required increase in net generation capacity equals 31% of the present generation capacity,
or some 227 GW.
3. http://ec.europa.eu/dgs/energy_transport/figures/trends_2030_update_2007/energy_transport_trends_2030_update_2007_en.pdf, page 15.
Meanwhile, the IEA predicts in its reference case that world net electricity generation will increase by 87 percent from 18.8 trillion kilowatt hours
in 2007 to 25.0 trillion kilowatt hours in 2020 and 35.2 trillion kilowatt hours in 2035. http://www.eia.doe.gov/oiaf/ieo/highlights.html.
4. http://www.abiresearch.com/press/1688-Smart+Grid+Spending+Will+Top+%2445+Billion+by+2015
5. http://ec.europa.eu/dgs/energy_transport/figures/trends_2030_update_2007/energy_transport_trends_2030_update_2007_en.pdf
6. BDI’s report on “Internet of Energy:” http://www.bdi.eu/BDI_english/download_content/Marketing/Brochure_Internet_of_Energy.pdf

6 Smart Grids for Europe – Benefits, Challenges, and Best Practices
“We are at a pivotal point for the entire energy world. The energy • Security of supply: Another central
goal of European energy policy is
transition will hit us much faster and harder than many anticipate, enhanced security of supply, meaning
with much more decentralized generation and demanding customers. reduced dependence on imported
energy – particularly fossil fuels – and
In order to facilitate the fluid energy market without endangering diversification of energy sources.
the security of supply, all market parties in the smart energy In practice this will require growing
exploitation of indigenous renewable
ecosystem will need to implement a strong intelligent grid, that energy sources.
enables customer-oriented programs for energy efficiency and
This constellation of new challenges
intelligent usage of all available energy resources. It is crucial that is generating enormous pressure for
large market players strongly cooperate here, since this task is dynamic energy industry restructuring
and the search for competitive new
too large and far too important for individual actions.” business models and services across
Europe’s energy industries at all levels.
Dr. Jeroen P. Scheer, Strategy Consultant Smart Grid IT, Alliander N.V.

Practical responses to all these chal-
Today’s conventional electric power Europe’s energy consuming indus- lenges will increasingly be rooted in the
and heat systems already account for tries increasingly compete in global ability of many more actors to interop-
27% of total European GHG emissions markets, where the comparative cost erate in decentralized energy systems
– the single largest share7 – and thus of energy has become a major factor with many more “moving parts.” The
pose a particular threat to Europe’s of competitiveness. Individual Euro- technologies needed to drive this trans-
GHG reduction goals as electricity pean consumers are under increas- formation will come largely from the
consumption continues to grow. The ing pressure to cut both the cost and pervasive application of digital informa-
result of this policy-driven change will environmental impact of their grow- tion and communications technology
be a proliferation of new, decentral- ing energy consumption. throughout our energy systems.
ized, renewable power entrants on
the supply side – especially wind, • Energy market liberalization: EU But while the pressures driving this evo-
solar and biomass. At the same time, legislation applies the fundamental lutionary vision continue to build, there is
growing numbers of individual indus- EU Treaty provisions to introduce one fundamental obstacle: today’s techni-
trial and household consumers will competition and the free flow of cal infrastructure – centralized generators
generate or store renewable power energy goods and services across linked to passive consumers by national
for their own use, with surpluses single European markets. Today EU “one-way” transmission and distribution
available to sell back into wider sys- regulation requires vertical unbun- grids – cannot provide the information,
tems. Such producer-consumers are dling of power generation from grid communication, and coordinated actions
often referred to as “prosumers.” operations, unbundling between trans- required across the system at all levels,
mission and distribution grids, and which is essential to make it work. In a
• Energy efficiency: At the broader separation of distribution grids from word, our inherited 20th-century electric
systems level, the EU’s 20% energy retail. Grid operators must connect power systems – strong though they may
efficiency target as well as rising new power generators to the system; be – need to become “smart,” which is
energy prices will put all actors under consumers may chose their suppliers; why this transformation has become
growing political, regulatory, and and both generators and consumers collectively known as “Smart Grids.”
economic pressure to improve their have the right to transact business
energy efficiency, starting on the across internal EU borders.
demand side.

7. http://www.energy.eu/publications/THAL08006ENC_002.pdf

Smart Grids for Europe – Benefits, Challenges, and Best Practices 7
2. WHAT IS A SMART GRID?

The European Commission Smart
Grids Task Force defines a Smart Grid
as “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 economi-
cally an efficient, sustainable power
system with low losses and high levels
of quality and security of supply and
safety.”8

The diagram below shows how a Smart
Grid for electric power connects all
actors using ICT tools and technologies.
Crucially, no single actor can benefit
fully from the systemwide network
effects unless all other actors are also
integral parts of it.

8. http://ec.europa.eu/energy/gas_electricity/smartgrids/doc/expert_group1.pdf

8 Smart Grids for Europe – Benefits, Challenges, and Best Practices
Key components of this system include:9 • Software-based added-value services This systems innovation, wherever it
• Smart Meters: Enable remote mea- and applications: allow all actors to takes place in Europe and whoever
suring of real-time consumption and coordinate and control their behavior undertakes it, needs to proceed within
two-way interaction between utilities on the economic level. a European framework of common open
and consumers. These are a key standards, while also ensuring compati-
enabling component for Smart Grids, • Systemwide oversight and coordi- bility with other major third-country sys-
allowing the individual customer to nation – the “glue” in the system: tems. This is the only way to ensure in-
monitor and control consumption in ensure the efficient coordination teroperability on the scale necessary
real time. This will in turn drive devel- and optimum use of the available both to bind the entire system together
opment and demand for smart elec- energy, all individual components and to create new, competitive, open
trical appliances of all kinds down- from producer to consumer must European and global markets for ICT-
stream from the meter customer be integrated into a uniform commu- based tools and services throughout
premises, while providing the critical nication infrastructure to enable real- the system.
information about final consumption time, systemwide communication.
and demand to all players back down
the supply chain. When implemented Many of the ICT tools and technologies
on the basis of standards assuring needed to deliver these Smart Grid
interoperability, smart metering functionalities are available today and
provides information to a wide range are themselves constantly evolving,
of different actors connected to the while new, more powerful ones regularly
Smart Grid, enabling improved emerge. The technical Smart Grid chal-
customer services and systemwide lenge is thus primarily systems innova-
continuous adjustment of supply to tion – the adaptation and integration
demand. Smart Meters can also be of these ICT building blocks, many of
controlled remotely by consumers them in common use today, to create
using today’s mobile telephone and the core Smart Grid functionalities.
Internet infrastructures.
SAP is involved in all areas of Smart
• Intelligent grid management: Allows Grid systems innovation because they
variable power generation, transmis- are all based in one way or another on
sion, and active distribution depend- software programming and software
ing on demand, also permitting reverse tools. A major common challenge in all
flows to allow prosumers to sell their these areas is to create systems that
own power surpluses (for example, can deal with the scale at which these
from solar installations or electricity systems will need to operate and inter-
stored in vehicle batteries); these operate in real time. For example, SAP
functionalities require the use of digi- estimates that Smart Grids will require
tal telecommunications and data the storage and processing in real time of
storage and processing tools and up to 100 times the volume of data com-
technologies. pared with today’s electricity systems,
which in terms of analytics require
breakthrough software technologies.

9. Ibid BDI, page 13: http://www.bdi.eu/BDI_english/download_content/Marketing/Brochure_Internet_of_Energy.pdf

Smart Grids for Europe – Benefits, Challenges, and Best Practices 9
3. HOW SMART GRIDS WILL BENEFIT EUROPE

Consumer and Industrial-User transparency and two-way communica- Transmission and Distribution
Benefits tions. Smart Grid consumers will evolve Transmission Systems Operators (TSOs)
from passive recipients of a commodity and Distribution Systems Operators
The truly revolutionary feature of the to active power market participants as (DSOs) plan, build, and operate the
emerging Smart Grid paradigm is the buyers, technology investors, and even grids that deliver electric power from
ability it will give private as well as as energy producers. generators to consumers. They are
industrial consumers to monitor and responsible for the stability of the grid
control their own electricity consump- Already today many commercial and and security of supply. They also typically
tion in real time in response to relevant industrial users experience some of manage and operate the meter devices
information received, notably price. those benefits since electronic meters on the customer premises. Smart Grids
This will lead to increased transparency for interval measurement have already will significantly improve virtual power
and reductions in electricity costs. been installed in most Member States. plant monitoring, power flow manage-
Consumers will also benefit from the As for private households, the European ment, predictive maintenance, capacity
improved reliability of the network Commission reports that where Smart planning, and energy data management.
and accelerated delivery of new or Meters have been installed, consumers This new transparency and functionality
improved services. have reduced their energy consumption will lead to improved grid efficiency,
by as much as 10%.11 Reported results longer infrastructure life span, higher
For Europe’s energy-intensive indus- of several pilot projects are even more network capacity, and a reduction
tries10 competing in world markets, encouraging.12 in distribution losses and operating
Smart Grid benefits, especially cost costs. Peak load can be shaved by 50%
control, may ultimately make the differ- Supply-Side Benefits through more efficient peak energy
ence between remaining in Europe management.15
or migrating elsewhere in search of Generators
cheaper power. This is why two utilities Energy generators are at the starting Efficiency gains will also be realized
in Europe, Electricity of Lubjana and point of the value chain. Electric power through remote reading enabled by
Verbund in Austria, will launch a joint and heat can be produced from fossil Smart Meters. For example, in early
project to significantly reduce the load fuels (coal or oil), nuclear fuel or renew- 2010, SAP started a Smart Metering
consumption of industrial users, based able energy sources (wind, solar, geo- pilot project with the EKZ, the utility
on an innovative SAP aggregation soft- thermal, biomass, hydro/tidal). ICT tools of the region Zürich in Switzerland.
ware system. connected to Smart Grids can help EKZ estimates that it will save 25,000
energy generators improve portfolio working hours annually simply because
At the same time, the cumulative effect and “virtual power plant”13 manage- meter reading can be done remotely
of the empowerment of millions of ment as well as overall efficiency while without visiting customer premises.
individual electricity consumers will adjusting output to demand fluctuations One recent study concludes that the
be entirely consistent with the wider in real time. In total, ICT could achieve efficiency of transport and distribution
character of the emerging digital age: efficiency gains of up to 40% in elec- of electricity can be increased by 10%
a profound and permanent shift from tricity generation.14 Smart Grids will through the effective use of ICT.16
one-way supply-side communications, also enable the large-scale integration
control and supply of electric power to of renewables and small decentralized
demand-side control based on market power generators.

10. The European Alliance of Energy Intensive industries reports an aggregated annual turnover of over €1000 billion, with direct employment of over 3 million
people, and stresses that manufacturing is closely interlinked with Europe’s entire economic fabric, downstream processing, R&D, and innovation.
11. European Commission: http://europa.eu/rapid/pressReleasesAction.do?reference=IP/09/393
12. In the UK, the AlertMe project allows customers to turn off appliances by Web interface or mobile, and in 8 months residents have saved roughly
40% of their electricity. In the US was Smart Grid City, a pilot project to understand the potential impacts of a range of Smart Grid technologies including
OpenGrid software, which allowed two-way communications on the grid and led to a 90% reduction in voltage problems that in turn reduced overall
power requirements by 3-5% in a city of 100,000 people.
13. A “virtual power plant” is a network of many small, decentralized producers functioning as a single producer.
14. “ICT for a Low Carbon Economy – Smart Electricity Distribution Networks”, July 2009, page 13;
http://ec.europa.eu/information_society/activities/sustainable_growth/docs/sb_publications/pub_smart_edn_web.pdf
15. Ibid, page 9.
16. Ibid, page 13.

10 Smart Grids for Europe – Benefits, Challenges, and Best Practices
“A low-carbon energy system must not only offer an attractive business model for renewable generators
but, moreover, also for grid operators. In order to optimize the use of renewables and harvest energy
efficiency potentials, future grids must be capable of managing huge numbers of generation access
points, volatile production sources and the alternating demands of smart consumers.
Dr. Marianne Moscoso-Osterkorn, Director General REEEP (Renewable Energy & Energy Efficiency Partnership)

Retailers zation of a customer’s energy consump- electricity consumption continues to
Energy retailers are at the final stage tion or the management of decentralized grow. Smart Grids will reduce system-
of the supply-side value chain and the generation capacities including parked wide GHG emissions in two ways: the
point of contact with the customers for electrical vehicles. Overall, Smart Grids integration of renewable energy and im-
energy supply contracts, switching re- will enhance competition and will drive proved energy efficiency throughout
quests and invoicing. They are typically the transformation of the energy sector the system.
focused on selling energy and related into a service-driven industry.
services to private households as well • Renewable energy: To help achieve
as industrial consumers. Smart Grids In the future competing firms will offer the EU’s 20% emissions reduction
will help improve retailers’ ability to carefully crafted consumer services and target, EU policy sets a renewable
understand and respond to individual products to differentiate themselves energy target of 20% of total EU
customer requirements through better from rivals. These may include bundles energy consumption by 2020. Much
data and the tailored bundling of pro- of services for the household (and of that 20% will have to come from
ducts and services. Standard proce- automobile) including choice of power renewable electric power generation.
dures can also be improved – such as source, home appliance management, One authoritative baseline projection
more detailed and accurate accounting or the ability to feed-in a consumer’s foresees renewables rising from 15%
on the retailer side and billing on the own energy production. Prosumers will of Europe’s electricity in 2000 to over
customer side. At the same time, more choose their individual levels of invest- 23% by 2030.20 Some projections
efficient forecasting and smart port- ment in the smartness of the power- foresee renewables providing 50% or
folio management will allow the retailer supply services they purchase, in view more of Europe’s electricity by 2050,
to reduce the risk of peak electricity of the cost and convenience benefits with onshore and offshore wind a ma-
purchasing. they offer. jor contributor (depending also on the
future contribution of nuclear power).
New Entrants and New Business Achieving EU Greenhouse Gas
Models17 Emissions Targets Smart Grids are essential for large-
Smart Grid functionalities will create scale integration of renewable power
pressure on existing players to adapt Smart Grids are the key for driving generation – notably wind and solar.
their business models and will facilitate reductions of GHG emissions from the These sources are typically remote,
the market entry of new players. Grid generation, transmission, and consump- smaller than conventional power plants,
operators may offer in addition to energy tion of electricity. A recent estimate and intermittent – that is, their output
transmission services valuable informa- concluded that over 7% of total world- is largely uncontrollable (albeit increas-
tion packages for power generators and wide emissions could be saved by the ingly predictable) at any given moment.
retailers leveraging the data flow in their global uptake of Smart Grid systems.18 Only a smart, decentralized transmis-
Smart Grids. Institutionalized European- sion grid network can integrate grow-
wide energy trading, which currently The European Union is committed to ing numbers of such power sources
involves only a small number of market a 20% reduction of total GHG emis- in a single system still anchored on
players, will in the future be accessible sions by 2020 (compared to 1990), central, large-scale generators, while
all the way to the prosumer. New whole- with growing pressure to raise the balancing the overall system in real
sale traders may enter the market that target to 30%. Today’s conventional time in response to constantly fluctu-
buy energy capacity from different electric power and heat systems already ating supply and demand.
sources and resell customized products account for 27% of total European GHG
to retailers or large end users. It is also emissions – the single largest share19
expected that new entrants will provide – and thus pose a particular threat to
innovative services such as the optimi- Europe’s GHG reduction goals as

17. For a detailed discussion, see BDI’s report on “Internet of Energy”;
http://www.bdi.eu/BDI_english/download_content/Marketing/Brochure_Internet_of_Energy.pdf, page 22 ff.

18. http://www.theclimategroup.org/publications/2008/6/19/smart2020-enabling-the-low-carbon-economy-in-the-information-age: potential savings from
“smart grid” (2.03 Giga-tons) and “smart buildings” (1.68 G-t).
19. http://www.energy.eu/publications/THAL08006ENC_002.pdf
20. http://ec.europa.eu/dgs/energy_transport/figures/trends_2030_update_2007/energy_transport_trends_2030_update_2007_en.pdf

Smart Grids for Europe – Benefits, Challenges, and Best Practices 11
As a result of the evolution towards of future renewable power penetration Job Creation
fuels with zero or low carbon content in Europe vary widely depending on
(renewables and gas), CO2 emissions assumptions about the cost of fossil Smart Grid transformation in Europe
from power generation (+6%) are ex- fuel alternatives and public support for and the related service industries that
pected to grow much more slowly than renewables. But there is no doubt at all will emerge have the potential to create
electricity production (+35%) by 2030.21 that renewables can only benefit from a significant number of new and highly
the economies of scale necessary to skilled jobs. The European Commission
• Improved energy efficiencies become competitive without subsidy if estimates that our low-carbon energy
throughout the system: EU climate the Smart Grid infrastructure is in place industry today has produced 1.4 million
change policy calls for a 20% im- to connect them to wider systems. jobs, and this figure could double by
provement in Europe’s overall energy 2020 if Europe makes the necessary
efficiency (compared to 1990). The Liberalized Power Markets of investment decisions.24 Much of this
energy sector will need to make a Continental Scale job creation will come in the form of
major contribution to this goal. In the increased demand across the system
words of the European Environment EU policy seeks to increase electricity for skilled personnel from electrical en-
Agency, “Due to the high level of market competition in two ways: 1) by gineering and computer sciences, with
efficiency losses involved in both the requiring vertical unbundling of power a special focus on dual qualifications.
production and transmission of elec- generation, transmission, and distribu- At the same time, there will be greater
tricity, particularly from conventional tion, and 2) by extending competition demand for electricians, mechatronic
thermal generation, the rise in elec- across internal EU borders. It has been engineers, and plumbers with the electro-
tricity consumption is of particular estimated that fully functioning liberalized technical and ICT skills to install and
concern for the environment.”22 electricity markets of continental scale maintain complex components such
The continuous communication and could reduce European electricity prices as electronic meters and home automa-
aggregation of individual consumer by up to 13%, with total savings of tens tion solutions. And there will be wider
cost-saving choices through Smart of billions of Euro.23 demand for IT specialists with good
Grids will drive the supply side knowledge of the energy sector.25
(generation, transmission, distribution, As a result of this policy-driven dual
and retail) to continuously adapt and market liberalization, many new and European Energy Industry Exports
respond in the most efficient way, newly unbundled players in these mar- Competitiveness in World Smart
with corresponding reductions in kets will have to communicate in new Grid Markets
GHG and other emissions. ways with each other both “vertically”
and “horizontally” if the market is to Europe is not alone in our drive to realize
Greater European Energy Security function. New Smart Grid functional- the Smart Grid vision. Governments
ities will facilitate market entry of new and industry players in many parts of
By enabling the integration into the players and enrich all such market- the world are moving – some rapidly in
wider system of decentralized power enabling communications, thereby this direction. Provided we move at
generation from indigenous renewable greatly facilitating and accelerating least as rapidly to build on the relative
energy sources, Smart Grids will also single EU market integration and the strength of our established energy in-
reduce Europe’s dependence on finite – creation of a fully-functioning European dustries and systems – and provided
largely imported – fossil fuels. Forecasts retail market. third country markets are open to com-
petition – the emergence of dynamic

21. http://ec.europa.eu/dgs/energy_transport/figures/trends_2030_update_2007/energy_transport_trends_2030_update_2007_en.pdf
22. http://www.eea.europa.eu/data-and-maps/indicators/en18-electricity-consumption
23. http://ec.europa.eu/energy/electricity/package_2007/doc/2007_09_19_impact_assessment_en.pdf
24. Fabrizio Barbaso, Deputy Director General DG Energy, European Strategic Energy Technology Plan (SET-Plan) Summit Conference, Madrid , 3-4 June 2010.
25. BDI, http://www.bdi.eu/BDI_english/download_content/Marketing/Brochure_Internet_of_Energy.pdf

12 Smart Grids for Europe – Benefits, Challenges, and Best Practices
“Reaching for a sustainable and reliable energy supply for society requires a totally new electricity
grid, to deliver the energy services for transport, industrial, commercial, and residential application.
A smart system will be the result offering new services in a market where the consumer is at the
center of a GHG-free energy system.”

Ronnie Belmans, Professor at the Catholic University in Leuven, Chairman ETP Smart Grid

Smart Grid markets around the world 2009 as part of its economic stimulus loans and grants in 2010. China has
will provide a vast new opportunity for package, the Obama administration fixed the target of non-fossil primary
European providers of proven Smart launched a 100 Smart Grid Investment energy to be 15% by 2020 and to
Grid tools, systems, and services. To Grant Program with funding totalling cut CO2 emissions by 40% to 45%
cite only a few indicators of global mar- $3.4 billion. This program builds on in 2020 (compared to 2005).
ket potential: $4.7 billion in commitments from
private companies, utilities, cities, • Australia and New Zealand are
• One recent study26 indicates that and other partners. opening their energy markets to
worldwide investments in Smart Grid competition in order to attract
infrastructure will amount to some • China, responsible for 75% of the private capital for Smart Grid
$200 billion between 2008 and 2015 global rise in demand for energy,28 transformation.
alone. has rapidly recognized the strategic
importance of Smart Grids. The
• The US has moved rapidly to mod- Chinese government is also investing
ernize its energy infrastructure and in Smart Grid projects and has so far
introduce Smart Grids.27 In November earmarked $7.3 billion for stimulus

26. Free for use: Pike Research Executive Summary: http://www.qualenergia.it/UserFiles/Files/SGT-09-Executive-Summary.pdf
27. Roland Berger Strategy Consultants, “Smart energy-Development paths for energy in the future,” July 2010.
28. Roland Berger Strategy Consultants, “Smart energy-Development paths for energy in the future,” July 2010.

Smart Grids for Europe – Benefits, Challenges, and Best Practices 13
4. SMART GRID INVESTMENT CHALLENGES
AND OPPORTUNITIES

1. Uncertainty over the regulatory
framework, especially whether price
regulation will allow for a reasonable
return on investment.
2. Short-term vs. long-term: invest-
ments have to be undertaken now,
while uptake by customers is still
uncertain and full benefits will only
occur in the long-run. This issue
is especially important in energy
markets that are already open to
competition.
3. Lack of European standards that
“ICT is at the heart of the Smart Grid concepts emerging today. provide certainty, reduce the costs
of technology through economies of
It is for the ICT industry to ensure their interoperability at scale, and ensure interoperability
the European level and that the carbon costs and benefits are 4. Investment inertia: the full benefits
of Smart Grids will only be realized if
quantifiable[1]. This is a must to guarantee a European Smart all market players invest at the same
Grid market and that the significant investments over the time, which is difficult to coordinate;
everybody is waiting for anyone else
coming years will be made on truly sustainable solutions.” to take the first step.
5. Free riders: while the benefits of
Robert Madelin, Director-General DG Information Society, European Commission Smart Grids will be spread over the
whole energy value chain, the in-
vestment burden lies on just a few
players.

As noted previously, much of Europe’s on environmental targets.29 It is further The fundamental policy question there-
aging electric power infrastructure will estimated that over the same period fore is whether or not the current policy
need to be replaced over the coming utilities will need to double their ICT framework will overcome these disin-
decade. The scale of the investment spending to reach some €352 billion to centives. Addressing this question is
required for this compressed renewal realize the Smart Grid transformation,30 urgent because Europe must exploit
cycle creates a unique opportunity to with roughly 15% for smart metering this unique opportunity to fund Smart
build Smart Grid functionality directly deployment and 85% to upgrade the Grid innovation and deployment as a
into the next generation of Europe’s rest of the system. core component of all electric power
power systems. systems infrastructure investment go-
Public policy has a vital and urgent role ing forward. Our need for large-scale
Eurelectric, representing Europe’s power to play in creating an investment environ- investment to ensure an adequate,
generation industry, estimates that the ment in Europe able to attract Smart sustainable future electricity supply
sector needs to invest €1.8 trillion Grid investment on this scale. Current will not wait, so neither must our trans-
(£1.7 trillion) between now and 2030 disincentives that need to be overcome formational investment in Smart Grids
to replace aging plants, develop Smart include: innovation.
Grids, meet surging demand and deliver

29. http://www.guardian.co.uk/environment/2009/mar/19/europe-energy-power-climate
30. http://ec.europa.eu/information_society/activities/sustainable_growth/docs/sb_publications/pub_smart_edn_web.pdf

14 Smart Grids for Europe – Benefits, Challenges, and Best Practices
5. STATUS OF SMART GRID DEVELOPMENT IN EUROPE
“Smart Grids are central to the development of sustainable electricity networks that are at the heart of the internal mar-
ket for energy. With this view in mind, the Commission launched in November 2009 the European Task Force for
Smart Grids to assess further regulation directions and to coordinate first steps towards the implementation of Smart
Grids under the provisions of the Third Energy Package. During 2011 the Commission will launch a standardisation
mandate and analyse what further initiatives at EU level are necessary”

Heinz Hilbrecht, Director for Security of Supply and Energy Markets. European Commission, DG Energy

There is a multiplicity of national Smart Already in 2001, Enel, the largest regions (see Box 1) or the planned
Grid initiatives currently underway utility in Italy, started a €2 billion Smart Meter Hub in the UK (see Box 2)
across Europe: investment program to replace tradi- may be regarded as best practices
tional meters with modern devices. in this context. In total, there are ap-
• In several Member States energy By 2006 all of Enel’s 32 million cus- proximately 200 Smart Grid pilots
ministries and regulators are moving tomers were equipped with smart running in Europe.
to develop national policies and even devices, initially for one-way
concrete plans for the rollout of communication. All of these efforts are vital and pro-
Smart Grids. The U.K., Belgium, mising. However, overall progress on
Germany, Austria, Italy, France, and Interestingly, both Enel and the Smart Grids deployment in Europe
the Nordic region are examples for Swedish utilities have now decided has been rather slow. In most Member
establishing comprehensive Smart to invest in Smart Meters in other States the development of Smart Grid
Grids policies. markets, following the positive ex- policies is at a very early stage. While
periences in Italy and Sweden. Enel, electronic meters for interval measure-
• Sweden and Italy have already for example, plans to install 13 million ment have been already installed for
achieved world-leading smart meter Smart Meters in Spain by 2015. commercial and industrial users in most
penetration – 90% to 100% – in France and the UK are also gearing Member States, the penetration of
different ways. In 2003 the Swedish up for major efforts to introduce Smart Meters in private households
government decided to have monthly smart metering. is still fairly low. And, if investments
billing based on actual meter read- in Smart Meters or Grids including
ings in place by 2009. Accordingly, • European grid operators and IT com- smart metering take place, they are
the government instructed all utilities panies increasingly pool their re- usually based on proprietary technolo-
in Sweden to install Smart Meters. sources in collaborative Smart Grid gies so that the potential of Smart
The universal rollout was completed research projects and pilots, which Grids is not fully exploited.
in June 2009. The smart meter de- in many cases are partially funded
ployment in Italy was commercially by Member States. Germany’s
driven. program to create model E-Energy

Box 1: E-Energy Model Regions, Germany

The German Federal Ministry of Economics and Technology (BMWi) has, in collaboration with the German Federal
Environment Ministry (BMU), initiated a unique “E-Energy technology program,” which runs for a 4-year term and has
received an overall budget of some €140 million. Individual test scenarios for an “Internet of energy” were set up in
each of the six model regions. The objective is to create a smart electricity system, which will to a large extent control
itself and in which all energy-sector processes are optimally adapted to one another. It is hoped that the solutions will
trigger follow-up investments.

One example is “MeRegio”– a minimum emission project in the model region of Baden-Württemberg, in which SAP
participates. The E-Energy MeRegio model house generates power on the roof or using a mini–combined heat and
power plant (CHP) in the basement. The household appliances are interlinked via communication technology and
connected to a smart system platform. The electric vehicle is parked in the garage: the vehicle battery is charged when
the mini-CHP produces more electricity than the grid can take. If necessary, the electricity from the battery can also be
fed into the grid. As a partner of the electricity provider, the consumer can view the processes in the system via an
Internet portal and play an active role in market activities.
http://www.e-energy.de/en/32.php

Smart Grids for Europe – Benefits, Challenges, and Best Practices 15
Box 2: UK Smart Metering Initiative

In December 2009 the UK Department of Energy and Climate Change (DECC) launched a comprehensive,
government-initiated smart meter implementation program. The program foresees the mandatory rollout of electricity
and gas Smart Meters across Great Britain in over 27 million homes and over 2 million non-domestic premises starting
in mid 2012. The government estimates that the economic savings will be between £2.5 billion and £3.6 billion over
the next 20 years. The plans are part of a revamp of Britain’s climate strategy.

In the 1st phase of the program, a smart metering “Prospectus” has been developed jointly with industry, including
SAP, which defines the overall objectives and measures of the rollout. In the 2nd phase a regulatory framework to
facilitate an efficient smart metering rollout will be developed, which then needs to be implemented in phase three.
In the 4th phase Smart Meters will be operational throughout the UK.

Of particular interest in this context is the proposed creation of a Smart Metering hub, the “DataCommsCo” (DCC).
DCC will be a licensed entity and will operate a data center that will be accessible for all market players in the energy
value chain. The DCC will receive data from the various metering companies and will process them for the needs of
retailers, especially for billing purposes. Participants expect that the DCC will yield major cost savings. The new entity
may also provide value-added information services in the future. DCC will respect the highest standards for data
security and privacy that will be developed by a specific working group. DCC services should be available as of
autumn 2013.

http://www.ofgem.gov.uk/e-serve/sm/Documentation/Documents1/Smart%20metering%20-%20Prospectus.pdf

Furthermore, the existing efforts re- • EU Legislative Framework: The third • The European Technology Platform
main largely national. They take place EU energy package of 2009 as well (ETP) Smart Grids, founded in 2005,
at different speeds with little coordina- as the recent European Commission is looking into the development of
tion among them. There is a risk that Communications on energy strategy European electricity networks for
by preserving what has been the pre- 2020 and energy infrastructure prior- 2020 and beyond. The ETP already
dominantly national organization of ities for 2020 and beyond all stress adopted a Vision Paper in 2006, a
Europe’s power industry, Europe will the importance of Smart Grids. The Strategic Research Agenda in 2007
be unable to reap the full advantage third EU energy package includes a and a Strategic Deployment Docu-
of Smart Grid transformation. We still non-binding target for Member States ment in 2009. Under the umbrella
lack a common EU policy framework of 80% penetration of Smart Meters of the ETP, the European Electricity
for Smart Grids that will ensure inter- by 2020. Member States are also Grid Initiative (EEGI) has been creat-
operability across networks and borders asked to prepare a cost/benefit anal- ed, in which network operators, net-
to realize the economies of continental- ysis of smart metering by September work equipment suppliers, the ICT
scale markets for energy and energy 2012. In mid 2011 the European industry, Member States represen-
services. That said, ongoing efforts Commission might propose a legis- tatives and other stakeholders are
within the EU framework create the lative framework for Smart Grids to represented. EEGI has presented a
basis to move farther, faster. be adopted not before the end of nine-year European research, devel-
2012. Implementation in EU Member opment and demonstration program
States would probably take until the to accelerate the development of
end of 2014. next-generation electricity networks
in Europe.31
31. A promising proposal from Europe’s transmission and distribution operators for a nine-year €2 billion research, development, and demonstration
program, “European Electricity Grid Initiative” (EEGI) involves about 22 individual projects and envisages a rolling timetable for project completion with
many key projects reaching completion within 5 years, assuming the necessary finance materializes – by no means a foregone conclusion.

16 Smart Grids for Europe – Benefits, Challenges, and Best Practices
• Under the 7th R&D Framework Pro- – ADDRESS (Active Distribution net- – The SmartHouse/SmartGrid proj-
gram (FP7, 2007 – 2013), the first work with full integration of Demand ect led by SAP develops a holistic
European research projects on and distributed energy REourceS) concept and a road map for the
Smart Grids have started – both in is a large-scale project that started mass adoption of smart energy
the energy theme32 and the ICT in 2008 and is designed to advance devices in homes.37
theme.33 However, so far it has not the “prosumer” concept, i.e. the – The objective of the “Thematic
been a major priority. Approximately integration of small industrial and Network ICT4SMARTDG”, in
€140 million were contracted for private consumer power genera- which SAP participates, elaborates
research for Smart Electricity Grids tors into the overall energy system. the effective use of ICT in decen-
in the energy theme in the years – TWENTIES (Transmission system tralized local power generation.38
(2005–2010).34 Joint activities be- operation with large penetration of – Similarly, the Thematic Network
tween the ICT and energy Themes wind and other renewable electrici- SEESGEN-ICT (Supporting Energy
on Smart Electricity Distribution ty sources in networks by means Efficiency in Smart Generation
Networks totalled €20 million.35 of innovative tools and integrated Grids through ICT) led by ERSE, in
energy solutions) is one of Europe’s which SAP acts as the technical
• A few European Smart Grid pilots largest industrial energy initiatives. coordinator, exchanges best prac-
and thematic networks, co-funded by The objective is to test the wide- tices for the large-scale integration
the European Commission, have spread integration and use of wind of distributed energy resources,
been launched: power in Europe.36 monitoring of energy efficiency,
and demand-side management.39

Box 3: US Smart Services Learning Center

In 2008 the US utility Consumer Energy in Michigan created a “Smart Services Learning Center” (SSLC). The center
has two main functions: First, it is a laboratory to test and evaluate the performance and end-to-end interoperability of
Smart Grid technologies and devices before they are actually integrated into the network. To this end the 2,500 square-
foot facility features a home setting, a Smart Grid station, an energy storage device, smart appliances, and other
technologies. The lab also expands onto the campus to include real grid elements like transmission and distribution
lines. This means that in the SSLC virtually any Smart Grid technology will be tested not only individually but also in
the real live process. The individual tests are necessary to confirm functionality, compliance and safety. Second,
the center is designed as a living lab in order to demonstrate the benefits of Smart Grids to consumers. More than
2,000 people have visited the center since its creation. They can experience the devices in action, for example, the
dryer activates once the price drops to a user-defined level or the air conditioner stops when a critical peak event is
issued. SAP has been involved in the activities of SSLC since the beginning and is using the facility to test current and
future software applications.

http://www.consumersenergy.com/content.aspx?id=1507

32. FP7 Cooperation: Energy: http://ec.europa.eu/research/fp7/index_en.cfm?pg=energy
33. FP7 Cooperation: ICT: http://cordis.europa.eu/fp7/ict
34. EU policy objectives and European research on Smart Grids, European Commission, DG Research, Henrik Dam, Research Programme Officer,
ADDRESS international workshop – Paris 9th June 2010.
35. Work Programme 2009-2010 Cooperation Theme ICT Objective ICT-2009.6.5
36 http://www.addressfp7.org/ + http://www.twenties-project.eu/
37. www.smarthouse-smartgrid.eu
38. http://www.ict4smartdg.eutc.org
39. http://seesgen-ict.cesiricerca.it

Smart Grids for Europe – Benefits, Challenges, and Best Practices 17
• Standardization: In 2009 the Europe- • In November 2009 the European SAP fully supports these efforts at EU
an Commission launched a Smart Commission created a Task Force on level and actively participates in most
Meters standardization mandate for Smart Grids, composed of experts of them. However, we are concerned
the relevant European Standardization from 25 European associations. The that the pace of transformation may not
Organizations (ESO): CEN, CENELEC Task Force mandate is to advise the be fast enough to compete worldwide
and ETSI. A set of European standards Commission on policy and regulatory for the next generation of Smart Grid
for Smart Meters is expected in 2012. measures for the development of services and technologies. A “first-to-
A new mandate for the ESOs to de- Smart Grids in the 2020 framework. market” advantage will apply to all as-
velop standards for Smart Grids will The Task Force is focused on defining pects of Smart Grids, be it renewable
be adopted by the Commission in functionalities of Smart Grids, evalu- technologies, smart electrical equipment,
early 2011. Proven standards for ating data protection implications, power electronics, control and monitoring
Smart Grids are expected in late analyzing roles of different actors in systems or Smart Meters and systems
2014.40 Furthermore, a joint working the value chain and assessing relevant software. Equally important, at a macro-
group has been established among standardization activities. It will also economic level any delay in European
those bodies to better coordinate offer a policy view on collaborative Smart Grid rollout will harm the com-
the various standardization efforts. research at EU level, including the petitiveness of European industry that
efforts of the ETP Smart Grids and in the future will more than ever depend
the EEGI. Initial reports of the three on an efficient energy infrastructure.
experts groups of the Task Force
were delivered in July 2010. The final
report is due in May 2011.

40. This also applies to the list of standards set out in the report by Expert Group 3 of the Smart Grid Task Force.

18 Smart Grids for Europe – Benefits, Challenges, and Best Practices
6. RECOMMENDATIONS

For the reasons set out in the previous 1. Develop an EU Legislative States on public funding and other in-
sections, SAP believes that Smart Grid Framework for Smart Grids centives to foster the rollout of Smart
transformation is the essential tool for Meters and investments in future energy
building on Europe’s established energy- SAP believes that an EU legislative networks.
sector strengths to address the new framework for Smart Grids is needed
challenges of the 21st century. However, and should be adopted as soon as According to SAP experience, grid
to exploit this opportunity, progress possible, in particular to overcome operators, retailers, equipment providers
needs to accelerate. European policy- bottlenecks for investments, address and metering companies will simply
makers, industry, and other relevant consumer concerns and to harmonize not undertake the large investments
stakeholders now need to work more national legislation and approaches to in Smart Grids in Europe unless these
closely together – within an EU frame- create an internal market for Smart Grid issues have been addressed within a
work – and take decisive actions. In our equipment and services. Among the is- stable legislative framework.
view the priorities must be: sues that need to be addressed are the
• Creating sufficient incentives for lack of standardization, security and The EU Task Force on Smart Grids will
Smart Grid investment data protection rules, minimum func- in May 2011 submit its final report with
• Demonstrating the benefits to tionalities of Smart Grid components recommendations on legislative and
consumers and the clear definition of roles and re- regulatory measures to foster the roll-
• Developing a framework for a truly sponsibilities in the Smart Grid supply out of Smart Grids in Europe, which
functioning internal market for Smart value chain. The framework should should provide valuable input for the
Grids also provide guidance for Member EU legislative lramework.

To this end SAP puts forward the
following recommendations:

Smart Grids for Europe – Benefits, Challenges, and Best Practices 19
2. An EU Road Map for Smart Grid Member States as well as industry rep- rollout of smart metering services
Deployment resentatives and other stakeholders. including a demand response
management.
The European Commission should The Forum could also be a platform
develop jointly with Member States and for the exchange of best practices. In SAP believes that European policy-
relevant stakeholders a comprehensive this regard SAP welcomes a recent makers and industry should take firm
road map for the rollout of Smart Grids proposal by the European Commission actions to accelerate the rollout of
until 2020, defining mandatory targets, to set up a “Smart Grids transparency Smart Meters:
as well as specific milestones and mea- and information platform” to enable • Smart Meters are still too costly
sures to achieve them. The EU road best practice exchange among Mem- for their wide adoption. Total Smart
map should accommodate differing ber States. SAP welcomes that the Meter installation costs currently
member-state circumstances. Each European Commission has started to range between €200 and €250,
Member State should therefore devel- conduct an inventory and a solid evalu- whereas the cost for the smart
op its own national plan for Smart ation of the more than 200 Smart Grids meter device itself is around €100.
Grids to be compatible and consistent pilots in Europe in order to extract best Common European standards and
with the agreed objectives and require- practices and develop general guide- the related economies of scale
ments of the European plan. The cost/ lines for the deployment in all Member could reduce the cost for Smart
benefit analysis of Smart Meters that States. Meter devices to about €40.41
each Member States will prepare by
2012 should be a major input to the ICT tools can help develop and execute • The large costs of the rollout and
roadmap. Overall, SAP believes that by the EU road map. An IT management operation of smart metering could be
2020 all Member States could reach system could be established with a further reduced through the creation
80% coverage of Smart Meters. Simi- portfolio of all projects and measures of smart metering hubs or data
larly, 65% of the necessary Smart related to the road map. The IT system aggregation centers, as envisaged in
Grids infrastructure and functionalities that could be managed by the Europe- the UK, in which the various players
could be in place in all Member States an Commission, would be open to all in the energy supply chain pool their
by 2020. The EU road map should also relevant stakeholders, and could in- resources for common benefits.
contain measurable key performance clude a management tool for energy
indicators (KPIs) in order to assess regulators to better understand the • In the initial phase, Member States
progress that has been achieved. systemic impacts of regulatory options. should consider providing financial
The system could also ensure the trans- incentives to utilities and to home
The European Commission should also parency that is needed to coordinate all owners in order to foster the rollout
establish a governance structure that activities and measure progress based and uptake of Smart Meters, similar
would assist it in reviewing progress on agreed KPIs. to the tax relief and subsidies widely
and further adapting the road map for available for double glazing or solar
future needs. To this end the Commis- 3. Incentives for Investments in energy.
sion could establish an EU Smart Smart Grids
Grids Forum that would encompass • Early adoption of Smart Meters by
Member States, regulators, standard- Rollout of Smart Meters public administrations, schools, and
ization bodies, industry and other The rollout of Smart Meters should be universities would show the way and
stakeholders that have a stake in the an important element of an EU legisla- could lead to a breakthrough for their
implementation of the road map. This tive framework for Smart Grids. While it universal rollout. These programs
Forum could meet annually to review is true that a number of functionalities could be supported by the EU’s
progress and take additional measures of Smart Grids such as the integration Cohesion Policy and its Structural
for advancing Smart Grids in Europe of renewables can be realized without Funds. Member States may consider
in areas such as standardization or initial smart metering deployment, the making Smart Meter installation man-
R&D. The existing EEGI could provide a paradigm shift to Smart Grids in which datory in public administrations.
basis for the Forum since it already in- the demand side drives energy efficiency
volves the European Commission, cannot happen without a universal

41. SAP estimate based on a few benchmarks, experiences and discussions with utilities and partners.

20 Smart Grids for Europe – Benefits, Challenges, and Best Practices
Investment Incentives for Smart Grids be responsible for transformation of 4. European Standards
Infrastructure their national energy infrastructures.
The lack of incentives for grid operators National public funding should be Common European standards for
to invest in the ICT-based transformation increased and be coordinated at EU Smart Grids are needed both to realize
of their networks is clearly one of the level. economies of scale in a European inter-
major bottlenecks for the deployment nal market and to ensure adequate levels
of Smart Grids. European policy-makers • The European Investment Bank (EIB) of interoperability across the network.
can help overcome this investment already provides financing for energy
dilemma by providing incentives in a efficiency either directly through SAP fully supports the ongoing Smart
number of ways: its own programs or through collabo- Grid standardization efforts in European
ration with EU R&D framework pro- Standardization Organizations. We be-
• Regulatory incentives: The operators grams such as the European Green lieve that the existing standardization
of transmission and distribution grids Car Initiative, which covers funding mandate for Smart Meters and the
are regulated entities. Investment for the development of Smart Grid draft mandate for Smart Grids address
decisions therefore depend to a large interfaces with electric vehicles. The the core needs. However, there is still a
extent on the regulatory framework. EIB’s own programs include ELENA risk of divergent national approaches
European and national regulators (European Local Energy Assistance), that could lead to a highly fragmented
should leverage their competences which supports local initiatives that market in Europe. Political leadership
and provide regulatory incentives for promote energy efficiency and re- and commitment by industry is required
utilities to invest in Smart Grids. In newable energies, as well as Smart to speed up the standardization process
particular, price regulation should Grids and infrastructure for recharg- and ensure actual implementation of
ensure a reasonable return on invest- ing electrically powered cars. SAP future European standards by all stake-
ments in R&D, pilots, and innovation would welcome an even stronger holders across the Union.
related to Smart Grids.42 engagement of the EIB to support
Smart Grid projects. To this end the EU legislative framework
• EU Funds such as the Trans-European should endorse European standards on
Networks for Energy Program (TEN-E) • SAP recommends conducting a Smart Grids and Smart Meters that
should provide financial support for pan-European value engineering have or will be developed by ESOs.
the single-market, cross-border study to calculate the investments Member States should also consider
dimension of Europe’s Smart Grids and return on investments related making European standards for Smart
transformation. The proposed launch to Smart Grid. The study could Grids and Smart Meters mandatory in
of a new EU fund named “Energy also look into the cost savings that public procurement.
Security and Infrastructure Instru- could be realized in cross-border
ment Fund” could provide additional projects. SAP estimates that In addition, we encourage ESOs to
financial support.43 SAP welcomes Smart Grid investments could work closely with standardization bodies
the inclusion of Smart Grids as one be reduced by 30-50% if utilities in other markets to agree on global
of the new fund’s priorities. While EU pooled their resources to develop standards for Smart Grids. Open global
funds should focus on the cross-bor- the common ITC platforms they standards will be an essential condition
der dimension of Smart Grids, indi- will all need for implementing Smart for a level playing field and free trade
vidual Member States will continue to Grid solutions.44 with Smart Grid equipment, applications
and services.

42. Smart Grids Task Force: Expert Group 3 on Roles & Responsibilities of Actors Involved in Smart Grids Deployment:
http://ec.europa.eu/energy/gas_electricity/smartgrids/doc/expert_group3.pdf
43. Energy infrastructure policy, page 2:
ec.europa.eu/energy/infrastructure/events/doc/2010/2010_05_28_madrid_conference_commission_discussion_paper.pdf
44. For example, SAP works with 7 DSOs representing 60% of European electricity distribution on 12 ICT projects common to all of them,
and similarly with 9 utilities in the United States.

Smart Grids for Europe – Benefits, Challenges, and Best Practices 21
5. Ensuring Privacy, Security, data; clear definition of roles and respon- 6. Creation of a European Smart
and Trust in a Smart Grids sibilities for the collection, ownership, Grid Knowledge Center
Environment and processing amongst Smart Grids
actors; integration of privacy and security SAP proposes the creation of a Euro-
Ensuring both high levels of data privacy requirements in the design of IT systems. pean Smart Grid Knowledge Center to
and digital network security against fraud develop and disseminate best practice
and malicious attack will be essential Security: The standardization and technology hardware and software so-
for the acceptance and uptake of Smart common interfaces that are necessary lutions for the rollout of Smart Grids in
Grid applications and services. Data for the exchange of data and balanced Europe. This facility could also estab-
privacy and network security should flows of electricity increase the trans- lish a laboratory, in which utilities and
be a key element of an EU legislative parency around the electricity market. technology vendors would test the per-
framework for Smart Grids.45 At the same time this heightens the formance and interoperability of their
susceptibility of these key infrastruc- products and solutions under realistic
Privacy: The transmission of sensitive tures to cyber attacks46 and fraud. Like conditions. The center could be used to
private data among various players in user privacy, trust in services and test European standards for Smart
Smart Grids has indeed raised data security must be a priority, notably with Grids at an early stage. Special atten-
privacy concerns. Therefore, address- regard to access authorization. Smart tion should be attributed to addressing
ing these concerns while in parallel Grids should benefit from the ongoing privacy and security concerns as well
unleashing the potential of Smart work within the EU on the protection of as to solutions for the integration of
Meters to empower Smart Grids must critical infrastructure prompted by the renewables and the collaboration of
be carefully coordinated and imple- growing threat of cyber attacks on key various market players in a deregulated
mented. Industry should join forces infrastructure, be it transport, financial energy market.
with data protection officers, consumer or energy.
groups and other relevant stakeholders The availability of best practice standard
to agree on basic principles and imple- Based on SAP’s experience in other solutions could lead not only to cost
menting instruments to ensure that sectors with high privacy and security savings but could also significantly
existing high European standards for requirements – notably financial ser- accelerate the deployment of Smart
data privacy are being adhered to in a vices – we are confident that effective, Grids. Even large Member States could
Smart Grid environment. These indus- industry-wide solutions can be devel- rapidly deploy at least 60% smart
try-driven efforts could lead to a Code oped to guarantee the availability and meter penetration, if not 80%, if based
of Conduct that could be endorsed by integrity of the information needed to on existing standard best practice
the EU legislative framework. exploit the full potential of Smart Grids solutions.47
for all participants, while protecting
Measures and principles should cer- individual privacy and overall system SAP already supports the Smart Grid
tainly include limiting data collection security at all times. test lab by Consumers Energy in the US
and processing to the necessary mini- (see Box 3) and is willing to actively con-
mum; aggregation and anonymization of tribute to the creation of a European
data (including encrypted processing); Smart Grid Knowledge Center. The
clear distinctions between personal and European Center should be industry
non-personal data; maximum transpar- driven, but could be financially supported
ency about type and usage of collected by EU funds.

45. Smart Grids Task Force: Expert Group 2 on Regulatory Recommendations for Data Safety, Data Handling and Data Protection:
http://ec.europa.eu/energy/gas_electricity/smartgrids/doc/expert_group2.pdf
46. The World Economic Forum estimated in 2008 that there is a 10-20% probability of a major CII breakdown in the next 10 years,
with a potential global economic cost of approximately US$250 billion. From the Tallinn Ministerial Declaration of April 2009:
http://www.tallinnciip.eu/doc/discussion_paper_-_tallinn_ciip_conference.pdf
47. SAP estimate based on experience and discussions with utilities and partners.

22 Smart Grids for Europe – Benefits, Challenges, and Best Practices
7. EU Research Agenda and New, highly distributed business The perfect candidates for these light-
Lighthouse Pilots for Smart processes will need to be established house projects are Member States that
Grids to accommodate the coming market have already established the technical
evolutions. Service architectures, plat- infrastructure for Smart Grids, including
SAP fully supports the research agen- forms, methods, and tools focusing on a high penetration of Smart Meters.
da on Smart Grids that has been devel- a network-centered approach will need The next step should be to establish
oped by the ETP and the EEGI. However, to be developed. Understanding and large-scale pilots in those early-mover
research on Smart Grids is still in its managing the complexity of such critical countries to test innovative Smart Grid
infancy. Continued and reinforced system-of-systems infrastructure are equipment, applications, and services.
research will be needed to address crucial and imply systemic risk analysis, Other Member States would certainly
the challenges of Smart Grids and to resilient distributed information and pro- benefit from lessons learned in such
realize their potential benefits. Smart cess control frameworks. The foremost Smart Grid lighthouse projects. These
energy networks research, develop- success factor will be the close coop- projects would in particular test certain
ment and demonstration have been eration between the ICT and energy technical standards and the interopera-
supported in FP7 but should receive a sectors in these research projects. bility of different devices as well as the
higher priority in the remainder of FP7 fundamental IT architectures for the
and the upcoming FP8. SAP is undertaking significant research storage and distribution of high volumes
and development in Smart Grids and of data within such a complex
The strengthened joint effort is needed related innovative energy services and environment.
to reinforce the foundation of the future is participating in six European and five
energy networks such as security, national collaborative energy research In addition, SAP proposes to create
safety, and risk concepts and an ade- projects with a total budget of around European lighthouse projects to realize
quate architecture for a future Internet- €100 million. synergies and to test cross-border
based energy market. Smart Grids Smart Grid technologies, applications,
will undoubtedly make use of the next- More than 200 Smart Grid pilots at and innovative services for business
generation mobile Internet to deliver national and EU level are running in and citizen. The Nordic countries could
the services built into it. Therefore an Europe. SAP is participating in many be a suitable region to establish a
interoperability framework will be an of those projects. However, while these cross-border Smart Grid pilot, given
essential part of the architecture and pilots yield valid information, they are the advanced rollout of Smart Meters,
will need to be developed to enable often too small to adequately test strong interest in innovative energy ser-
interoperability of interfaces and sys- Smart Grid technologies. Therefore, vices and energy efficiency, open mar-
tems that will inevitably result from a SAP supports the current ETP Smart kets and the integrated Nordic grid.
highly decentralized energy sector in Grid agenda that foresees a pooling to
Europe. existing resources and establishing The Smart Grid lighthouse projects
large-scale Smart Grid lighthouse should be a cornerstone of the pro-
projects in Europe. posed EU road map for Smart Grids,
and supported by EU and Member
State funding.

Smart Grids for Europe – Benefits, Challenges, and Best Practices 23
8. Smart Grids Consumer Aware- The project is run by NUON and other 10. Economic Study on Benefits
ness Campaigns partners and is partially funded by the of Smart Grids
government. Another interesting case
Smart Grids will certainly yield tremen- is the Smart Grids living lab that has It is striking that the economic benefits
dous benefits to consumers. In this been established by Consumers Ener- of Smart Grids are often overlooked
respect it should be stressed that Smart gy in the US to showcase smart ener- in the political debate in Europe. This is
Grids will be service driven, that is, the gy services. More than 2,000 at least partly due to the lack of solid
new technologies will allow for fully cus- consumers have visited the lab since economic studies on Smart Grids.
tomized energy services that respond to 2008.
consumer needs. Therefore, SAP encourages the Euro-
In April 2011 SAP will open its own pean Commission to launch an eco-
However, consumers can only be Future Energy Center in Karlsruhe. nomic study that provides a compre-
brought on board by industry actively The living lab will showcase innovative hensive analysis of the benefits of
demonstrating and raising awareness energy applications in Smart Homes, Smart Grids for Europe. As a starting
of the concrete and immediate benefits Smart Factories, as well as for future point, such a study should analyze the
of Smart Grids in terms of greater eMobility and virtual power manage- benefits of Smart Grids for consumers
reliability, the opportunity to bring more ment scenarios. and industry users. Moreover, the
green power into their homes, greater supply-side benefits of investments
energy efficiency, and in the end lower 9. Market Access in Third in Smart Grids for all players along the
costs. Consumers must also be con- Countries energy value chain must be pointed
vinced that their privacy and security out. The study should also look into the
concerns have been adequately The emerging global market for Smart economies of scale that will be related
addressed.48 Grid technologies and services to an internal market for Smart Grid
provides huge business opportunities technologies and services, in contrast
Utilities especially in early mover coun- for European industry, be it for manu- to national markets. The report would
tries have already started comprehen- facturers of smart meter devices, IT then qualify and quantify the macro-
sive energy efficiency programs and and software vendors, or utilities that economic benefits of Smart Grids in
services for consumers, as part of their intend to enter foreign markets. terms of CO2 reduction, energy effi-
Smart Meter rollout strategy. More- ciency, and enhancing the competitive-
over, the various Smart Grid pilots that Therefore, the European Commission ness of European user industries.
have been established across Europe should ensure that third countries The study should also quantify the
are used to test innovative services provide an open and non-discriminatory opportunities for growth and job cre-
and demonstrate the benefits of Smart access to their markets, especially ation, especially by taking into account
Grids to consumers. The model regions through open standards and in public export opportunities and the emergence
for E-Energy in Germany are prime refer- procurement. To this end the Commis- of a new energy services industry. The
ence cases in this respect (see Box 1). sion should enter into a close dialogue study could also undertake a benchmark
Another example is the West Orange with its trading partners and engage analysis comparing Smart Grid devel-
Project in Amsterdam, which is part of in the WTO and other forums to guar- opments in Europe with those in the
the Smart City Program Amsterdam. antee a level playing field and free US and other regions. Finally, it could
Within this project 500 households will trade for Smart Grid equipment and develop recommendations on how to
be equipped with smart energy technol- services. provide sufficient incentives for market
ogies free of charge. The objective is players to invest in Smart Grids.
to reduce energy consumption by at
least 14%. SAP is committed to contributing its
experience and know-how to the suc-
cessful completion of such a study.

48. See Joint BEUC/ANEC Position Paper: “Smart Energy Systems for Empowered Consumers”:
http://www.anec.org/attachments/ANEC-PT-2010-AHSMG-005final.pdf

24 Smart Grids for Europe – Benefits, Challenges, and Best Practices
ANNEX

SAP ENGAGEMENT IN THE ENERGY SECTOR
AND IN SMART GRIDS DEVELOPMENT

SAP is the world market leader for business software solutions. Since 1989 we are offering industry-specific software
solutions for the energy sector. More than 1600 utilities in 70 countries around the globe use SAP for Utilities
solutions. The solutions support all business processes along the increasingly complex supply value chain from
generation, transmission, and distribution to metering and retail. The billing for more than 650 million energy customers
by utilities worldwide is provided by SAP software. Recently, SAP has been named the 2010 Smart Grid Integrator of
the Year by the readers of the New Economy - World News Media.

SAP is constantly working with its customers to enhance its software solutions. To this end we have initiated the
Advisory Customer Council for Utilities (ACCU), in which 20 leading utilities exchange best practices, identify future
trends and work with SAP on new solutions. ACCU has become instrumental in developing new software solutions for
a Smart Grids environment that SAP introduced in 2007. The solution has been implemented already by a number of
utilities in Europe, the US, Australia and Asia.

SAP is undertaking significant research and development in Smart Grids and related innovative energy services. In
Europe alone we are participating in six European and five national collaborative energy research projects with a total
budget of around €100 million.

SAP has become a trusted advisor for governments and regulators on Smart Grid policies around the globe.

We are especially committed to contributing to the development of a common European Smart Grids policy. Dr. Maher
Chebbo, Vice President, Head of European Utilities and Services Industries at SAP, is a co-founder of the ETP Smart
Grids, member of its Advisory Council, and Chairman of its Working Group 3 “Demand, Metering & Retail.” He is a
founding member of the EEGI (European Electricity Grid Initiative) and also member of the EU Smart Grid Task Force.
Dr. Chebbo, who contributed to the ETP Wind and who is a member of the Governing Board of REEEP (Renewable
Energy and Energy Efficiency Partnership) also co-chaired the ICT for Energy Efficiency Consultation group on Smart
Grids for the European Commission in 2008 and is currently the technical advisor to the European Thematic Network
SEESGEN-ICT. He is a member of the recently founded CEN/CENELEC standardization group on Smart Grid.

Smart Grids for Europe – Benefits, Challenges, and Best Practices 25
ANNEX

SUMMARY OF SMART GRID BENEFITS

Consumer and Industrial User Benefits
The truly revolutionary feature of the
emerging Smart Grid paradigm is its
ability to let private as well as industrial
consumers monitor and control their
own electricity consumption in real
time in response to relevant information
received, notably price. The European
Commission reports that when installed,
Smart Meters have allowed customers
to reduce their energy consumption
by 10%.

Supply Side Benefits
• Generators: Information and commu-
nications technologies (ICT) could
achieve efficiency gains of up to 40%
in electricity generation and will en-
able the large-scale integration of re-
newables and small decentralized
power generation.
• Transmission and distribution: Smart Achieving EU Greenhouse Gas Job Creation
Grids will improve virtual power plant Emissions Targets Smart Grids can contribute to the creation
monitoring, power flow management, Estimates indicate that over 7% of total of new future-oriented jobs – potentially
predictive maintenance capacity plan- worldwide emissions could be saved approaching 3 million – as a result of
ning, and energy data management. by the global uptake of Smart Grid increased demand across the system
• Retailers: Smart Grids will help im- systems due to the combination of for skilled personnel, especially with
prove retailers’ ability to understand smoother and large-scale integration dual qualifications involving electrical
and respond to individual customer of renewable energies and improved engineering and computer sciences.
requirements through better data and energy efficiency throughout the system.
the tailored bundling of products and European Competitiveness in World
services. Greater European Energy Security Smart Grid Markets
By enabling the integration of renew- Provided that Europe moves as rapidly
ables, Smart Grids will reduce Europe’s as our competitors to realize Smart
dependence on finite and largely import- Grids and that global Smart Grid markets
ed fossil fuels. remain open, these markets represent
an enormous opportunity: worldwide
Liberalized Power Markets of investments in Smart Grid infrastructure
Continental Scale will amount to some US$200 billion
• According to the European Commis- between 2008 and 2015. As just one
sion a fully-functioning liberalized example, the Chinese government is
electricity market could reduce elec- investing in Smart Grid projects and
tricity prices in Europe by 13% with has so far earmarked $7.3 billion for
total savings worth billions. Smart loans and grants.
Grids will facilitate the creation of an
internal market for energy services.
• Smart Grids will also facilitate market
entry of new players.

26 Smart Grids for Europe – Benefits, Challenges, and Best Practices
ANNEX

SUMMARY OF RECOMMENDATIONS FOR EU
POLICY-MAKERS

1. Develop an EU Legislative Frame- 4. European Standards • The EU should launch large-scale
work for Smart Grids Economies of scale and adequate lighthouse projects possibly taking
A comprehensive legislative frame- levels of interoperability to build the existing technical “standard-
work is necessary to overcome pan-European Smart Grids require like” infrastructure in early mover
bottlenecks for investments, align European-level standardization. countries as a starting point.
the business models of the different Political leadership and commitment
electricity stakeholders, address by industry are required to acceler- 8. Smart Grid Consumer Awareness
consumer concerns and channel ate, endorse, and implement the Campaigns
national initiatives to create an common standards currently in Consumer buy-in will require industry
internal EU market for Smart Grid development in European standard- to actively demonstrate and raise
equipment and services. ization bodies. awareness about the benefits of
Smart Grids in terms of greater
2. An EU Road Map for Smart Grid 5. Ensure Privacy, Security, and Trust reliability, greener energy, and cost
Deployment in a Smart Grid Environment savings, while demonstrating that
To keep it on track, Europe needs • Europe needs to develop robust smart technologies, especially
a road map for the rollout of Smart rules to ensure both high levels Smart Meters, provide high levels
Grids including ambitious but realistic of data privacy and digital network of data protection and security.
targets linked to specific key perfor- security to protect against fraud
mance indicators, milestones and and malicious attacks. 9. Market Access in Third Countries
measures to achieve them. • Industry should work together with The Commission must ensure
data privacy officers, consumer that third countries provide open
3. Incentives for Investments in Smart associations, and other relevant and non-discriminatory access to
Grid Infrastructure stakeholders to develop a Code of their markets especially through
• Rollout of Smart Meters: Member Conduct to ensure high standards open standards and open public
States must commit to mandatory of data privacy in a Smart Grid procurement.
targets and measurable objectives environment.
for rollout. To ensure lower prices, 10. Economic Study on the Benefits
the EU must ensure the promotion 6. Creation of a European Smart of Smart Grids
of European standards to allow Grids Knowledge Center To fully understand the economic
economies of scale and consider Such a center would disseminate impact of Smart Grids, there is
establishing smart metering hubs best practice technology hardware a need for a study that not only
to further reduce the cost. and software solutions for the roll- qualifies and quantifies the benefits
• Investment in Smart Grid Infra- out of Smart Grids; it would also in the energy sector and for con-
structure: Lack of incentives for establish a laboratory for utilities sumers, but also analyses the
grid operators and suppliers rep- and technology vendors to test the broader impact on the European
resents a major obstacle to the performance and interoperability of economy as a whole including sus-
deployment of Smart Grids. The products and solutions. tainable growth, job creation, and
EU must introduce regulatory competitiveness.
incentives and expand funding 7. EU Research Agenda and Light-
from the Trans-European Net- house Projects for Smart Grids
works, the European Investment • Smart Grids must be a top priority
Bank (EIB), and Member States. of FP7 and especially the upcom-
ing FP8 in order to ensure the
development of the appropriate
security, safety and risk concepts
and architecture.

Smart Grids for Europe – Benefits, Challenges, and Best Practices 27
RQ 12036 (11/01)
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