The vocabulary of the Smart Grid is focused on interoperability, but who is assuring operability? That is, where is the market for operability and how will it function? A survey of the Smart Grid landscape reveals that those questions remain conspicuously underconsidered. This might be due to sheer neglect, or perhaps a bold assumption that the market will simply emerge when needed. That approach cannot continue.

For the Smart Grid to meet the various visions attached to it, a vibrant market is needed between supply and demand. This is not currently the case, and has resulted in Smart Grid investment only taking place at a handful of forward-looking utilities (and now by the firehose of federal stimulus spending). But the mutually beneficial exchange between energy supplier and consumer will be the ultimate — and sustaining — enabler.

As in any market, but particularly in one as complex as electricity, the value derived from that exchange will depend in large part on how the interactions of supply (utilities) and demand (household and commercial customers) are defined and carried out. The process of designing an appropriate marketplace will require an exploration of how these elements overlap, and where the exchanges of information, money and energy are best carried out. To aid in that exploration, my colleagues and I have adopted the paradigm Three Pillars of the Smart Grid:

1. Smart Customer: The set of technologies that exists or are under development by which electricity consumers will be able to observe, directly control, or allow local intelligent devices to control their electricity consumption. 
2. Smart Utility: The utility that is implementing sophisticated monitoring, digital controls, and locational pricing, as well as reaching out to its customers with programs and plans for “smarter” consumption.
3. Smart Market: The structure of the market that allows for the integration of the technologies, decision logics, and information at the customer and the utility end to create an economically efficient solution in the new dynamic paradigm that the digital technology has created.

Defining the overlap of these elements will determine the character of the Smart Grid.

 As this diagram vividly displays, information is the critical piece at the heart of all three pillars. For the Smart Grid to work, uniform information will allow the customer to evaluate the relative value of the energy being delivered to any end use. But the question remains, what is that information?

The outcome to that question will form the platform on which the Smart Grid develops. It is the Smart Market that will define and provide the market information — specifically, the price, quantity, and control signals — by which both the Smart Customer and the Smart Utility will find mutually beneficial and economically efficient solutions.

The views expressed in this article are those of the author and do not necessarily reflect the opinion of Charles River Associates or its Energy & Environment Practice.

Richard Tabors is Vice President in the Energy & Environment Practice of Charles River Associates, a global business and economic consulting firm based in Boston, MA. He is a retired Senior Lecturer in Technology & Policy at the Massachusetts Institute of Technology, and co-authored the book Spot Pricing of Electricity.

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