Key trends and challenges for the smart grid market

By - 16 March 2020

Nations worldwide are increasingly investing in efforts to reduce carbon emissions and encourage more sustainable lifestyles. The energy sector is a prime example of these efforts, as the move towards using renewable and clean energy has been ongoing for over a decade.

One of the many trends that have emerged in recent years is the use of smart grids. While smart grid technology is certainly not new, its use is increasing ever faster. Indeed, the smart grid market is expected to grow at a 16% CAGR between 2019 and 2024.

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So, what exactly is a smart grid? The IAE defines it as an electricity network system that uses digital technology to monitor and manage the transport of electricity from all generation sources to meet demand from consumers. These next-generation grids have dual communication capabilities, unlike traditional ones, which means they can better avoid imbalances between energy supplied versus used. They are able to coordinate the needs and capabilities of all energy players and end-users in order to optimise power usage, which in turn reduces costs and environmental impact. Thanks to smart grids, real-time management of electricity demand, production and storage are now possible.

Putting the “smarts” into our grids

Smart grids are often lauded due to their ability to better leverage and distribute renewable energy (solar, wind, etc.), make energy usage more reliable and secure, reduce power at peak times and reduce the environmental impact of electricity systems.

A smart grid’s sensing and measurement technologies (mainly sensors and IoT systems) enable unprecedented levels of dual communication between end-users and power companies. Thanks to real-time monitoring, a smart grid can automatically detect and respond to any problems, thus reducing outages and maintenance requirements. Indeed extreme weather and natural catastrophes, such as floods or hurricanes, are becoming more frequent due to global warming, therefore increasing the chances of power outages. In this context, smart grids will become essential in order to prevent outages by automatically variating and redirecting power supply.

While big data plays a big role, greater flexibility and efficiency in energy supply systems is also reliant on hardware innovation. The highly-rated startup Bl!xt, for instance, has created a solid-state circuit breaker that can modulate flow rather than just switching it on or off. Another of their innovations is its bi-directional AC/DC conversion inverter enabling cheaper small-size solar panel production.

Overall, smart grids empower consumers by providing them with more control over their use of energy and the price they pay. Indeed, instead of paying a flat rate, consumers can pay based on their consumption. Furthermore, end users are able to sell any excess energy produced on their property through the use of renewable energy sources like solar panels on their roofs. So the trend is moving towards greater decentralisation of power production, distribution and storage thanks to this new type of infrastructure.

Another key benefit that cannot be ignored is how smart grids help increase the efficiency of renewable energy being created. They ensure that energy can be properly leveraged, stocked and distributed no matter how far a city may be to wind and solar farms, thus reducing waste.

Major hurdles are still impeding smart grid adoption

A lot of research has gone into looking at whether smart meters, sensors and advanced communication tools could result in greater vulnerability to cyberattacks. Smart meters retain an immense amount of data pertaining to consumer information, utility consumption, etc. A single breach could easily compromise the entire system.

Ongoing challenges also include the cost to install and deploy these grids, in addition to the granularity in metering and control. Tremendous financial resources are needed throughout the lifecycle of smart grid development. As an example, the UK’s £11bn programme to roll-out smart grids in all households increased to £13.4bn in 2019 and is facing a four-year delay.

While it would seem ideal for smart grids to be implemented everywhere and to rely solely on renewable energy, fossil-fuel still remains a widely used source of electricity that many corporates are not keen to let go of. The lack of incentive is, in fact, a salient challenge in the spread of smart grid usage.

Policymakers will therefore need to continue playing a key role in incentivising the move towards renewable energy and sanctioning use of fossil fuels. However, this can prove complicated considering certain politicians’ stance on climate change and the weight fossil fuel lobbyists have on these matters.   

Indeed, in late 2019, President Trump dissolved the NIST smart grid advisory committee that had been created under former President Obama, as part of federal budget cuts. Furthermore, he has publicly stated he disagrees with the scientific evidence claiming carbon dioxide emissions are caused by human activity, which is partially why he chose to begin the process of removing the United States from the Paris climate treaty and has made a long list of decisions that go against the move towards clean and renewable energy.

Startups are powering solutions for the grid of tomorrow

Synergies between smart cities and smart grids

As expected, many companies are using smart grids to power the ever-growing concept of smart cities. The emergence of smart cities is an ongoing trend that governments and businesses have been keen to contribute to: the market is expected to grow by a CAGR of 18% between 2020 and 2025. Furthermore, spending on smart cities is expected to grow by 20% in 2020.

One of the many startups which Early Metrics has rated in this space, Seedia, builds smart city infrastructure such as benches and bus shelters that collect energy via integrated solar panels to serve multiple purposes – as charging stations, street lighting and more. Indeed, there are many synergies between smart cities and smart grids, as both involve the use of IoT and clean energy. For instance, smart grids were reported as the second most common smart city project carried out by French cities, as of February 2019.

Supporting local or underserved communities

The use of these new grids to address issues of low access to electricity is also increasingly prevalent. Startups like SparkMeter offer low-cost smart meters to low-income consumers in countries such as Mali, India or Indonesia. Indeed, many companies are leveraging new technology to help provide adequate energy to developing nations.

Consumer-focused efforts are also strong. We are seeing local energy marketplaces being created by a variety of startups, such as Lo3energy, which develops a platform to pool local distributed energy resources that consumers can buy and sell as needed.

Numerous solutions are also leveraging blockchain technology for smart grid applications. A notable example is that of WePower (in the top 5% of 3000 rated startups) which has developed a green energy marketplace based on blockchain technology, enabling smart contracts. It also offers competitive pricing thanks to process standardisation and buyer aggregation of energy demand.

The role of AI in next-generation grids

Artificial intelligence (AI) is of course a technology at the heart of smart grid solutions, and yet another one often aimed at helping consumers better manage their energy consumption. Smart grids produce an immense amount of data, which can be exploited and turned into valuable insights thanks to the use of AI solutions. Variables and data points regarding factors like weather, demand, location or generation assets help operators make decisions regarding the distribution of energy from place to place. However, even on a consumer level, AI is key to help households learn how much energy their individual appliances are using and how to adjust their consumption to be more cost-effective.

Many startups have entered the market within the context of this AI trend. UK-based Upside Energy uses automated algorithms to match demand with available supply and help grids deal with fluctuations and peak usage. On the B2B side, the rated startup Fresh Energy connects to smart meters and uses AI to give insights and tips to consumers on their electricity consumption.

However, the benefits also extend to businesses. Canadian startup BluWave develops AI software that monitors energy usage to help predict energy demands. The platform can help utility companies better use their renewable resources by providing them with the knowledge to determine how much energy a city needs at any given time.

Overall, while the energy sector remains incredibly complex, it is exciting to see the amount of innovation that is permeating from the startup scene into this sector. Hopefully, these new players will help local authorities and large energy incumbents speed up the adoption and lower the price of smart grids across Europe – giving us a fighting chance of curbing climate change.

Want to discover more startups in the smart grid market? Through our Scouting and Ecosystem Mappings, Early Metrics can support you in identifying which new players to watch. Reach out at contact@earlymetrics.com to learn more.

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