Challenges of the Smart Grid

In order to harvest the proposed benefits of the Smart Grid there are a variety of challenges in development of technology, standards and in particular regulation that need to be addressed. Technology, plays the crucial role of an enabler, but also imposes requirements for standardization in order to safely deliver the de-sired results. In particular the different actors in the Smart Grid need to specify standardized architectural concepts, data models and communication protocols in order to achieve interoperability, reliability and security between and for ev-ery single component connected to this "system of systems" NIST (2012); Arnold (2011). In addition further evolution needs to be accounted for by extension capabilities in the chosen protocols. These efforts need to be coordinated and standards and accompanying regulation must enhance innovative and open so-lutions in order not to introduce new market barriers to entrants in the power sector. Organizations like the National Institute of Standards and Technology (NIST) in the U.S. or the DKE /VDE in Germany (German Comission of Elec-trotechnics and Information Technology in the Electrotechnical Society) in coor-dination with IEC are focusing the respective efforts of numerous actors from different industries and stakeholders.

The power sector used to be more conservative in its decisions as disruptions in supply can be very costly and potentially dangerous for the economy and the regions affected. Therefore most power systems have redundant components and can also be operated above normal operation limits for a limited time. Also the investment cycles and volumes are higher than in the IT-industry, as gener-ation and transmission and distribution equipment needs to be opergener-ational for several decades without severe failures during this time. Therefore the architec-ture of the Smart Grid and the integration of ICT in the existing strucarchitec-tures must be designed and implemented with diligence taking into account the high secu-rity and reliability requirements of the power system. Figure 2.5 shows a con-ceptual reference diagram of NIST for the information networks and the general connections that need to be established between different actors. Implementing these structures is not a trivial task, as changes have to be done during ongo-ing operations and standards for legacy equipment of all kinds need to be taken into account. A reference model like this helps to create a common semantic understanding and a common language for the diverse set of actors. In Figure

Institute of Information Systems and Management 22 31.10.2012 A. Schuller – R2V: Price Based Charging Coordination for EVs

Figure 2.5: The NIST Reference Diagram for Smart Grid Information Networks (NIST, 2012).

2.5 it can also be observed, that there are various communication channels that have different latency and security requirements, as for example system opera-tion and generaopera-tion control have as compared to residential metering data only employed for billing.

Besides relevance to system critical operations, security and privacy need to be considered from the very beginning in the design of the Smart Grid and its systems. Security in this case mostly refers to cybersecurity, as the new con-nectivity of generation or controllable loads opens up the possibility of unau-thorized access and a following severe disruption of service and high negative system impacts through coordinated cyber-physical attacks. Therefore cyberse-curity in the power industry must not only cover the protection of information systems from unauthorized, access, use, disclosure, modification or destruction in order to provide confidentiality, integrity and availability. Cybersecurity for the power industry must also address security measures for the legacy automa-tion and communicaautoma-tion systems, in addiautoma-tion to implementing management, op-erational and technological procedures that account for the high reliability and fail-safe requirements of the power system (NIST, 2012).

Furthermore the privacy of residential and commercial customers needs to be respected and enforced by Smart Grid standards and its infrastructure. Espe-cially for the residential sector, smart meters allow for a more transparent analy-sis and feedback of consumption behavior, but also enable utilities or third-party entities that operate the energy management system in a location, to obtain very sensible information about daily habits and usage profiles of certain appliances employing techniques like NIALM (Non-intrusive Appliace Load Monitoring) in a customers home (Zeifman and Roth, 2011). As stated before, non-authorized entities could also gain access to this sensible data and apply similar profiling techniques in order to enable further physical intrusion to the site, as one pos-sible scenario, or the manipulation of meter data by the meter owner to lower costs, being another. These problems need to be considered on one hand by reg-ulation, which needs to provide a legal frame that enforces privacy protection by default and on the other hand by technological measures like, secured hard-ware and hierarchical access rights for metering data, which enable each entity to obtain the level of detail of the data that it requires for its operations (Raabe, 2010; McDaniel and McLaughlin, 2009).

Finally maybe one of the most important challenges for regulators is to create an environment and establish incentives so that private investments can initiate a steady path of incremental transition to the Smart Grid (DoE, 2012; Appelrath et al., 2012).

Even though the Smart Grid is predominantly defined by its technical prop-erties, the requirements from and the implications for power markets are a very important aspect of the Smart Grid concept. The communication and control capabilities enable a variety of coordination paradigms, each with its advan-tages and disadvanadvan-tages for certain applications. The coordination of demand resources can for example be guided only by technical requirements, or on the other hand be organized by inclusion in a market based system, where demand bids are included for price determination and market clearing. The Smart Grid must enable Smart Markets that include locational system constraints and de-mand side bidding from an considerably higher number of participants than it is the case today in the exchange and pool-based markets. Regional energy mar-kets could also be part of this solution (BNetzA, 2011).

The projected benefits of the Smart Grid predominantly result from its role as an enabler. It enables the integration and real time control of distributed and intermittent generation resources. It enables customers to learn more about their energy consumption, general behavior and flexibility potential. It enables more efficient power market transactions, not only from a technical perspective, but

also from an economical perspective, as the demand side elasticity is strongly increased, for the first time ever since the installation of power markets. The Smart Grid offers the opportunity to lower transaction and coordination costs in the system and empowering the concept of Demand Response, as will be ex-plained in the next section.