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Smart grids from a legal perspective

As discussed in the previous video, the organisation of the conventional electricity supply system is gradually changing from a centralised to a decentralised regime. This is also referred to as change from a top-down to a bottom-up approach. Examples of such a change include the introduction of decentralised electricity production and the concept of ‘prosumption’ (traditional consumers who, at the same time, also produce electricity). Both developments have technical implications for the organisation and integrity of the grid, but also entail legal implications with regards to rights and responsibilities of grid operators and prosumers.

As discussed in the video on energy market liberalisation and energy transition, the change in the organisational structure of the electricity system has mainly been triggered by the following two developments: firstly, the liberalisation of the energy sector, which enabled more actors to enter the market, and secondly, the climate change mitigation efforts, which pushed the production of energy towards an increasing usage of renewable energy sources instead of fossil fuels. In combination, both developments facilitated the introduction of decentral electricity production and, even more interestingly, also led to a situation where consumers are starting to generate their own electricity and selling any surplus of electricity to their energy supplier. This phenomenon is often referred to as “prosumption”. The term “prosumption” is an artificial term constructed from the words production and consumption. Thus, the term describes persons connected to the grid, which produce electricity for their own use, thereby becoming partly self-sufficient, but still remaining dependent on electricity supply by the grid. This contributes to the complexities in the changing structure of the electricity system.

The function of smart grids

The emergence of prosumers does not only pose immense technical challenges associated with the balancing of the grid (= each offtake from the grid needs to be compensated directly with a similar quantity of electricity that is being fed into the grid), but also requires to consider the role of the prosumer in the organisation of the electricity system as a potential new actor. Both issues, the technical requirements to maintain the balance of the grid and the organisational setting to include prosumers in the market, are addressed in the case of the so called “smart grid”. The concept of the smart grid is not clearly defined, neither in technical nor in legal terms. However, the smart grid is supposed to solve the emerging organisational and operational problems following the changed structure of the electricity supply system and, in particular, by managing supply and demand on consumer level. In other words, the smart grid can be defined along the following functionalities:

  • facilitate balancing on the consumer level instead of the grid level
  • facilitate prosumers, who are willing to sell any surplus of electricity on the market
  • improve energy efficiency by shifting consumption to times when production is high (for example by storage and the utilisation of smart appliances)

Smart grids are considered to be an important means for realising these functions, as they will facilitate a constant exchange of data on production and consumption between the persons that are connected to the grid. Therefore, and in addition to the use of traditional electricity cables, a smart grid requires the use of communication networks and IT technologies, which facilitate the balancing on the consumer level in a “smart” manner. In that way the smart grids are expected to contribute considerably to the challenges of the changing structure of the electricity system in the near future.

The potential of smart grids

The potential of smart grids has also been recognised by the European Commission, which stated that: ‘Member States should encourage the modernisation of distribution networks, such as through the introduction of smart grids, which should be built in a way that encourages decentralised generation and energy efficiency.’[1] The Electricity Directive does not define the term ‘smart grid’. The European Commission, however, provides such a definition in a 2011 communication that describes smart grids as ‘an upgraded electricity network to which two-way digital communication between supplier and consumer, intelligent metering and monitoring systems have been added’[2]. The European Technology Platform for Electricity Networks of the Future (or SmartGrids ETP) refers in its turn to ‘electricity networks that can intelligently integrate the behaviour and actions of all users connected to it—generators, consumers and those that do both—in order to efficiently deliver sustainable, economic and secure electricity supplies’[3].

Thus, both concepts refer to the smart grid as a technical solution to manage the balancing of the grid by ‘smartly’ matching generation and consumption between interconnected prosumers on the level of the distribution grid. Subsequently, this implies the need to install communication networks, which facilitate the required data exchange. Several legal issues emerge in this setting. How do those smart grid developments challenge the current law framework that is governing the electricity system? Legal challenges emerge on both the organisational and the operational level of the electricity system. The organisational issues mainly relate to new actors in the electricity system and the legal and operational issues relate to the maintenance and integrity of the infrastructure. Currently, the legal framework assigns clear rights and responsibilities in relation to the conventional electricity supply system, but this framework will require some reconsideration in the smart grid scenario.


[1] Recital 36 of the preamble to Directive 2009/72/EC.

[2] Communication, Smart Grids: from innovation to deployment of 12 April 2011, COM(2011) 202 of 12 April 2011, p. 2.


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This article is from the free online course:

Solving the Energy Puzzle: A Multidisciplinary Approach to Energy Transition

University of Groningen