Smart Grids: The Regulatory Challenges

Smart grids present major potential benefits in terms of economic, environmental, and social considerations. The deployment of smart grids however requires not only technological advancement but also the ability to overcome many regulatory barriers. This chapter brings regulator perspectives—an area that is under-explored—into the field of smart grid studies. We examine why regulators should be concerned about smart grid developments, the nature of the regulatory challenges they may face, and what they can do to address these challenges. We have two major findings. Firstly, we demonstrate that smart grids present new challenges to regulators. Regulators are faced with three major challenges: utility disincentives, pricing inefficiencies, and cybersecurity and privacy. Market liberalisation, decoupling, dynamic pricing, and protocols and standards on cybersecurity are the major mechanisms that regulators can deploy to address these issues. Secondly, our international case studies of countries and cities provide an overview of a variety of actual regulatory initiatives in place. This overview shows how economies have pioneered a variety of regulatory approaches that tend to be more participatory to better respond to the more dynamic stakeholder landscape that is emerging.