Brussels, Belgium --- (METERING.COM) --- June 24, 2010 - The European Regulators Group for Energy and Gas (ERGEG) has issued its conclusions and recommendations on smart grids in Europe, which will be used in advising the European Commission in developing a future European policy framework for smart grids.

The paper follows a consultation on a position paper on smart grids released by the ERGEG in December 2009 (see European regulators set out position on smart grid)and focuses on three key areas – the definition and drivers of smart grids, opportunities and regulatory challenges, and priorities for regulation.

In its paper the ERGEG concludes that there is an almost unanimous consensus that network companies are facing significant challenges in effectively playing their part in the low carbon transition.

There was broad agreement with ERGEG’s proposed definition for smart grid as “An electricity network that cost efficiently can integrate the behavior and actions of all users connected to it – generators, consumers and those that do both – in order to ensure a sustainable power system with low losses and high levels of quality, security of supply and safety,” and there is broad agreement on this definition. However, there is still a real need to promote a common understanding of the term smart grids, although the understanding of the services, functionalities and solutions that smart grids will actually deliver in the future will evolve over time.

Further, the roles and responsibilities of relevant stakeholders and authorities in the transition to smarter transmission and distribution grids must be clearly defined and duly committed.

A significant number of stakeholders are calling for an urgent step change in the approach to the design, planning and operation of grids (especially distribution), requesting significant investment in innovation, well above the current investment levels, which should be supported at policy and regulatory level. Considering ways to encourage innovation, the ERGEG believes that it is important to distinguish between research and development activities, usually (co-)funded by national or EU-wide public sources, and grid specific demonstration or deployment, where, according to national priorities and in coherence with the applicable national regulation systems, measurable benefits to identifiable users could justify an inclusion of costs in regulated tariffs.

The performance-based approach could fit well the deployment phase, whereas different approaches for incentivizing the demonstration phase might be opportune.

Agreement on the beneficial effects and of their performance indicators is necessary to perform preliminary cost/benefit analyses before carrying out demonstration projects, and, most importantly, final cost/benefit assessments after the demonstration phase in order to evaluate the opportunity of full scale rollout of the tested smart grid solutions;

Finally, as long as deployment of smart grid solutions will be carried out, other barriers than those currently envisaged and addressed are likely to arise. Cooperation among stakeholders will be vital to identify them quickly. Thereafter, policy and regulatory attention must focus on finding solutions that provide an appropriate balance between all the stakeholders’ positions.

Based on these conclusions the ERGEG has also prepared a set of 10 recommendations that should be taken in account, where appropriate, by European and national decision makers when discussing smart grids.

The ERGEG also notes that in addition to its ongoing advisory role, the Group is evaluating the opportunity for analyzing new elements of market design, business models and marketplaces which are expected to arise together with the future deployment of smart grids, and for carrying out a benchmarking activity at EU level to identify the current status of deployment of "smart" technologies across European grids and to select and quantify a few promising performance indicators and grid output measures.