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McKinsey on Smart Grid
Can the smart grid live up to its expectations?

Number 1, Summer 2010

The smart grid—an electricity grid that uses two-way digital technology to create greater equilibrium in the supply-and-demand relationship—has long been an aspiration of energy experts and system managers. Its approaching implementation promises improved reliability, fewer outages, and greater customer awareness of energy usage and costs. The smart grid is also expected to advance the adoption of socially beneficial technologies such as renewable generation sources and electric vehicles. The stakes are substantial. In the United States alone, successful deployment of smart grid technologies could yield savings to society of $130 billion annually by the end of this decade. The accelerating adoption of automated metering infrastructure (AMI), which could soon be deployed in nearly 40 million US locations, has created a platform for utilities to add intelligence to the grid. The project has gathered additional momentum from global stimulus spending on energy infrastructure, including smart grids, renewable energy, and electric vehicles.

The course of worldwide smart grid adoption has been halting and complex, with progress varying from country to country. Underlying technologies remain expensive, and the smart grid business case assumes significant changes in customer behavior. A business model is emerging, especially for customer applications, while regulators, utilities, and third-party service providers define their roles and set technology standards. Many core systems remain unproven, and as we go to press, not a single full-feature AMI system has been stably and fully deployed in the United States at scale. The smart grid is facing the near-term disruptions characteristic of the introduction of any truly transformative technology. For the actors in the electric power industry, the course forward is uncertain, and the likelihood of early missteps is high. Yet smart grid momentum is growing, and the biggest risk would be in waiting to see how others surmount the barriers.

In this inaugural issue of McKinsey on Smart Grid, our experts have marshaled insights developed through McKinsey's work with leading utilities and other energy players on the future of the smart grid approach to power distribution.

 

Chapter summaries

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Introduction

Despite the challenges, smart grid technologies promise to have a profound impact on the electric power industry.

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Perspectives on smart grid from leading solutions providers

Top managers from leading equipment vendors and solutions providers discuss the future of the smart grid industry.

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US smart grid value at stake: the $130 billion question

The strategic stance that utilities adopt during the development of the smart grid in the United States will help determine how much value is captured and who captures it.

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How Europe is approaching the smart grid

Uncertainty about standards and support is slowing progress, though smart meters have passed 50 percent penetration in some markets.

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Evolution of the smart grid in China

Development of this enormous market could shape the future of the smart grid globally.

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Best practices in the deployment of smart grid technologies

To reap the expected benefits from the smart grid, US utilities face steep organizational hurdles, significant process complexities, and difficult governance issues.

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Maximizing value from smart grids

Utilities must actively reshape processes, systems and organizational models to capture the most benefits from smart grid deployment.

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The smart grid and the promise of demand-side management

The next generation of DSM technologies will enable customers to make more informed decisions about their energy consumption, adjusting both when they use electricity and how much they use.

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The smart grid opportunity for solutions providers

By 2014, the global market for smart grid technology and services will run into tens of billions of dollars annually.

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