FROM SMART TECHNOLOGY TO SMART CONSUMERS: FOR A BETTER SYSTEM RELIABILITY AND IMPROVED MARKETS EFFICIENCY. Claire Bergaentzlé Université Grenoble-Alpes PACTE-EDDEN, CNRS 32d USAEE/IAEE North American Conference July , Anchorage, AK.

Smart grids are always designed in response to the specific energy objectives faced by the countries. No unique model. The scope of regulators in setting the regulatory framework for smart grids investments will depend upon organizational structure issues. What is recognized as best regulatory mechanisms by the litterature is rarely adopted. This can lead to inefficiencies in the process of adopting the technology

1/ Four examples to illustrate four smart grids objectives 2/ Organizational issue and the scope of the regulator 3/ Confronting real world regultory mechanisms to best practices

1/ Four examples to illustrate four smart grids objectives : the drivers for SG investments CaliforniaIllinois Germany UK Limited available capacities Loading order Grid upgrade Intermittency risk and cost. Network management and forecast due to DG feed-in Send the right pice signal (real time pricing) Unpaid bills windows of investment for grid upgrade Integration of wind farms Enhance retail competition DSM Remote control and monitoring DSM Remote control and monitoring Smart meters Remote control and monitoring DSM & Smart meters Remote control and monitoring

2/ Organizational issue and the scope of the regulator

California UKGermany Illinois Integrated distribution and retail supply activity Supply & metering activities partially separated Supply & metering activities fully separated Integrated distribution and retail supply activity with open retail market

CaliforniaIllinois Germany UK Limited available capacities Loading order. Grid upgrade Intermittency risk and cost. Network management and forecast due to DG feed-in. Send the right pice signal Unpaid bills. windows of investment for grid upgrade Integration of wind farms. Enhance retail competition DSM Remote control and monitoring DSM Remote control and monitoring Smart meters Remote control and monitoring DSM & Smart meters Remote control and monitoring 2/ Organizational issue and the scope of the regulator

1: Classical roles of regulation : o Provide incentive for enhanced productive/innovative efficiency o Extract part of the efficiency rent (limit the impact of information asymetry) o Enhance the quality of the utility. 2: Smart grids objectives-related regulation : coherence between the regulatory framework and the first drivers for SG investments o Energy efficiency in California, o RES and DG integration in Gremany o The adoption of smart meters for RTP in Illinois o The elimination of DNOs forclosue and the stimulation of retail competition in the UK 3/ Main elements characterizing a smart grids oriented regulation:

CaliforniaGermanyIllinoisUK Productive & innovative efficiency CoS + Revenue cap Smart grids expenses recorded as capex. CoS + Revenue cap Smart grid expenses recorded as non controlable costs. CoS + PBR Ex ante decision about smart grids investments. Menu of contract + Revenue cap regulation. Rent extraction 10% of SG underspending redistributed to the utilities. Progressive revenue sharing mechanism based on benchmark RoE. No mechanism. But future implementation of yardstick mechanim when regulatory scheme is more mature. Symetrical revenue sharing mechanism based on benchmark RoE. Equalizing incentive with symetrical sharing based on the menu of contracts. Enhance the quality Performance-based indicators 3 indicaors reflecting the quality of the load. 7 performance indicators with reward/penalty incentive that directly rely on AMI deployment. Consumer-based incentives. Smart grid- specific regulatory features Revenue cap is recognized as « DSM friendly » + decoupling mechanisms 19 SG metrics. Expansion factor for DG-related expenses (shallow method of integration) 60 SG metrics Implementation of the Data Communication Company.

Concluding remarks: It is paramount to have a stable long term smart grid strategy and to keep a coherence between the stated objectives and what is implemented. Questions the role of politics over the different mandates. Tradeoff between incentives to invest and incentives to reach a higher level of efficiency. With the multiplication of countries adopting SG technology, more stringent efficiency incentives should be implemented as regulators obtain feedbacks and learning effects. Smart grids technology, independently from its first purpose of adoption is likely to enhance the performance and quality of the grid. This should in turn translate into strengthened performance-based financial incentives. Avoid too numerous and burdensome metrics. The question of smart grid technology « behind the meter » has to be studied through its effects on new entrants, particularly on countries where the process of market opening is underway (California).

FROM SMART TECHNOLOGY TO SMART CONSUMERS: FOR A BETTER SYSTEM RELIABILITY AND IMPROVED MARKETS EFFICIENCY. Claire Bergaentzlé Université Grenoble-Alpes PACTE-EDDEN, CNRS 32d USAEE/IAEE North American Conference July , Anchorage, AK.