Explained: Smart grids and how they can save us money

Written by Aditya Gautam

Updated March 12, 2020

7 minutes read

Categories: Utilities


In today’s world, we use smartphones, smartwatches, smart TVs - even our cars are becoming smart. Isn’t it time for the electric grid to be smart, as well?

Yes; in fact, our grid becoming 'smart' is long overdue. The electricity grid was designed more than a hundred years ago, when needs were very different. According to the U.S. Department of Energy, the electric grid in America is now outdated and stretched to its limits.

In 2009, the federal government provided the Department of Energy with a $4.5 billion grant to modernize the grid, or in other words, make it ‘smart’. So, what exactly are these smart grids? And will they save us money?

The sun rising on a city with hundreds of skyscrapers. A graphic depicting how everything is interconnected with each other.

The evolution of electric grids into smart grids. Image source: forbes.com

What is a smart grid?

The term ‘smart grid’ refers to the revamp of the electricity distribution system in order to meet the needs of the 21st century.

A smart grid has the following features:

Two-way digital interaction between utility and consumer

Typically, electricity grids are a one-way stream of information. With smart grids, the utility and homes can ‘talk’ to each other, digitally. Electricity and information is exchanged both ways.

Dynamic response

Energy consumption can vary drastically, depending on the day of the week, time of day, geographical location, and of course - the household. A smart grid uses sensors and control devices to respond dynamically to different needs.

Better load management

Information transfer and advanced power generation options allow for more efficiency and prevent a smart grid from overloading any one power source. Think of the old grid as a terrible manager versus the smart grid being an excellent one, who increases productivity without anyone feeling overworked.

Resilient against power failures and outages

A smart gird locates faults way faster and with absolute precision. It then effectively isolates the fault and reroutes power around the disturbance. The integration of additional power generation options (wind and solar) add more resilience to the grid, as well.

These features make the electricity grid more efficient, reliable, secure, and greener. When smart grids are connected to smart homes and smart businesses, they can further enhance the entire exchange of electrical power and improve efficiency for all parties.

The 3 main objectives of a smart grid:

  1. Promote customer choice – Smart grids provide customers with information, rates and pricing, and technologies that will allow them to make better usage decisions.
  2. Improve reliability – Smart grids use automation on the grid and in customer premises, as well as alternative generation options to improve system reliability and stability.
  3. Integrate renewables – Smart grids support alternative power generation and storage options that reduce environmental impact, improve overall system efficiency, and reduce carbon-based fuel usage.

Smart grids will save money - and lives

Having access to smart grid technology offers a range of benefits for consumers. Here is how a smarter grid can help us not only save money, but lives, as well.

More control over usage = lower electricity bills

Smart grid technology enables each consumer to take control of their daily electrical usage. Just like we do our banking online these days, with smart grids we will be able to log into our grid account and monitor our usage - even setting and tracking targets. This will enable us to make more informed energy choices that will ultimately lower utility bills and protect the environment.

A $2 trillion benefit over time

The federal government's $4.5 billion investment in building smart grids is expected to return a $2 trillion benefit over time. These benefits will come in the form of saved energy, a reduction in maintenance and production costs, and an increase in the reliability of the power supply.

Electricity bills are likely to see a 50% increase by 2050 if the smart grid is deployed. However, without the smart grid, electricity rates could go up by as much as 400%.

Improved grid reliability could save billions

California faced widespread blackouts in 2019 due to the risk of fires, leaving more than 2 million people without power for over five days. According to some estimates, these power cuts resulted in losses of over $2 billion.

A smart grid will be able to report the location of outages much faster and with much more precision. This will make energy restoration faster, status notifications to households easier, and improve the reliability of the power supply to homes, hence potentially saving billions of dollars.

Can prevent up to 34,000 deaths per year

Using a smart grid and integrating available renewable power sources will help to eliminate up to 30% of the air pollution generated by the electric utility sector by 2030, according to the Environmental Defense Fund’s Fact Sheet. This can prevent the 34,000 deaths that occur each year that are caused by power plant pollution.

Best of all, a smart grid will increase national energy security because it draws on home-grown electrical power that is more resistant to natural disasters.

Smart grid with solar: a perfect pairing

America reached a monumental 2 million solar installations in 2019, with many of them being rooftop solar setups. These installations are expected to more than double in the next five years.

The traditional electricity grid has been struggling to cope with this massive increase in solar generation, which is one of the biggest reasons why we need to smarten up our grid! But it's not just the grid that needs to be smart; you have to make sure that your residential solar system is smart, too.

To get the most out of a smart grid, your solar panel setup should include the following components:

Smart meters

Typically, smart meters record energy hourly or even more frequently, and report at least once a day. They enable two-way communication between the meter and the utility. Most homes in America already have a smart meter installed.

How smart meters save us money: By making it easier for the consumer and the utility to track daily energy usage and solar generation, thereby helping make consumption habits more efficient. They also help reduce costs.

Smart inverters with solar panels

Normal inverters just convert the direct current output of solar panels into alternating current. Smart inverters, however, also provide grid support functions, like voltage regulation, frequency support, and ride-through capabilities.

How smart inverters save us money: Smart inverters offer functionality that allows solar panels to continue operating during blackouts. They can also help balance the grid by making adjustments to the solar system, potentially saving both the utility and the consumer lots of money.

A smart energy storage system

This is a setup which includes solar panels, batteries that are connected to the solar panels and the grid, and a smart inverter. The setup works to optimize the use of batteries and to reduce the amount of electricity consumed from the grid.

Smart grid solar system diagram

The components of a smart energy storage system.

How smart energy storage systems save us money: They allow for excess solar energy to be stored and used both when the utility needs it most and when the consumer will get the best return for it. They also make it possible for solar energy to be stored and used during power failures.

Are there any states already implementing smart grids?

As of 2017, 39 states, as well as the District of Columbia had taken steps towards the implementation of smart grids, according to the 2018 Smart Grid System Report to Congress.

The top 10 states where smart grids are being deployed are:

  • California
  • Colorado
  • Florida
  • Massachusetts
  • New Jersey
  • New York
  • North Carolina
  • Ohio
  • Pennsylvania
  • Texas

Some other regions where smart grids have already made significant changes are Chattanooga, TN, Northern Georgia, GA, and Lafayette, LA.

Should you wait for the grid to get smart before you go solar?

With smart meters installed in more than half of all U.S. households, the process of smartening up our electricity grids is already underway. But to have a completely upgraded smart grid will take decades. So is there any point in waiting to get solar until the grid is fully upgraded?

Well, the smarter the grid, the more beneficial a solar energy system will be. With that said, solar panels are a great investment even now. By getting solar panels installed, you can save thousands of dollars on your electricity bill and have a backup power supply to protect you from power failures, all while helping the environment by drastically reducing your carbon footprint.

You can save anywhere from $50 a month to $130 a month on your electricity bills with just a 6kW solar system. You can also easily upgrade the system to work as a reliable source of backup power during power failures.

Use our free calculator to check how many solar panels will fit on your roof, how much will they cost (including state and federal incentives), and how much money will they save you. The calculator also gets you live, updated quotes from the best installers in your area.




Author: Aditya Gautam Aditya Gautam LinkedIn

Aditya is a best-selling author, journalist, and scriptwriter. He also has several years of customer service experience in the energy sector. He is an ardent believer in the transformative power of solar energy and loves digging for new solar stories and trends. He is convinced that harnessing solar energy will soon be the norm around the world.