Getting Smart (Grids): An Efficiency Frontier Assessment

Abstract

Information and communication technology are reshaping the electricity industry, with economic, environmental, and regulatory consequences. Smart grids allow the growing integration of renewable energy sources, a horizontalization of the roles of producers and consumers, a flatter demand profile which save investments intended to supply peaks of consumption, idle at great extent off-peaks. On the other hand, smart grids require important investments for modernizing technology. Concerning our objectives, firstly, we seek to understand the conceptual consequences of the irruption of smart grids on the electricity sector, and its importance for renewables adoption. Secondly, we discuss policies and regulations needed to accelerate the transformation of the electricity network in a smart grid, and to increase the renewables? share on total energy. Thirdly, our empirical approach runs a Data Envelopment Analysis (DEA) model to estimate the efficiency gains in the transition between traditional and smart grids. Our results show the efficiency levels of those countries whose objective is to deliver electricity with high levels of quality of services, and at the same time, using more renewables (with fewer carbon emissions), and low cost of supply. We conclude discussing the implications of our empirical model, the limitations, and next stages in polishing the results.