An Introduction to Smart Grids

Smart grids are part of a growing “smart” phenomenon involving distributed devices that are wirelessly connected and intelligently controlled to automate decisions normally left to people. The Internet of Things (IoT) is the most popular example of this trend, with smart phones, thermostats, fridges, and even cars working in concert to share real-time data and make decisions autonomously.
Smart grid technology does the same thing – but for energy.

This comprehensive guide explains how smart electrical grids work, why they are important, and how they are helping to revolutionize the electricity landscape – especially as distributed energy sources (DERs) like solar, wind, and battery storage continue to place stress on America’s aging power infrastructure. You may also enjoy this brief 30-minute podcast that introduces the challenges of smart grids and highlights some of the benefits of AI to improve energy and utility operations.

What Is a Smart Grid?

Understanding what makes a grid “smart” requires a brief discussion of how the traditional electricity grid was originally designed. With legacy power networks:

  • A utility provider generates electricity in a centralized location using any number of fossil fuel inputs like oil, natural gas, and coal – or sustainable power technologies like solar, nuclear, or hydro.
  • The electricity created is then sent in one direction to local communities using relay stations and transmission lines to distribute this power – and on-site electricity meters to measure consumption and calculate each customer’s utility bill.

This centralized system worked well for more than a century since the number of powered devices per home or business was relatively small. Moreover, utilities only had to manage and distribute the electricity they themselves created.

Over the past decade, however, homeowners and businesses have started adding their own energy generation and storage solutions through investments in technologies like rooftop solar or on-site batteries. In addition, the proliferation of laptops, smart phones, electric vehicles (EV’s), and other power-hungry appliances and assets have created unprecedented demand for reliable electricity.

Against this backdrop, utility operators increasingly struggle to manage the country’s rapidly greening electricity grid. Most distributed energy resources are outside their direct control, making it difficult to regulate production or incorporate surpluses and shortages into the wider electricity network.

Smart grid systems exist to overcome these challenges.

Similar to how the Internet of Things relies on sensors and Wi-Fi to establish real-time connections across distributed devices, smart electrical grids use multidirectional communication to autonomously control the power network so that all utility assets, DER’s, and edge-devices work in sync. These connected assets can share feedback with one another for optimal grid performance – resulting in less waste and more reliable power for all users.

Why Are Smart Grids Important?

Worldwide, there is a growing movement to rapidly decarbonize in an effort to mitigate the effects of climate change. Solar, for example, is a renewable power generation technology that doesn’t pollute once installed. So in addition to utility bill savings, PV system owners can also reduce their carbon footprint by going solar. And for grid-connected installations, solar PV also helps to make the entire electricity network greener since less fossil fuel is required to cover the total power needs of that utility market.

These benefits help to explain the growing popularity of private investments in renewable power generation. According to the Solar Energy Industries Association (SEIA), for example, the US installed over 19 GW of PV capacity in a single year (2020) – bringing the country’s total to nearly 100 GW of solar. This is enough clean electricity to power the equivalent of 17 million homes. Similarly impressive numbers exist for the wind and battery storage industries as well.

However, this rapid growth presents a host of unintended consequences for utility operators and end-users alike:

  • Most renewable technologies are unpredictable and difficult to manage. For example, the sun doesn’t always shine, and some days simply aren’t windy. Batteries help to mitigate this renewable power intermittency. However, the benefits are both limited and localized if storage solutions have no way of communicating with the electricity grid.
  • Distributed energy causes congestion, which often results in curtailment or dumping. Regardless of the power source, this congestion leads to wasted money and missed opportunities. But when generating electricity specifically from fossil fuel, dumping also produces unnecessary pollution in the form of carbon emissions and other greenhouse gases.
  • Energy fluctuations can cause equipment burnout. Most edge devices are designed to work in isolation for end-users. But when these distributed energy assets are grid-connected, they remain vulnerable to power surges that can cause shortages and failures.
  • Extreme weather conditions can deplete energy reserves, create price shocks as utilities purchase more backup power, and result in rolling blackouts and grid outages. These trends already exist, and they will only become worse as climate change makes the weather less predictable and more severe.

When deployed correctly, an intelligent electric grid can help resolve these challenges and make the network more reliable and adaptive. But how do smart grid systems actually work?

The Technology behind Smart Grids

A smart grid system relies on four complementary technology areas that work in unison to ensure reliable and affordable electricity access for everyone in the network:

  1. Distributed Energy Management Systems
  2. Autonomous Microgrid Technology
  3. Grid Resilience and Continuity
  4. AI-Powered Electricity Grids

Keep reading to understand what each of these components is and how they work together to form a more intelligent electric grid.

1. Distributed Energy Management Systems

A distributed energy resource management system (DERMS) is a software platform that allows network operators to manage grid-connected assets like solar installations, EV-charging stations, and behind-the-meter batteries that would normally be outside the utility’s direct control. For a truly integrated distributed energy resource management system to work optimally across a network of clean energy resources, it must have:

  • Sensors on edge devices that can transmit information to the larger electricity grid. For example, sensors might alert the network that one customer’s EV battery is full or that another customer’s PV installation is now producing 33 percent less solar power.
  • Receivers on edge devices that can accept and execute instructions remotely. For example, the grid could redirect some of the stored energy in that EV battery to help offset temporary dips in solar PV output elsewhere in the grid.

2. Autonomous Microgrid Technology

Although not a prerequisite for smart grids, microgrids are localized power generation systems in which DER’s and the utility network work in concert to provide reliable electricity to a specific community. Microgrids are common among universities and industrial parks that rely on a combination of solar power, wind turbines, EV charging, battery storage, and the utility grid to provide total electricity coverage.

In much the same way that solar PV systems can disconnect from the grid to provide reliable on-site power, microgrids can also decouple from the utility network and continue working independently. In fact, this autonomy is a central feature of the microgrid concept. And thanks to recent improvements in machine learning, microgrid controllers can intelligently regulate local power production, consumption, and storage in real-time.

However, this independence causes challenges. Utility operators already struggle to manage distributed solar PV installations. In the absence of feedback and control, autonomous microgrids are just a micro example of this same problem.

3. Grid Resilience and Continuity

The next piece of the puzzle is grid resilience, which the US Federal Energy Regulatory Commission (FERC) defines as the,

“[A]bility to withstand and reduce the magnitude and/or duration of disruptive events, which includes the capability to anticipate, absorb, adapt to, and/or rapidly recover from such an event.”

Grid resilience is not a new concept, with many utility markets already engaged in bilateral energy sharing agreements. If wind production soars in Arizona and solar PV output drops in nearby California, the former can redirect its surplus power to the latter. The reverse also happens whenever Arizona suddenly faces an energy shortage and needs California’s extra solar capacity to ensure continuous access to reliable electricity.

With climate change, however, both the frequency and severity of weather-related disasters are on the rise. The same is true of cyberattacks, with hackers now capable of taking entire power stations offline remotely – with a few lines of malicious code.

As such, the basic idea behind regional power-sharing must be expanded.

Instead of relying exclusively on bilateral agreements between partnering utilities, smart grid systems now incorporate a vast ecosystem of residential, commercial, and large-scale power producers and microgrid developers that collectively redirect electricity whenever and wherever it is needed most – all in real time.

Here is a useful analogy.

A hurricane or cyberattack might knock out a data center – but neither will take down the entire Internet since the data are spread across thousands of servers around the globe. The same goes for a truly resilient and intelligent electric grid. Any number of natural or man-made events could disrupt isolated pockets within the network. But as a whole, the smart grid system itself remains intact – providing continuous electricity even if a power station goes offline unexpectedly.

4. AI-Powered Grid

The final component of smart grid technology involves artificial intelligence (AI) to help oversee the entire network. When power generation was truly centralized at the utility level, experienced engineers could manage the grid, making real-time decisions about how best to allocate resources. Unfortunately, this is no longer possible as the grid becomes more interconnected and power generation becomes more distributed.

Even with full access to all the edge device sensor data in the world, it’s simply not possible for human actors to manage the modern grid’s growing complexity. This is particularly true given that many distributed energy resources are heavily reliant on intermittent power sources that fluctuate from one second to the next.

However, real-time data analysis and decision-making are precisely where machines excel. Artificial intelligence can analyze both historic and current energy production, consumption, weather, and climate data to make incredibly accurate predictions about the supply and demand of energy – seconds, days, and weeks into the future. These forecasts are then fed back into the algorithm, allowing machines to learn and improve so they can make even more accurate predictions moving forward.

AI is also what allows grids to recover quickly in the wake of natural disasters or cyberattacks. By detecting faults, artificial intelligence can help electricity networks self-heal without requiring human technicians to intervene. When on-site repairs are needed, the networked nature of smart grid technology allows technicians to quickly triangulate both the cause and location of the underlying problem.

The Role of Smart Grids in Renewable Energy Production

Here’s another impressive statistic from SEIA. From 2010 to 2020, the solar industry enjoyed an average annual growth rate of 42 percent each year. While much of this growth came from utility-scale investments in PV farms, a large percentage is a result of individual decisions by homeowners and businesses to save money and reduce their impact on the environment.

Again, this is just one technology – solar PV.

The growing popularity of battery solutions, EV’s, and other sustainable technologies merely highlights the larger trend of consumers exercising greater control over their energy decisions. But when these green investments live in separate silos and behind-the-meter, coordination isn’t possible. And the entire network suffers as a result. Smart grids help resolve this by ensuring distributed energy resources – of all sizes – work more harmoniously for everyone’s benefit.

Smart grids are also helping to lay the groundwork for future investment in renewable energy technologies. For example, the decision to replace an aging coal plant with a wind farm becomes easier if policymakers are confident there won’t be disruptions in electricity delivery before, during, or after the transition. There might be localized shortages in power supply once the coal plant is decommissioned. But that community will still benefit from reliable electricity brought in from other sections of the utility grid.

This same rationale exists at the micro-level, with homeowners having an easier time justifying going solar or buying an electric vehicle in a world where improved connectivity, communication, and coordination make their green investments less risky and more valuable.


Hopefully, you now have a better understanding of what smart grids are, how they function, and why they play a crucial role in the global quest to rapidly decarbonize.

Continue Reading This Series

You may also enjoy this brief 30-minute podcast that introduces the challenges of smart grids and highlights some of the benefits of AI to improve energy and utility operations.

Sources and links:

If you’d like to learn more about America’s changing energy landscape and what the future holds, be sure to read the resources below. Together, these guides paint a more complete picture of smart grid technology and its potential to reshape the world for the better.