Smart Grid in Denmark

Contents
Preface................................................................................................................................................................ 4

Summary ........................................................................................................................................................... 5

Framework and preconditions for the report.............................................................................................. 8

The energy system stands at a crossroads...................................................................................................9

1.1 Denmark’s climate and energy targets will change
the conditions for the power system......................................................................................................... 9
1.2 Changes to the power system necessitate
a decision regarding its future design....................................................................................................... 9

Fact sheet: What is Smart Grid?....................................................................................................................12

2. Smart Grid is the most effective way to accommodate

increases in electricity consumption............................................................................................................ 15
2.1 Conversion of the energy system requires large investments.......................................................15
2.2 Smart Grid is the most effective and inexpensive
method for upgrading the power system..............................................................................................15
2.3 Socioeconomic costs of establishing a Smart Grid.............................................................................15
2.4 Socioeconomic costs of a continued traditional expansion strategy......................................... 17
2.5 The economics of Smart Grid are sound even when preconditions differ................................18

Fact sheet: Economic calculations............................................................................................................... 19

3. Smart Grid offers new possibilities for the consumers........................................................................ 22

3.1 Electric vehicles and plug-in hybrid vehicles become greener
and more flexible.............................................................................................................................................. 22
3.2 Smart Grid can provide a complete overview of energy consumption..................................... 22
3.3 New energy-related services will create entirely new opportunities......................................... 22

4. Smart Grid is a mutual task...................................................................................................................... 23

4.1 Realisering the Smart Grid potential
requires a contribution from the entire sector.................................................................................... 23
4.2 An efficient market will lead to a common
effort and realise Smart Grid potential................................................................................................... 23

5. Two necessary political preconditions.................................................................................................... 25
5.1 Future-proofing financial regulation
in the electricity sector should create incentives............................................................................... 25
5.2 Smart Grid development and demonstration
activities can accelerate development.................................................................................................... 25

6. The way ahead............................................................................................................................................26
6.1 Phase 1 – Facilitating phase..........................................................................................................................26
6.2 Phase 2 – Establishment phase..................................................................................................................26
6.3 Phase 3 – Commercialisation phase......................................................................................................... 27

3
 Preface

In the coming years, electricity consumption and production in Denmark is set to change
significantly. Electricity generation will be increasingly derived from renewable energy
sources, while consumers will change their oil-fired burners for electric heat pumps and
start to replace their petrol-powered vehicles with electric vehicles and plug-in hybrid vehi-
cles. Consequently, the power system should be developed, but what is the most effective
way to do this?

Energinet.dk and the Danish Energy Association have analysed the issue of grid develop-
ment to meet the new requirements in this joint report.

The conclusion of the economic analysis in the report asserts that an intelligent power sys-
tem – a Smart Grid – is the most effective strategy for developing the power system.

Sensitivity calculations conducted in the analysis show that this conclusion is robust, irre-
spective of whether there are fewer or more electric vehicles and plug-in hybrid vehicles in
relation to the basic conditions for the analysis.

All in all, the conclusion of the calculations is clear: If we desire a society which is independ-
ent of fossil fuels and which utilises huge amounts of wind power for transport and heat-
ing, then Smart Grid represents the most effective strategy for developing the power sys-
tem to meet future requirements.

Although it will be many years before we see the complete roll out of Smart Grid, the stra-
tegic foundation should be created now. A foundation which we hope this report will help
pave the way for.

Enjoy reading.

Peder Ø. Andreasen Lars Aagaard

President and CEO Director
Energinet.dk Danish Energy Association

4
Summary
Electricity consumption and generation in
Denmark is set to change significantly in
the coming years. Electricity customers will
demand new services as they replace oil-
fired burners with electric heat pumps and
traditional petrol-powered vehicles with
electric vehicles and plug-in hybrid vehicles.
The electricity sector should be ready to pro-
vide these services with the same high lev-
el of delivery quality as today. This should
occur in a situation where electricity gener-
ation is increasingly derived from renewa-
ble energy.
Denmark has ambitious political climate
and energy targets to reduce CO2 emissions,
integrate more renewable energy, especially
wind power, into electricity generation and
improve energy efficiency. Overall, these tar-
gets create a need for reinforcing and ex-
panding the power system. But how?
Energinet.dk and the Danish Energy As-
sociation have analysed this in the report
'Smart Grid in Denmark' with the objec-
tive of describing and analysing the specific
challenges facing the power system in the
coming 15 to 25 years. Moreover, the report
describes how and to what extent Smart
Grid solutions can prepare the power sys-
tem for handling these challenges.
Energinet.dk and the Danish Energy Associ-
ation have analysed the part of Smart Grid
that enables an effective interaction be-
tween wind power generation, heat pumps
in private households, electric vehicles and
plug-in hybrid vehicles.
The project assumes in its analyses that the
Danish electricity sector in 2025 is able to
handle the following:
• that wind turbine capacity is expanded to
cover approximately 50 per cent of annu-
al Danish electricity consumption
• that the number of electric and plug-in
vehicles totals 600,000, and
• that there are 300,000 individual heat
pumps.
The analyses in the report show that the
power system will manage increases and
changes in electricity consumption and
more fluctuating generation most efficient-
ly through a Smart Grid that creates a dy-
namic interaction between the power sys-
tem and the consumers through metering,
controlling and automation in the power
grid and in private households. The conclu-
sion also applies if there are fewer electric
vehicles and plug-in hybrid vehicles than as-
sumed above.
However, as Smart Grid is a new and very
different method for developing the power
system than traditional reinforcement, a de-
cision needs to be taken to ensure that all
players are pulling in the same direction to
avoid investments in and expenditures on
equipment and systems that would not be
used optimally. This requires increased co-
operation between the players in the sec-
tor as well as strong political commitment
to establish fundamental regulatory condi-
tions for this development.
Traditional expansion
versus Smart Grid
Traditionally, the power sector has adapt-
ed and reinforced the power grid by lay-
ing more and thicker cables in the ground,
erecting more substations and securing ac-
cess to sufficient generation capacity. The
consumers have been primarily 'passive'
with predictable and regular consumption
patterns.
Traditionally, in an intelligent power system
– a Smart Grid – completely new perspec-
tives will emerge. The consumers will be able
to interact with the power system and gen-
eration through automated and intelligent
control of their electrical appliances, thereby
acting as resources for the power system.
The overall calculations show that a future
power system using Smart Grid can be es-
tablished at a social net cost (present value)
in the range of DKK 1.6 billion. However, this
requires social investments of around DKK
9.8 billion – an investment which will pro-
vide derivative benefits of around DKK 8.2
billion in the form of lower electricity gen-
eration costs, a more effective production
of ancillary services and increased electrici-
ty savings.
On the other hand, a traditional reinforce-
ment strategy requires social investments
of approximately DKK 7.7 billion at present
value but creates no increment in bene-
fits. Consequently, the economic benefit of
choosing the Smart Grid strategy is esti-
mated at approximately DKK 6.1 billion.
The distribution network should be expand-
ed concurrently with the customers' de-
mand for electricity for electric vehicles,
plug-in hybrid vehicles and heat pumps.
However, the need for reinforcement is DKK
1.6 billion less if the new consumption is op-
timised flexibly and intelligently with the
assistance of Smart Grid functionalities.
Specifically, Smart Grid reduces the need for
reinforcements of the distribution network
from DKK 5.7 billion to DKK 4.1 billion.
Conclusion of the report
The economic analysis in the report con-
cludes that Smart Grid is the most effec-
tive strategy for developing the power sys-
tem and preparing it to meet the challenges
ahead.
A number of preconditions relating to the
expected future development of electrici-
ty generation and consumption in Denmark
are set out in the project. There is a degree
of uncertainty associated with these pre-
conditions as it is difficult to predict the
pace of the development. This obvious-
ly gives rise to some uncertainty about the
calculations. Of course, a significant change
to the preconditions will alter the size of the
calculated investments and benefits.
However, the calculations are estimated to
be all in all so robust that the conclusion
is clear: If we desire a society with a wide-
5
spread use of electricity for transport and
heating as well as a high level of wind pow-
er generation, Smart Grid will be the most
effective solution.
Sensitivity calculations conducted in the
analysis show that this conclusion is ro-
bust, irrespective of whether there are few-
er or more electric vehicles and plug-in hy-
brid vehicles in relation to the fundamental
preconditions for the analysis. In particular,
a Smart Grid is a very effective solution if,
in the long term, the use of electric vehicles
and plug-in hybrid vehicles becomes even
more widespread.
Advantages for the
consumers
The establishment of a Smart Grid will in-
crease the digitisation of Danish house-
holds. More metering, controlling and com-
munication electronics will be present in
households, which will afford the consum-
ers an overview of their consumption and
the possibility to achieve automatically con-
trolled and intelligent electricity consump-
tion, thereby saving energy and money.
An additional benefit of equipping house-
holds will be the possibility for consumers
to purchase a number of related services.
For example, it is conceivable that consum-
ers could receive an SMS if their heat pump
should happen to break down while they
are away on winter holiday. They could if de-
sired automatically shut off standby con-
sumption in their home while they are
away, and they could at any given time con-
trol the temperature in the house via their
smart telephone or PC.
Moreover, it is to be expected that more of
such new and innovative products will be-
come available in the future. Products that
will avail of the new infrastructure, as we have
seen with mobile telephony and the Internet.
Moreover, Smart Grid will ensure that own-
ers of electric vehicles and plug-in hybrid
6
vehicles will have their energy consump-
tion for transport covered in a very individu-
al and intelligent way because it will be pos-
sible to charge the battery in the vehicle at
varying prices depending on charging speed
and charging time.
At the same time, it will be possible for
consumers to reduce their electricity bills
through intelligent consumption and au-
tomated energy-efficient solutions by let-
ting their electrical appliances function au-
tomatically at predetermined comfort levels
to the benefit of both themselves and the
power system.
The realisation of Smart Grid
requires a contribution from
the entire sector
Customer demand for such new services
will make the power system more compre-
hensive and far more dynamic than it is to-
day. To meet this demand, the power system
needs to be further integrated across the
existing interfaces in the future.
A single transparent price that dynamical-
ly reflects the costs in the value chain of the
entire power system should be developed so
that the customers can gain the full bene-
fit of making their consumption flexible and
intelligent. In addition, systems and prod-
ucts should be developed to make it easy
for the customers to offer their flexible con-
sumption as regulating power and system
reserves and benefit from this.
This means that the transmission system
operator (TSO) and distribution network
companies (network companies) will have
to undertake new tasks. The TSO should
continue to develop the market for balanc-
ing and ancillary services. Furthermore, net-
work companies should create a real-time
view of the load on the distribution network
that can form part of the overall dynam-
ic electricity price and thereby motivate the
consumers to use electricity in a way that
minimises the costs of grid reinforcement.
To ensure an effective development of
Smart Grid on market-based conditions, it
is crucial that both framework conditions
and specific solutions are developed with a
strict focus on securing low complexity and
low costs.
Two necessary political
preconditions
The electricity industry shall and will play an
active role in ensuring a common and coor-
dinated development of an intelligent pow-
er system in Denmark. However, this re-
quires that the political preconditions also
promote a proactive behaviour amongst all
players.
There are two necessary preconditions,
which are crucial to supporting this proac-
tive behaviour.
The financial regulation of the network
companies should ensure that they are in-
centivised to actively participate in the de-
velopment of a Smart Grid and that they
make the necessary, long-term investments
to create an intelligent power system. Un-
der the current regulation, these expenses
do not result in an increase of the revenue
caps of the network companies.
Furthermore, increased demonstration ef-
forts are required, partly to further develop
and adapt the necessary Smart Grid tech-
nologies and partly to ensure the neces-
sary standardisation within the field. Con-
sequently, society should continue to grant
financial support to conduct focused and
coordinated development and demonstra-
tion activities which encourage the ad-
vancement of those technologies and so-
lutions that will form the building blocks
for the intelligent power system of the fu-
ture. These efforts are decisive if Denmark is
to achieve a market leading position within
the Smart Grid value chain.
The way ahead
Although it will be many years before we
see the complete Smart Grid roll-out, the
foundation should be laid now. A number
of network companies are either engaged
in or planning to roll out automated meter-
ing systems (AMR) to private households.
Moreover, the replacement of oil-fired burn-
ers with electric heat pumps is already in
progress partly due to the payment of pub-
lic subsidies to customers substituting oil
burners for heat pumps. Although the ma-
jor challenge in relation to electric and plug-
in vehicles is still some years away, exten-
sive work is carried out today to develop
concepts and charging stations and to plan
the expansion of the entire charging infra-
structure.
Therefore, efforts should be directed to-
wards identifying the need for and ensur-
ing the necessary standardisation and func-
tionality requirements, thus preparing these
elements to the widest possible extent to
function immediately in a Smart Grid con-
cept.
The way towards an intelligent power grid
can be described briefly in three phases: cantly more widespread and consumers will
Facilitating in the short term, establishment
in the medium term and commercialisation
in the long term.
Facilitating phase
(2010-2012)
From 2010 to 2012, society will experience
an increasingly widespread use of electric
heat pumps and the first proper launch of
electric and plug-in hybrid vehicles by com-
mercial players.
By the end of this period, the electricity sec-
tor should have ensured that the relevant
players both inside and outside of the elec-
tricity sector are mobilised and involved in
considering the power system of the fu-
ture. Also during this period, a wealth of ex-
perience should have been gained through
development and demonstration projects
which can form the basis for frameworks
and standards.
Establishment phase
(2012-2020)
From around 2010 to 2020, changes on the
demand side will begin to take shape as the
use of heat pumps will have become signifi-
have begun to purchase electric and plug-in
hybrid vehicles on a larger scale.
By the end of this period, this development
will have brought about a power system in
which the fundamental Smart Grid infra-
structure has been established. At the same
time, the system should be so mature that
commercial solutions supporting intelligent
demand response start to find more wide-
spread use.
Commercialisation phase
(2020-)
This phase is expected to occur after 2020.
By that time, electric heat pumps will be the
most widespread source of heating outside
areas supplied with district heating and
natural gas. At the same time, electric and
plug-in hybrid vehicles will be recognisable
and commonplace on the streets.
This situation makes it possible to balance
the power system via Smart Grid function-
ality in the form of intelligent and automat-
ed control of the consumers’ flexible appli-
ances while Smart Grid services should be
further developed so that consumers have a
wide range of products to choose between.
7
Framework and preconditions
for the report
In recent years, the Danish Energy Associa-
tion and Energinet.dk have worked deter-
minedly on investigating the opportunities
and challenges facing the power system,
given the ambitious political climate and
energy targets. In the first half of 2010, a
joint project was initiated with a view to
analysing the prospects of Denmark tak-
ing advantage of the opportunity to make
the Danish power system more environ-
mentally friendly and efficient by setting
up intelligent demand response in Danish
households. The platform for this intelligent
electricity consumption is created concur-
rently with increased consumer investment
in electric heat pumps and – in the near fu-
ture – electric and plug-in hybrid vehicles.
The objective of the project has been to de-
8
scribe and analyse the specific challenges
facing the power system in the coming 15 to
25 years and to describe in which ways and
to what extent Smart Grid solutions can ad-
dress these challenges. The project will pro-
vide an overview of the possibilities that
these potential solutions create for the con-
sumers and of the investments that the so-
lutions require. This overview is central to
creating the basis for a forward-looking and
long-lasting investment plan for regulated
companies and market players in the elec-
tricity industry.
Moreover, the project should describe which
framework conditions it would be advanta-
geous to adjust to ensure an effective out-
come; similarly, the project should seek to
show how such an effective outcome could
be achieved in Denmark in both the short
and the long term.
The work is carried out by a number of
working groups consisting of personnel
from Energinet.dk, the Danish Energy Asso-
ciation and member companies of the Dan-
ish Energy Association. This report is based
on the analyses and conclusions of these
groups, whose work is described in detail in
a number of appendix reports.
1. The energy system
stands at a crossroads
Realising Denmark’s ambitious climate and
energy-policy targets to reduce CO2 emis-
sions, increase its share of renewable ener-
gy, especially in electricity generation, and
to improve energy efficiency means that
electricity will play an even more central
and sustainable role in the power system of
the future than it has to date.
This chapter describes the implications of
this new role for the power system. The con-
clusion is that this development will result
in increased investments, which in princi-
ple could follow two paths. One of the paths
can be characterised as a traditional expan-
sion strategy in which the power system is
reinforced and the electricity consumers are
maintained as 'passive' consumers. Alterna-
tively, the other path would lead to the es-
tablishment of an intelligent power system
– a Smart Grid that creates a dynamic inter-
action between the power system and the
consumers through metering, controlling
and automation.
With a view to avoiding double investments,
it would be most expedient to begin adapt-
ing to a Smart Grid strategy already now if
this path is assessed to be the most effec-
tive in the long term. As such, the economy
of the Smart Grid strategy would be under-
mined if large-scale expansions based on a
traditional strategy were carried out.
1.1 Denmark’s clima-
te and energy targets
will change the conditi-
ons for the power system
Denmark has set an ambitious political tar-
get for the next ten years to reduce CO2
emissions in non-ETS sectors by 20 per cent,
to increase the share of renewable energy in
electricity generation to 30 per cent, to in-
crease the share of renewable energy in the
transport sector to 10 per cent and to im-
prove energy efficiency. The targets repre-
sent a significant step on the path towards
achieving the long-term political objective
of making Denmark independent of fossil
fuels. The way ahead is to adapt the Danish
energy system and significantly change the
power system, both in relation to the way
electricity is generated and how it is used by
the consumers. Electricity that is increasing-
ly generated with the assistance of renew-
able energy can favourably replace fossil
fuels in the heat and transport sectors. Con-
sequently, electricity will play an even more
central and sustainable role in the energy
system of the future than it has to date.
On the supply side, there will be a signif-
icant expansion of Danish wind genera-
tion capacity so that in 2025 wind turbines
are expected to generate up to 50 per cent
of annual Danish electricity consumption.
In addition, a focus on renewable energy
and zero-energy houses will increase the
number of households engaging in local en-
ergy generation by means of photovolta-
ic cells, domestic wind turbines, etc., in the
coming years.
On the demand side, electricity will be in-
creasingly utilised in the heat and transport
sectors through the increased use of electric
heat pumps as well as electric and plug-in
hybrid vehicles. In both these sectors, elec-
tricity can easily make consumption more
climate-friendly and efficient. The heat sec-
tor uses approximately 20 per cent of Dan-
ish energy consumption for heating homes,
of which 60 per cent is generated from fos-
sil fuels. Electric-powered ground-to-water
heat pumps can generate the same volume
of heat as today with 50-70 per cent lower
energy consumption1. The transport sector
uses another approximately 20 per cent of
Danish energy consumption on road trans-
port, of which almost 100 per cent is sup-
plied by fossil fuels. The motor in an elec-
tric vehicle is more energy efficient than
a petrol or diesel engine as it can be driv-
en the same distance on 50-75 per cent less
1
'Efficient use of wind power-based electricity in
Denmark', Energinet.dk, 2009 cy is based on mechanical output relative to in-
energy2. Consequently, by investing in heat
pumps as well as electric and plug-in hybrid
vehicles consumers will be contributing sig-
nificantly to:
• improving energy efficiency
• reducing CO2 emissions by substituting
fossil fuels for renewable energy based
electricity
• realising the target of 10 per cent renewa-
ble energy in the transport sector
• minimising the dependency on imported
oil and natural gas.
1.2 Changes to the power sy-
stem necessitate a decision
regarding its future design
The current power system is based on a
number of fundamental assumptions about
generation and consumption. Firstly, the
balance between consumption and gener-
ation is ensured basically by letting gener-
ation follow consumption, but through the
active use of our international interconnec-
tions, however. Secondly, the power system
is a one-way system in that electricity is al-
most exclusively transmitted from the pow-
er system to the consumer. Thirdly, it is al-
ways essential to keep some central power
stations operating in order to establish and
maintain the electrotechnical system sta-
bility.
As the power system undergoes considera-
ble changes on the supply side in the future
as described above, power system develop-
ment must be aimed at finding new ways
to ensure:
• Effective utilisation of wind power gener-
ation. Electricity generation from wind
turbines cannot be determined to fixed
times. If wind power capacity is expand-
ed substantially, considerable amounts of
electricity will be generated during windy
periods which can be utilised advanta-
2
“Technology assessment of alternative propellants
in the transport sector”, COWI, 2007. The efficien-
put energy.
9
 geously through intelligent demand re-
sponse.
• Access to ancillary services3 from new
sources. As wind power becomes the prin-
cipal source of electricity generation, it
would be expedient to ensure that con-
sumers are given better possibilities to
contribute to the supply of ancillary ser-
vices to the power system so that the
power system can function at times
when there is no longer a commercial ba-
sis for operating central power stations.
At the same time, changes on the demand
side will mean that new thinking is required
in the distribution network to ensure:
• Effective expansion of the transfer capac-
ity in the distribution network4. The intro-
duction of electric and plug-in hybrid ve-
3
Ancillary services are the generation capacity for
reserves and regulating power, inertia and short-
circuit capacity. er cables in the ground, erecting more sub-
4
Energinet.dk has previously concluded that intel-
ligent demand response is not an alternative to
transmission grid expansion as the need for ex-
panding it is to a higher degree dimensioned by
the development of the generation mix used in the
power system and trading in the cross-border elec-
tricity market. Therefore, the need for transmis-
sion grid expansion has not been analysed further
in this project.
10
hicles as well as heat pumps will mean
that the power grid of the future should
transfer more electricity than it is current-
ly designed to do. Therefore, it should be
reinforced as efficiently as possible.
• Continued maintenance of a stable volt-
age in the distribution network. Many of
the electrical appliances require a stable enables them to function as resources for
voltage in the distribution network to
function correctly. An increased number
of electricity-generation facilities at do-
mestic level together with new and wide-
ly fluctuating consumer patterns will lead
to increased variation in the voltage in
the local distribution networks and result
in a more unstable voltage, causing in-
convenience to the consumers.
Traditionally, the electricity sector has
adapted the power system to changes in
the outside world by laying more and thick-
stations and securing access to sufficient
generation capacity. The consumers have
been primarily 'passive' with predictable
and regular consumption patterns. The elec-
tricity sector can still follow this tradition-
al strategy, yet new technologies offer an al-
ternative possibility. This new possibility is
to commence the establishment of an intel-
ligent power system – a Smart Grid – which
creates entirely new perspectives for elec-
tricity consumers to interact with the power
system and electricity generation. This can
occur through automated and intelligent
control of the consumers’ appliances which
the power system.
As Smart Grid is a new way of developing
the power system which differs significant-
ly from traditional expansion strategies, a
decision should be made in favour of one or
the other strategy. This decision should en-
sure that all players are pulling in the same
direction, thus preventing investments in
and expenditure on equipment and systems
which would not be used optimally.
 Upon substantial expansion of the wind power capacity, considerable amounts of electricity will be generated during very windy
periods which can be utilised advantageously through intelligent demand response.
MWh per hour projected to 2025 based on 2010 consumption and wind generation

Estimated generation
and consumption in 2025
6,500
6,000
5,500
5,000
4,500
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
0
Hours in the second quarter, 2025

Figure 1. In the future, wind turbines will generate considerable amounts of electricity that can be utilised with advantage in
Denmark via intelligent demand response, which will create times when there is no commercial basis for operating
central power stations.

An analysis of 148 selected radials in the low-voltage grid shows that many power lines in the future should transfer more elec-
tricity than they are built to handle today.
MWh per hour projected to 2025 based on 2010 consumption and wind generation

Load rate in per cent

350

300

250

200

150

100

50

0
Analysed 0.4 kV radials

Figure 2. Increased electricity consumption will necessitate thicker cables in many parts of the power grid, which will also generate
greater variation in the voltage in the power lines on the individual suburban streets when consumption fluctuates greatly.

11
Fact sheet:
What is Smart Grid?
The Smart Grid concept has become widespread in recent years and
the concept is used in various contexts with widely differing defini-
tions. This project analyses the part of Smart Grid that enables an
effective interaction between wind power generation, heat pumps
in private households as well as electric vehicles and plug-in hybrid
vehicles. Both the Danish Energy Association and Energinet.dk work
with Smart Grid in other contexts, using broader definitions.
There are numerous descriptions and definitions of what a Smart
Grid is. An excellent definition proposed by 'European Technolo-
gy Platform' states that Smart Grid is 'electricity networks that can
intelligently integrate the behaviour and actions of all users con-
nected to it – generators, consumers and those that do both – in or-
der to efficiently deliver sustainable, economic and secure electricity
supplies.' 1
1
Source: Smart Grid definition, www.smartgrids.eu
Operation and monitoring
Markets
Smart Grid
Generation
Transmission
Figure 3. A Danish Smart Grid builds on the existing infrastructure and creates new possibilities for interaction with the consumers.
12
International studies have identified a number of specific advantag-
es for consumers, the environment and society of introducing Smart
Grid into a power system. These advantages primarily relate to2,3
• Improved system stability resulting in higher security of delivery
• More options to create power balance in a less expensive and
more efficient way
• Faster remedy of faults in the power grid
• Reduced need for investments in the power grid
• General energy savings and lower electricity prices for consumers
who use electric vehicles, plug-in hybrid vehicles and heat pumps
intelligently
• Increased integration of renewable energy through the flexibil-
ity offered by electric vehicles, plug-in hybrid vehicles and heat
pumps, where minor time lags in consumption will not reduce
consumer comfort.
2
Source: ” What’s So Smart about the Smart Grid?”, Booz&CO 2008
3
Source: “ European Technology Platform Smart Grids”, European Commission,
2006
Power grid
Communication
Service provider
Customer
Distribution
 Fact sheet:

In this project, Smart Grid is analysed as the

way to develop a power system capable of
creating intelligent demand response us-
ing those elements that are necessary to ef-
ficiently integrate more wind turbine pow-
er, more micro generators at domestic level,
electric heat pumps as well as electric and
plug-in hybrid vehicles. The analyses have
shown that such a Smart Grid can offer
consumers the possibility to actively
• supply system stabilising services to the
power system
• reduce the need for reinforcing the distri-
bution network
• consume electricity when it is cheap
• achieve overall energy savings.

Such a system can generate economic ben-

efits for both society and the consumers
without a resulting loss of comfort. The sys-
tem is conceptually summarised in the fol-
lowing illustration.

A more detailed version of the described

Smart Grid and its elements is illustrated
in Figure 4 below with the numbered areas
described in the text after the figure.

13
 Fact sheet:
Power stations
Facilities for ensur-
ing system stability
Grid company
TSO
Commercial market players
Other relevant players
Wind farm
Figure 4. Illustration of the elements of a Danish Smart Grid.
1
Systems for interdisciplinary coordination and data exchange
between the players in the power system
Smart Grid requires close coordination across the interfaces of the
power system, and it will therefore be necessary to establish IT sys-
tems capable of receiving and processing data about the status of
the power system – for most of the parties involved – online. These
IT systems should make it possible to fulfil the wishes and needs of
the consumers without overloading the power system and thus re-
ward the consumers for their flexibility.
2
Equipment for measuring the condition of the distribution
network
Measuring the condition of the distribution network is a prerequisite
for ensuring that the distribution network does not overload. Con-
sequently, measuring equipment should be installed at nodes in the
distribution network, particularly in those areas that are at risk of
such overloading. This measuring equipment should be able to send
real-time information about the condition of and load in the grid.
3
Equipment for flexible control and settlement of the consump-
tion of consumers investing in a heat pump or an electric vehicle
Flexible consumption control is managed by one or more electron-
ic units in the consumer’s home which can control the consump-
tion of the flexible, electrical appliances in the house. Such control
can simultaneously maximise the consumer’s comfort and ensure
effective interaction with the needs of the power system expressed
through price signals. Flexible settlement is performed with the as-
sistance of data from a remote-reading electricity meter4. The elec-
tronic unit seeks to ensure that optimising electricity consump- cially in the power system.
4
It is assumed in the project that all private consumers owning heat pumps
and/or electric vehicles will have an electricity meter capable of recording and
saving the consumer’s electricity consumption each hour. This assumption re-
flects the fact that a large number of network companies today have or are
planning to roll out meters which can meet these requirements, and that sev-
eral of the network companies will install new AMR systems for customers
with a demand response potential when the 'old' electricity meters are due to
be replaced. For some consumers it will also become relevant to change their
existing electricity meters when they acquire a consumption device that can
be used for demand response purposes, such as an electric vehicle or an elec-
tric heat pump.
14
Power grid
Communication
Communication at home
Automatic on/off
Real-time readings
PV cells
Elec-
tricity
meter
Integrated Household Heat
price signal appliances pump
Electricity consump-
tion control system
Charging Electric vehicle
station
tion intelligently entails the least possible difficulty for the consum-
er. Although the electricity meter is an important element in the es-
tablishment of an intelligent power system, it could not create the
desired ambitious conversion to demand response and an intelli-
gent power system alone. It is necessary to support the electricity
meter data with a contractual relationship between consumer and
electricity supplier that rewards the consumer for acting flexibly, eg
settlement according to the hourly rates on the wholesale market.
4
Facilities for ensuring system stability
In a future of more wind power, there can be periods when there
will be no economic rationale for having power stations in opera-
tion. System stabilising services such as inertia and short-circuit ca-
pacity, which are normally provided by power stations, should be
ensured at all times. No decision has been taken in the project re-
garding the most effective method for ensuring system stabili-
ty; however, based on calculations it is assumed that it could be
achieved by installing synchronous compensators and SVCs.
In order to link the Smart Grid elements together effectively, a well-
functioning division of work should be ensured between the regu-
lated players in the industry and the competition-based enterprises.
At the same time, a market model should be created which facili-
tates well-functioning interaction between the players.
The conversion to an energy system that helps Denmark to come
closer to achieving its climate and energy-policy targets will require
significant investments throughout the energy system and espe-
The analyses show that the power system can manage increases
and changes in electricity consumption and more fluctuating pow-
er generation most efficiently by establishing a Smart Grid that cre-
ates a dynamic interaction between the power system and the con-
sumers through metering, controlling and automation in the power
grid and in private households.
2. Smart Grid is the most effective
way to accommodate increases in
electricity consumption
2.1 Conversion of the
energy system requires
large investments
The future will bring great changes in both
the generation and consumption of energy.
Generation will change to become increas-
ingly based on renewable energy, which will
happen through an expansion of wind pow-
er, for example. If Denmark is to become less
dependent on fossil fuels, consumers should
change their energy consumption consid-
erably to use the new renewable energy ef-
ficiently, eg through electric heat pumps as
well as electric and plug-in hybrid vehicles.
These changes will require significant in-
vestments from both society and the con-
sumers, which this project has not sought
to quantify. Analyses in the project are
based on the premise that wind turbine ca-
pacity expands to cover around 50 per cent
of Danish annual electricity consumption,
that there will be a total of around 600,000
electric and plug-in hybrid vehicles as well
as approximately 300,000 individual heat
pumps in Denmark – all in 20255. Howev-
er, it is not critical to the analyses and con-
clusions of the project that the aforemen-
tioned development is achieved in this
specific year.
This development will result in a need for en-
suring effective interaction between the new
forms of fluctuating generation and the new
forms of consumption. The power grid and
its components are the central link between
generation and consumption. Increased
electricity consumption and more fluctuat-
ing generation will require investments in
the power grid to make both ends meet.
5
The number of electric vehicles is based on sce-
nario A2 from the EFP project ‘Electricity for Road
Transportation, Flexible Power Systems and Wind
power’, and the number of heat pumps is esti-
mated by analysing the potential for replacing ex-
isting individual heating units, primarily oil-fired
boilers and electric heating.
The size of these investments depends part-
ly on how effectively the power grid can be
utilised and partly on the consumers’ abili-
ty to act flexibly.
The analysis does not include investments
in transfer capacity in the transmission grid
as this was closely analysed in the work un-
dertaken by the Electricity Infrastructure
Committee in 20086.
2.2 Smart Grid is the most
effective and inexpensi-
ve method for upgra-
ding the power system
The economic analysis in the report con-
cludes that Smart Grid is the most effective
and inexpensive method for upgrading the
power system so that it is prepared to meet
the challenges ahead.
Consequently, establishment of a Smart
Grid will cost Denmark approximately DKK
9.8 billion in investments for metering, con-
trol and automation at the consumers’
premisis and in the power grid. This invest-
ment will yield benefits for Denmark total-
ling approximately DKK 8.2 billion, so that
the total cost will be around DKK 1.6 billion.
The alternative to Smart Grid is a tradition-
al expansion strategy, which requires a so-
cioeconomic investment of approximately
DKK 7.7 billion without yielding any benefits.
Consequently, the advantage of pursuing
6
See http://www.energinet.dk/da/menu/Planlægn-
ing/Udbygning+af+elsystemet.ht
7
The calculations do not take into account the so-
called net tax factor. The net tax factor is a calcu-
lation concept that seeks to adjust for differenc-
es between factor and consumer prices (for more
information see the Danish Ministry of Finance’s
guidelines for socioeconomic analysis). An applica-
tion in this project would have only changed the
absolute size of the figures and not their relative
connection.
the Smart Grid strategy is estimated to be
around DKK 6.1 billion. These calculations7
are further specified in the following8.
2.3 Socioeconomic costs of
establishing a Smart Grid
Upgrading of the Danish power system to a
Danish Smart Grid will require investments
and will therefore generate increased costs.
The analysis has identified the necessary in-
vestments and costs, which amount to total
socioeconomic costs of approximately DKK
9.8 billion. These costs comprises of the fol-
lowing items:
• Metering equipment in the distribution
network which can provide a continuous
overview of the load on the distribution
network. This is a significant precondi-
tion – in combination with the electrici-
ty price on the wholesale market – for es-
tablishing integrated price signals which
the consumers can act upon both to their
benefit and that of the power system.
To this should be added costs necessary
to enable consumers owning electric ve-
hicles, plug-in hybrid vehicles and heat
pumps to use hourly settlement, which is
secured through the upgrading of their
electronic electricity meter (approximate-
ly DKK 2.1 billion)
• Electronics in private households which
can automatically communicate with the
power system and based on this – with
the consumer’s acceptance – can control
electricity consumption in the household.
(approximately DKK 1.6 billion)
• Expansion and reinforcement of the dis-
tribution network in areas where Smart
Grid functionality alone cannot handle
the overload (approximately DKK 4.1 bil-
lion)
8
The economic calculations describe the econom-
ics of power generation. Unless otherwise stated,
all amounts are the discounted present value of fu-
ture cash flows based on an annual discount rate
of 5 per cent .
15
• Investment in facilities to ensure system there are no significant Smart Grid bene- of the consumers (approximately DKK 4.4
stability in a power system with signifi- fits to be gained from improving security of billion)
cantly more wind power. (approximately supply, even though this is often mentioned • Costs of regulating power, reserves and
DKK 1.7 billion) in other countries. However, the analyses ancillary services can be reduced by giv-
• Metering and control software at Energi- show that the other areas of benefit con- ing more providers with lower costs ac-
net.dk and the network companies that tain a significant Danish potential that can cess to the market (approximately DKK
collects and processes data and provide socioeconomic benefits amounting 2.4 billion)
ensures sufficient data communication to approximately DKK 8.2 billion distributed • Clarification of the consumers’ electrici-
between both regulated and commer- on the following areas: ty consumption and the possibility of im-
cial players in the power system (approxi- • Utilisation of the time-oriented flexibility plementing energy-saving solutions, eg
mately DKK 0.3 billion). of electric vehicles, plug-in hybrid vehicles through automatic standby function,
and heat pumps can move their electrici- can reduce total electricity consumption,
The analyses have also investigated the ty consumption to times when electricity which saves society the alternative costs
benefits of a Smart Grid in a Danish context. is cheaper and thus reduce the socioeco- that would otherwise have been incurred
Today, the Danish power system is very ro- nomic costs of total electricity generation from implementing such energy-saving
bust with high security of supply, and thus without reducing the perceived comfort initiatives (approximately DKK 1.4 billion).

Smart Grid has additional social costs of approximately DKK 1.6 billion Smart Grid
in contrast to DKK 7.7 billion in a traditional grid expansion scheme. Traditional expansion
Socioeconomics in DKK billion

Investments Benefits Total

Investments Benefits Total

Smart Grid investment in detail Smart Grid investment in detail

Present value in DKK billion Present value in DKK billion

Metering and control software Savings in regulating power and reserves

Metering equipment in the grid and at consumers’ premises Savings in electricity generation
Control electronics at consumers’ premises Saved costs for energy-saving initiatives
Reinforcement of distribution network
Facilities for ensuring system stability

Figure 5. Investments and benefits of establishing the power system of the future.

16
Further benefits may be gained in the form
of improved possibilities for locating faults
in the power grid and thus reducing the du-
ration of power cuts, a potential reduction
in the number of production units for cov-
ering peak-load demand and the develop-
ment of know-how in Denmark which can
ensure that Denmark’s leading position in
the industry is translated into jobs and ex-
ports. However, these benefits are not ap-
praised in the work of the project, yet they
represent a considerable upside to the con-
clusions of the analysis.
The overall calculations show that the fu-
ture power system with Smart Grid can be
established at a socioeconomic net cost of
approximately DKK 1.6 billion, which is de-
rived from DKK 9.8 billion in investments
less DKK 8.2 billion in benefits. The benefits
can be realised on condition that all Smart
Grid potentials are commercialised.
2.4 Socioeconomic costs
of a continued traditio-
nal expansion strategy
As an alternative to Smart Grid, future chal-
lenges facing the power system would be
managed using a traditional expansion
strategy wich does not focus on generat-
ing increased consumer involvement in the
power system but merely on strengthening
the power grid.
If this strategy is selected to resolve the
challenges, the socioeconomic costs of gen-
erating electricity will increase by approxi-
mately DKK 7.7 billion, thus constituting ap-
proximately DKK 6.1 billion more than the
net socioeconomic costs of a Smart Grid ex-
pansion strategy.
The largest portion of the costs (around
DKK 5.7 billion) stems from the need to
strengthen the distribution network. This
need arises because especially electric ve-
hicles, plug-in hybrid vehicles and in some
cases heat pumps will draw energy from
the distribution network late in the after-
noon and at the start of the evening if their
consumption is not optimised intelligent-
ly. This increased consumption will coincide
with the peak time when the distribution
network is already today under most stress
– the so-called 'evening peak'.
A lesser part of the costs (around DKK 2.0
billion) results from the need to establish
new electrical installations that can ensure
the system stability of a Danish power sys-
tem with a significantly expanded wind tur-
bine capacity.
In contrast to the establishment of an in-
telligent power system, the traditional ex-
pansion strategy and consumer behaviour
17
will not yield socioeconomic benefits in the
form of reduced system and production
costs and additional energy savings.
2.5 The economics of Smart
Grid are sound even if
preconditions differ
A number of preconditions relating to the
expected future development of electric-
ity generation and consumption in Den-
mark were set out in the project. There is
some uncertainty about the exact develop-
ment, and this naturally leads to uncertain-
ty about the preconditions for the project
which of course will be reflected in the cal-
culations. A significant change to the pre-
conditions will naturally change the size of
the calculated investments and benefits.
However, the calculations are estimated to
be all in all so robust that the conclusion
is clear: If we desire a society with a wide-
spread use of electricity for transport and
heating, Smart Grid will be the most effec-
tive and least expensive solution.
Analyses in the project of the long-term im-
plications of an electricity-oriented society
clearly show that Smart Grid is in the long-
term a better socioeconomic and technical
solution than traditional power system ex-
pansion. In particular, increased amounts
of wind power or a greater number of con-
sumer appliances with large and flexi-
ble consumption could increase the value
significantly. It has been specifically cal-
culated in the project that from a socioe-
conomic standpoint it is possible to save ad-
ditional billions by implementing a Danish
Smart Grid under the precondition that the
number of electric vehicles and plug-in hy-
brid vehicles increases significantly in the
period after 2025.8
A long-term scenario has been calculated, in
which half of the Danish vehicle fleet com-
prises of electric and plug-in hybrid vehicles.
With an already established Danish Smart
Grid, the increase in the number of electric
vehicles and plug-in hybrid vehicles could
be integrated into it and all in all generate
a socioeconomic net benefit in the power
system of approximately DKK 1 billion. This
benefit is achieved by carrying out minor in-
vestments which ensure the integration of
electric vehicles and plug-in hybrid vehicles expansion scheme, whereas it is DKK 2.5 bil-
8
Calculations in the project assume an increase in
the number of electric and plug-in hybrid vehi-
cles from approximately 600,000 in 2025 to ap-
proximately 1,1 million in 2030. This development is
based on scenario A2 from the EFP project 'Electric-
ity for Road Transportation, Flexible Power Systems
and Wind power'
into the power system while generating sig-
nificant socioeconomic savings through
cheaper electricity generation and energy
savings for the owners of the new electric
vehicles and plug-in hybrid vehicles.
If the power system is expanded using a tra-
ditional strategy, the increase in the number
of electric vehicles and plug-in hybrid vehi-
cles will generate additional socioeconomic
costs of approximately DKK 2.2 billion. Using
this methodology, the network companies
will conduct local and individual reinforce-
ments and expansion of their distribution
network when areas with a risk of overload-
ing are identified. Consequently, the need
for investments will rise constantly and con-
currently with new consumption.
Similarly, the analyses show that the conclu-
sion will be the same also if there are fewer
electric vehicles and plug-in hybrid vehicles
than stated above, for example. The net cost
of 300,000 electric vehicles and plug-in hy-
brid vehicles is DKK 6.2 billion in a traditional
lion in a Smart Grid expansion strategy.

In the long term, increased expansion of electric vehicles Smart Grid

will further increase the value of Smart Grid Traditional expansion
Socioeconomics in DKK billion when integrating an
additional 500,000 electric vehicles from 2025 to 2030

Invest- Benefits Total

ments

Invest- Benefits Total

ments

Figure 6. An intelligent power system will also be socioeconomically advantageous in the long term.

18
 Fact sheet:

Economic calculations

The economic calculations in the project have been performed in Benefits

the individual working groups. This overview provides a brief intro-
duction to the calculations, which can be found in detail in the ap-
pendix reports from the individual working groups. All calculations
are performed on the basis of a socioeconomic11 consideration and
are calculated as present values based on an annual discount rate of
5 per cent.
Investments
Investments in upgrading the Danish power system to an intelli-
gent power system will amount to approximately DKK 9.8 billion.
Continuation of the current traditional grid expansion strategy will
require investments in the range of DKK 7.7 billion.
The calculations do not take into account the net tax factor from the Danish
11
Ministry of Finance. See note 8.
The investment required to create an intelligent power system in
Denmark will potentially generate benefits in the range of DKK 8.2
billion. Continuation of the current traditional grid expansion strat-
egy will be unable to generate benefits in the same way.
The economics of Smart Grid are
sound even if preconditions differ
A number of preconditions relating to the expected future develop-
ment of electricity generation and consumption in Denmark were
set out in the project. There is some uncertainty about the exact de-
velopment, and this naturally leads to uncertainty about the pre-
conditions for the project which of course will be reflected in the
calculations. A significant change to the preconditions will naturally

Socioeconomic present value of investments and costs Smart Grid Traditional expansion
DKK billion
Primary elements Calculation basis

Grid reinforcements • Reinforcement of the distribution network (0.4 kV, 10 kV
and 50 kV) to prevent overloading
Facilities for ensuring • Installation of synchronous compensators and SVCs that
system stability can create the necessary inertia and short-circuit capacity
• Analyses of the distribution network of sev-
en large grid companies extrapolated to
country level
• Analysis of the need for additional inertia
and short-circuit capacity in a future with an
increased wind power share

Software installed with • Software installed with the TSO and the grid companies • Specific investment expectations from TSO
the TSO and DSOs that can aggregate and process all information collected in and two grid companies
the distribution network and at the consumers’ premises

Metering equipment in • Metering equipment in all 10 kV and 50 kV substations and • Results from ongoing projects at both En-
distribution network in one third of all 0.4 kV substations erginet.dk and a grid company

Intelligent solutions at the • Electronics for automated control of heat pumps, domestic • Analyses of current pricing of similar tech-
end user’s premises generation as well as demand response and generation at nology and historic price development for
the customers’ premises similar electronics

Upgrading of electronic • Upgrading of electronic electricity meters so that they can • Analyses based on actual experiences with
electricity meters facilitate hourly settlement for consumers with electric electricity meters and expected price devel-
and plug-in vehicles, heat pumps and electricity generation opment

Total

Figure 7. Investments and costs of establishing the power system of the future in Denmark.

19
Fact sheet:

change the size of the calculated investments and benefits.
However, the calculations are estimated to be all in all so robust
that the conclusion is clear: If we desire a society with a widespread
use of electricity for transport and heating, Smart Grid will be the
most effective and least expensive solution.
Specific calculations performed in the project demonstrate that
from a socioeconomic standpoint it is possible to save additional
billions by implementing a Danish Smart Grid on the precondition
that the number of electric vehicles and plug-in hybrid vehicles in-
creases significantly after 2025.
A long-term scenario has been calculated, in which half of the Dan-
ish vehicle fleet comprises of electric and plug-in hybrid vehicles.
With an already established Danish Smart Grid, the increase in the
number of electric vehicles and plug-in hybrid vehicles could be in-

Socioeconomic present value of investments and costs Smart Grid Traditional expansion
DKK billion
Primary elements Calculation basis

Savings on • Reduce costs of supplying reserves and regulat- • Detailed analyses of current costs for
reserves and ing power by utilising the consumers’ decentral- reserves and regulating power, includ-
regulating power ised resources ing future requirements
Savings on • Reduce costs of generating power by moving de- • SIVAEL simulation of future electric-
electricity mand response to times with a more efficient ity consumption and the generation
generation generation portfolio portfolio

Savings on • Reduce costs for alternative achievement of the • Analysis of a report concerning ener-
energy-saving energy saving-initiatives, which will be a derived gy savings in other countries and the
initiatives result of an automated Smart Grid transfer of their results to Denmark

Total

Figure 8. Benefits from establishing the power system of the future in Denmark.

Argument
There will be fewer electric vehicles
in Denmark or the expansion is de-
layed
Electric vehicles will have a higher
charging effect
There will be more heat pumps in
Denmark
There will be fewer heat pumps in
Denmark, as there will be individual
biomass plants instead
Heat pumps will have a large accu-
mulation tank
There will be more local electricity-
generation facilities
Consequence
for Smart Grid
Implication potential
There will be less need to invest in equipment for electric vehicle Potential re-
owners. On the other hand, there will also be fewer Smart Grid duces
benefits in the form of reduced savings on grid reinforcements
and a reduction in derived energy savings
Pressure on the transfer capacity of the distribution network will Potential in-
be higher and thus intelligent control of the units’ charging ef- creases
fect aided by Smart Grid could provide increased benefits
Through more demand response, more heat pumps will via Potential in-
Smart Grid offer a greater possibility for reducing the socioeco- creases
nomic cost of electricity generation. In addition, more house-
holds will be able to achieve derived energy savings
Fewer heat pumps will mean that there are fewer benefits from Potential re-
demand response and fewer homes with the potential for de- duces
rived energy savings. However, the cost of expanding the distri-
bution network will also be reduced
Heat pumps with a larger accumulation tank will via Smart Grid Potential in-
allow heating to become more time flexible. This should reduce creases
the costs of grid reinforcements and similarly reduce the socio-
economic costs of electricity generation
An increase in the number of local electricity-generation facilities Potential in-
will create greater variation in the voltage quality in the distribu- creases
tion network. Using Smart Grid this variation could be managed
without the need for additional equipment, which will increase
the value of a Smart Grid

Figure 9. Consequences of changed preconditions.

20
 Fact sheet:

tegrated into it and all in all generate a so-

cioeconomic net benefit in the power sys- In the long term, increased expansion of electric vehicles Smart Grid
tem of around DKK 1 billion. This benefit will further increase the value of Smart Grid Traditional expansion
is achieved by carrying out minor invest- Socioeconomics in DKK billion when integrating an
ments which ensure the integration of elec- additional 500,000 electric vehicles from 2025 to 2030
tric vehicles and plug-in hybrid vehicles into
the power system while generating signifi-
cant socioeconomic savings through cheap-
er electricity generation and energy savings
for the owners of the new electric vehi-
cles and plug-in hybrid vehicles. If the pow-
er system is expanded using a traditional Invest- Benefits Total
strategy, the increase in the number of elec- ments
tric vehicles and plug-in hybrid vehicles will Invest- Benefits Total
generate additional socioeconomic costs of ments
approximately DKK 2.2 billion.
Figure 10. An intelligent power system will also be socioeconomically advantageous in the
Similarly, the analyses show that the con- long term.
clusion will be the same also if there are
fewer electric vehicles and plug-in hy-
brid vehicles than stated above, for exam- Smart Grid has additional social costs of approximately DKK 1.6 billion Smart Grid
ple. The net cost of 300,000 electric vehi- in contrast to DKK 7.7 billion in a traditional grid expansion scheme. Traditional
cles and plug-in hybrid vehicles is DKK 6.2 Socioeconomics in DKK billion expansion
billion in a traditional expansion scheme,
whereas it is DKK 2.5 billion in a Smart Grid
expansion strategy.

Conclusion
The project calculations show that the so-
cioeconomic investment in converting Investments Benefits Total Investments Benefits Total
the power system up to 2025 will be ap-
proximately DKK 9.8 billion by establish- Smart Grid investment in detail Smart Grid investment in detail
ing Smart Grid. This investment will realise Present value in DKK billion Present value in DKK billion
a socioeconomic benefit of approximate- Total =9.8 Total =8.2
ly DKK 8.2 billion and thus result in total so-
cioeconomic costs of approximately DKK
1.6 billion. The alternative to Smart Grid is a
traditional expansion strategy, in which the
socioeconomic investment will be in the
range of DKK 7.7 billion, which in contrast
to Smart Grid will not yield any social bene-
fits. Consequently, the advantage of pursu-
Metering and control software Savings in regulating power and reserves
ing the Smart Grid strategy is estimated to
Metering equipment in the grid and at consumers’ premises Savings in electricity generation
be around DKK 6.1 billion.
Control electronics at consumers’ premises Saved costs for energy-saving initiatives
Reinforcement of distribution network
Facilities for ensuring system stability

Figure 11. Investments and benefits of establishing the power system of the future.

21
3. Smart Grid offers new
opportunities for the consumers
Smart Grid offers the consumers a wide
range of advantages both in the short and
long term. Apart from the possibility of re-
ducing their electricity bill through intelli-
gent consumption, which is included in the
economic comparison in chapter 2, a Smart
Grid power system also offers numerous
other potential benefits for the consumers.
In the medium term, these benefits will
stem from a greater flexibility in the charg-
ing of electric and plug-in hybrid vehicles
and in the long term from new services re-
lating partly to the consumers’ energy sup-
ply and partly to other aspects of the con-
sumers’ everyday lives.
3.1 Electric vehicles and plug-
in hybrid vehicles become
greener and more flexible
Car owners today derive great pleasure
from their vehicles, which afford them con-
siderable freedom and flexibility thanks to
sound Danish transport infrastructure in
the form of roads and filling stations. This
desire by car owners for flexibility is set to
continue, and Smart Grid can help to fulfil
this desire.
This is possible because a Smart Grid ena-
bles electric vehicle and plug-in hybrid vehi-
cle owners to have their energy consump-
tion covered in a very individual way that
combines in the best possible way the de-
sire for cheap transport with the desire for
a high degree of flexibility to handle unfore-
seen driving needs.
Hence, electric vehicle and plug-in hybrid
vehicle owners with stable and predicta-
ble motoring needs will be able to choose
to charge their electric vehicle and plug-
in hybrid vehicle while it is standing in the
garage or on a parking place, and when it
is most financially efficient, which would
be typically at times of low electricity con-
sumption and/or high electricity generation
from renewable sources. This affords elec-
tric vehicle and plug-in hybrid vehicle own-
22
ers the cheapest transport and will also
contribute to increasing the share of green
energy used in electric vehicles and plug-in
hybrid vehicles.
Conversely, electric vehicle and plug-in hy-
brid vehicle owners with an unpredictable
and considerable need for transport could
achieve tremendous flexibility via a Smart
Grid, as a Smart Grid will allow for the rap-
id charging of the battery in electric vehicles
and plug-in hybrid vehicles without over-
loading the power grid. Typically such rap-
id charging would be more expensive than
conventional, financially optimal charging;
on the other hand, the electric vehicle and
plug-in hybrid vehicle owner would be able
to go quickly from empty tank to full tank.
These possibilities will not be available
without Smart Grid as a power system de-
veloped in a traditional manner will not of-
fer the consumers the possibility of hav-
ing the same control of their consumption.
Moreover, rapid charging could scarcely take
place in private homes without Smart Grid.
3.2 Smart Grid can provide a
complete overview of energy
consumption
The establishment of a Smart Grid will in-
crease the digitisation of Danish homes, as
more metering, control and communica-
tion electronics will be installed in the hous-
es, which will make it possible for the con-
sumers to achieve automated control and
intelligent electricity consumption. An addi-
tional benefit of this equipment will be the
possibility for the consumer to purchase a
number of related services.
For instance, it is conceivable that consum-
ers could ask to receive an SMS if their heat
pump, for example, should happen to break
down while they are away on winter holiday
so that they would have the possibility to
call for service and thus prevent the house
and the water pipes from freezing.
The increased digitisation can also support
services, which improve the consumer’s eve-
ryday life. By communicating with the unit
that controls the electricity consumption in
the house, for example, such services could
provide for the automatic shutting-off of
electrical standby consumption in the home
or the dynamic optimisation of the tempe-
rature in the house through the electrical
heat pump.
Finally, it will be a natural extension to con-
nect the increased digitisation to the oth-
er sources of supply in the household, such
as water and gas. The possibilities here are
wide ranging and can comprise a service, for
example, whereby the consumers can ac-
cess information services relating to diver-
gent water consumption which may be due
to a burst pipe.
3.3 New energy-related
services will create entirely
new opportunities
In the long term, it is expected that the elec-
tronics in the home could give rise to a wide
range of new services. Once the technical
elements are in place, it is highly probable
that commercial players will emerge that
will develop new, innovative products and
new markets, as has been the case with mo-
bile telephony and the Internet, for instance.
An example of this could be the coup-
ling of Smart Grid electronics with offers of
burglar alarm and home monitoring as such
services could use the infrastructure that
Smart Grid is based on.
Besides the advantages that are directly eco-
nomically quantifiable, several studies show
that consumers are also often more emo-
tionally motivated to want new technolo-
gy as this can also provide a perceived val-
ue. In this context, Smart Grid electronics
will afford consumers the possibility to allo-
cate some of their electricity consumption
to times when there is a documented abun-
dance of renewable energy in the power grid.
4. Smart Grid is
a mutual task
Smart Grid is the most effective way to
adapt the power system so that it can man-
age a future of more wind power, more
electric and plug-in hybrid vehicles and
more heat pumps. For this adaption to oc-
cur, all the players should invest in equip-
ment and solutions for combining meter-
ing, control and automation in the power
grid and in private households with com-
mercial products. If everyone should play a
part in implementing these investments,
a market needs to be created where cash
flows can move freely so that all the players
have financial incentives to participate in
the adjustment. Moreover, it should be clar-
ified which activities should be handled by
regulated enterprises and which activities
should be conducted on the free competi-
tive market.
4.1 Realising the Smart Grid
potential requires the efforts
of the entire sector
Analyses in the project have shown that the
establishment of a Smart Grid will result in
social costs of DKK 1.6 billion, whereas the
alternative, ie traditional power system ex-
pansion, will cost DKK 7.7 billion. Smart Grid
is therefore the least expensive method for
adapting the power system to future re-
quirements and can save society alternative
costs of DKK 6.1 billion.
The establishment of an intelligent power
system in Denmark requires efforts and in-
vestments from all regulated players in the
electricity sector as well as players acting
purely on competition-based, commercial
conditions both inside and outside of the in-
dustry. Only when all these players contrib-
ute can the total benefits of a Smart Grid
be realised. This need is due to the fact that
an efficient, market-based and consumer-
oriented Smart Grid in Denmark will make
the power system more comprehensive and
far more dynamic than it is today. Conse-
quently, there will be a need for significant-
ly increased integration across the existing
interfaces to secure a sufficient basis for in-
volving the consumers in the system.
Some of the new key tasks in the future will
be:
• Preparation of an integrated price mech-
anism which for a given period reflects
both the price of electricity on the spot
market, potential prices for regulating
power and ancillary services and a dy-
namic pricing of the load on the distribu-
tion network so that market players can
apply this integrated price in the compet-
itive markets
• Implementation of a system ensuring a
constant overview of decentralised re-
sources available for supplying regulating
power and reserves as well as of their lo-
cation in the power grid.
To render possible these new interdiscipli-
nary functions, it will also be necessary to
carry out changes within all the areas of re-
sponsibility in the power system, with the
TSO and network companies undertaking
new tasks:
• The TSO should continually develop the
market for balancing and ancillary ser- a situation of rising costs and new benefits
vices to provide easy access for new sup-
pliers of services as they are introduced
• Network companies should create a real- of them initially bearing the costs of invest-
time image of the load on the distribu-
tion network, which can become the ba-
sis for an integrated price formation that
motivates the consumers to use electrici-
ty in a way that minimises the additional
costs of grid expansion
• The TSO and the network companies
should ensure communication etc., which
is necessary to enable market players to
bring the new markets effectively into
play vis-à-vis the consumers.
A number of network companies are either
engaged in or planning to replace electrici-
ty meters in private households, and the re-
placement of oil-fired burners with electric
heat pumps is already well in progress, pro-
moted through various subsidy schemes,
for example. Although the major challenge
in relation to electric and plug-in vehicles
is still some years away, extensive work is
carried out today to develop concepts and
charging stations and to plan the expansion
of the entire charging infrastructure. A sig-
nificant part of the foundation for the in-
telligent power system of the future is thus
being installed already now. Therefore, ef-
forts should be directed towards identify-
ing the need for and ensuring the necessary
standardisation and functionality require-
ments, thus preparing these elements to
the widest possible extent to function im-
mediately in a Smart Grid concept. This will
promote an efficient implementation of the
Smart Grid functionality with the owners
of heat pumps, electric vehicles and plug-in
hybrid vehicles.
4.2 An efficient market will
lead to a common effort and
realise Smart Grid potential
A precondition for ensuring a common ef-
fort from the entire sector is the existence
of financial incentives for all the players in-
volved. This becomes particularly decisive in
across the regulated and purely commercial
enterprises and the consumers, with some
ment and others reaping the benefits.
The market should be commercialised, thus
ensuring the free movement of cash flows
between players. Moreover, the proper divi-
sion of work between regulated and compe-
tition-based activities should be ensured.
To ensure that such market commerciali-
sation has the best possible conditions for
success, the Smart Grid market should focus
on ensuring low complexity and low costs
already in the establishment phase. Market
access barriers should be kept low so that
new players can easily enter the market
without having to make huge investments
in equipment or IT systems to comply with
unnecessarily strict and complicated market
rules. At the same time, transaction costs
23
for services in the market should be kept
at a minimum so that the benefits for con-
sumers and new commercial players are not
devoured by complex transaction processes.
Creating such a market will give consum-
24
ers easy access to avail themselves of the
possibilities provided by the power system.
In this way, they can place the flexibility of
their electricity consumption at the dispos-
al of the power system so that it can be con-
verted into financial benefits that are not
drowned in expensive and rigid transac-
tions for all in the sector.
5. Two necessary
political preconditions
The electricity industry shall and will play
an active role in ensuring a common and
coordinated development of an intelligent
power system in Denmark, and therefore
it should also be ensured that the politi-
cal preconditions encourage a proactive be-
haviour among all the players. This chapter
describes the two necessary preconditions
which will be essential for supporting this
behaviour.
5.1 Future-proofing financial
regulation in the electricity
sector should create
incentives
The network companies see a future where
they should be a significant driving force
behind the establishment of the intelligent
power system of tomorrow, where they will
undertake new tasks and where they should
make a number of investments to ensure
overall socioeconomic benefits.
Such a change to the network companies'
activities will mean that the current finan-
cial regulation, which has been an effective
way of regulating a power system with pre-
dictable electricity consumption and con-
sumption development, will turn out to be
inappropriate and possibly even a direct
hindrance to the establishment of the intel-
ligent power system.
The really big challenge is that in order to
create tomorrow's intelligent power system
a number of investments must be made and
costs incurred, which do not result in a corre-
sponding expansion of the network compa-
nies’ revenue caps. Examples of this could be:
• Reinforcement of the power grid so that
it can handle new devices such as electric
vehicles and plug-in hybrid vehicles, for
example. These vehicles draw heavily on
the capacity during charging, which ne-
cessitates significant grid reinforcements.
However, as their electricity consumption
compared to classic consumption appli-
ances is relatively lower than their period-
ic heavy power consumption, the revenue of the benefits with which it can potential-
caps will not increase sufficiently to cover ly contribute require the creation a series of
the investments in grid reinforcements. new technologies and processes capable of
• Installation of metering equipment, facilitating many essential functions in an
which affords a better overview of the intelligent power system.
power grid without generating greater
electricity consumption The advancement of these technologies will
• Costs of processing and communicating require development and a significant dem-
large volumes of data and price signals, onstration effort. Investment in this devel-
which are core Smart Grid solutions opment from commercial players both in-
• Costs of demonstration projects. side and outside of the power system is not
expected to sufficiently create accelerated
The decision to choose a future direction for development as there will be no return on
the power system should be based on long- such investments until a pressing need for
term expectations. The reason for this long- solutions actually arises.
term perspective is that the electricity sec-
tor typically invests in assets that have a Consequently, society should continue
very long life and depreciation period. granting financial support to conduct fo-
cused and coordinated development and
A long-term expectation is encumbered demonstration activities that encourage the
with great uncertainty, which may incite advancement of those technologies and so-
players in the electricity sector to wait and lutions that will form the building blocks for
see while they maintain their existing work the intelligent power system of the future.
and investment methodologies. It is there- These activities should both optimise devel-
fore considered essential to establish a form opment within the individual parts of the
of regulation which ensures that network value chain and simultaneously ensure that
companies will not be financially penalised interdisciplinary solution models are devel-
if they proactively support the expansion of oped and tested.
electric vehicles, plug-in hybrid vehicles and
heat pumps, but the development moves in
a different direction.
Both to prevent a distortion of the net-
work companies' finances and to ensure
that players are not financially penalised for
making proactive investments, the financial
regulation should be carefully considered
and adjusted so that it actively contributes
to ensuring the establishment of an intel-
ligent power system in Denmark with the
subsequently derived benefits for the power
system, consumers and society.
5.2 Smart Grid development
and demonstration activities
can accelerate development
The establishment of an intelligent pow-
er system in Denmark and the realisation
25
6. The way ahead
The establishment of a comprehensive Dan-
ish power system that offers the consumers
the possibility to automatically achieve ben-
efits is a huge task, which requires a long-
term focus and action already in the short
term.
6.1 Phase 1 – Facilitating
phase
In the short term – from 2010 to 2012 – so-
ciety will experience an increasingly wide-
spread expansion of electric heat pumps
and the first actual launch of electric and
plug-in hybrid vehicles by commercial play-
ers.
By the end of this period, the electricity sec-
tor should have ensured that the relevant
players both inside and outside of the elec-
tricity sector are mobilised and involved
in developing ideas for the power system
of the future. Also during this period, a
wealth of experience should be accumulat-
26
ed through development and demonstra-
tion projects that can also form the basis of
frameworks and standards.
In order to carry out this work, a number of
key activities should be initiated:
• Determination of the necessary stan-
dards for communication and data mod-
els with an international outlook and
compatibility
• Determination of roles and responsibili-
ties for the TSO, network companies and
commercial players
• Adaptation of necessary legislation, finan-
cial regulation and regulations
• Implementation of pilot testing and ad-
justment of both consumer-oriented and
technical solutions
• Development of a tariff model that coun-
teracts overloading of the distribution
network.
6.2 Phase 2 – Establishment
phase
In the establishment phase – from around
2012 to 2020 – changes on the demand side
will begin to take shape as the use of heat
pumps will have expanded significantly by
now and consumers will have begun to pur-
chase electric and plug-in hybrid vehicles.
By the end of this period, this development
will have brought about a power system in
which the fundamental Smart Grid infra-
structure has been established. At the same
time, the system should be so mature that
commercial solutions supporting intelli-
gent demand response will start becoming
more widespread. and the players should be
in a position to facilitate the ongoing devel-
opment of the system and solutions with a
particular emphasis on limiting transaction
costs in relation to the exchange of com-
mercial services.
To this end, a number of key activities
should also be executed in this phase:
• Accumulation of further experiences na-
tionally and internationally
• Formation of Smart Grid market mecha-
nisms such as ancillary services trading,
tariff fixing, and integrated price forma-
tion across the power system
• Implementation of Smart Grid function-
ality through metering, control and auto-
mation in the power grid and in private
households
• Penetration into the consumer market
with the first wave of commercial Smart
Grid-based services and solutions
• Continuous adjustment of market rules
and regulations concurrently with the ac-
cumulation of experiences.
6.3 Phase 3 – Commercialisa-
tion phase
This phase is expected to occur after 2020.
By that time, electric heat pumps will be the
most widespread source of heating outside
district heating and natural gas areas. At
the same time, electric and plug-in hybrid
vehicles will be recognisable and common-
place on the streets.
This situation will make it possible within a
few years to balance the power system via
Smart Grid functionality in the form of in-
telligent and automated control of the con-
sumers’ flexible appliances, while Smart
Grid services should be further developed so
that consumers have a wide range of prod-
ucts to choose between.
To achieve this objective, a number of key
activities should be executed:
• Commercial distribution of Smart Grid-
based solutions to the majority of con-
sumers with heat pumps and /or electric
and hybrid vehicles
• Optimisation of system and grid opera-
tion based on Smart Grid functionality as
the flexible electrical appliances become
more widespread amongst the consum-
ers
• Continuous adjustment of market rules
and regulations to ensure optimal Smart
Grid functionality.

Phase 3 Commercialisation phase

Phase 2 Establishment phase
(2021-)
Phase 1 Facilitating phase (2013-2020)
(2010-2012)

Social Heat pumps increasingly replace oil
development and stoker burners outside natural gas
and district heating areas, and the first
commercial launch of electric vehicles
takes place
• Motivation and involvement of rele-
Objective
vant players
• Agreement about standards
• Accumulation of experiences
Key activities • Determination of the necessary
standards for communication and
data models with an international
outlook and compatibility
• Determination of roles and respon-
sibilities for TSO, grid companies and
commercial players
• Adaptation of necessary legislation,
financial regulation and regulations
• Implementation of pilot testing and
adjustment of both consumer-ori-
ented and technical solutions
• Development of a tariff model that
counteracts overloading of the distri-
bution network
Heat pumps are well on their way
to becoming the preferred form of
heating outside natural gas and
district heating areas, and the sale of
electric and plug-in hybrid vehicles
has begun to take off
• Establishment of the fundamental
platform/ infrastructure
• Expansion of commercial solutions
• Ongoing further development of
system and solutions, and the lim-
iting of transaction costs
• Accumulation of further expe-
riences nationally and interna-
tionally
• Formation of Smart Grid market
mechanisms, eg ancillary ser- tric and hybrid vehicles
vices, tariffs, integrated price for-
mation, etc.
• Implementation of Smart Grid
functionality in the power grid
• Penetration into the consumer
market with the first wave of com-
mercial Smart Grid-based services
and solutions
• Adjustment of market rules and
regulations
Heat pumps are the preferred
form of heating outside natural
gas and district heating areas,
and electric and hybrid vehicles
are commonplace on the streets
• Balancing of the power sys-
tem aided by Smart Grid func-
tionality
• Further development and ex-
pansion of the range of Smart
Grid-related services and so-
lutions
• Widespread distribution of
Smart Grid-based solutions
to the majority of consumers
with heat pumps and/or elec-
• Optimisation of system and
grid operation concurrent with
widespread use at the con-
sumers’ premises
• Adjustment of market rules
and regulations

Figure 12. Phases for introducing intelligent solutions into the Danish power system.

27