In This Issue
Spring Issue of the Bridge on the Electricity Grid
March 29, 2010 Volume 40 Issue 1

The Smart Grid: A Bridge between Emerging Technologies, Society, and the Environment

Monday, March 29, 2010

Author: Richard E. Schuler

Combine two popular fuzzy concepts, the “smart grid” and “sustainability,” and you may find a pathway to human progress that is flexible, adaptable, and inspirational for technological innovation and evolving consumption patterns. Many of the complex networks at the heart of modern societies are taken for granted, but modern electricity networks when combined with wholesale markets to provide local public goods, such as system reliability and environmental compliance, efficiently bridge the gaps between underlying support networks (both technological and biological) and human awareness.

Realizing the full potential of the smart grid will require widespread, real-time pricing for all customers, which means overcoming some institutional and political barriers. The advantage of a smart grid, with smart customers, is that it may provide incentives for a diverse array of technological (and environmental) innovations if it connects the customers’ wants and payments with supplier rewards. And the initial investment by society is small since no new energy distribution network is required when electricity is used as a medium to translate primary conversion sources into human needs. But the smart grid would be only a first step in developing links between the support networks of a modern society. Its greatest value may be the innovations and further bridges it inspires us to build.


The electric power industry has been serving the public for more than 100 years, and most of the underlying science on which it is based has been known since its inception. Throughout its history, most of the supply-side technological innovations in the electric industry have been evolutionary, with the exceptions of nuclear power and modern tele-information systems.

Revolutionary, transformational changes have occurred mostly on the user’s end of the system in the ways people work, think, connect, dream, and entertain. Tele-information/computerized society could not have emerged without the support of a widespread, reliable electricity supply system.

Today the electricity system itself may be transformed, in turn, by these innovations. The marvel of electrified society is not how utterly dependent people are on it, but how easily they take it for granted. Most people think about it only when it fails or when the bills are too high. Otherwise, individuals and businesses dream about new user-friendly gadgets, more luxurious cars, homes, and boats, and more exotic entertainment and getaways, whether real or virtual. Even scientists and academics are occupied with seeking fundamental, underlying truths and tend to skip over areas of science that are fairly well understood on a macro-level. Entrepreneurs, hoping to capitalize on novel scientific innovations to capture their customers’ fancy, tend not to focus on improving efficiency or doing existing things better, unless it means hiring fewer workers.

Although improving efficiency is a primary objective of the smart grid, the media hasn’t paid much attention to energy efficiency. The attitude seems to be that the smart grid is just the latest twist in the same old industry story, an attempt to attract attention (and government funding) by hitching a ride on headlines about recent advances in tele-information. But at some point the electricity industry will have to reach out and connect with every customer for the “smartening” of the grid to deliver its full promise.

The standard industry and political line is that customers do not care about energy efficiency. But they do care about their I-phones/mobile information/entertainment devices and programs that track the value of their assets. They just don’t think much about the underlying electricity system that powers them.

What if we could connect the two? What if we could enable customers to monitor, in real time (or plug into an automated computer “app”), their energy budgets through the things they do care about, family and friends, buying goods and services, or making travel and entertainment plans. Wouldn’t that send imaginations soaring?

Or suppose customers could connect their individual actions with “sustainability” through the smart grid? Today the terms “smart grid” and “sustainability” mean something different to nearly everyone who talks about them. But, if end-use customers were brought into the smart-grid mix in real-time electricity markets, then these terms would have to be quickly clarified because of their impact on people’s pocketbooks.

My hypothesis is that if customers have the necessary smarts, the smart grid can be a pathway toward a sustainable society.

Networks and Sustainability

The smart grid will superimpose tele-information networks on the electricity network. Like the smart grid, sustainability implies adequate flows of goods and services to members of spatially distributed human societies, which are embedded in a complex web of natural ecological systems (i.e., support networks).

I see the smart grid as the first step down a path that may open up unimagined opportunities, leading society to explore multiple routes but keeping the goal of sustainability in mind. I think of the smart grid as the first step in a dynamic process with antennae searching multiple networks that provide feedback and allow for timely course corrections.

We have some idea of where human societies are today, and each of us has a notion of where society might (or should) be in the future. But we have little idea about which paths to take or which production technologies to pursue to get there. The space between here (now) and there (then) will evolve depending on the choices we make, and the choices we have already made.

That’s why I characterize the smart grid as a “bridge,” actually a flexible, switchable system of bridges linking people with technology and natural systems. According to many cultural anthropologists and archaeologists, those three components—people, technology, and natural systems—are always linked, and the nature of that linkage determines the rise, and eventual fall, of human societies (e.g., Diamond, 2005; Harris, 1977; Tainter, 1988). In simple terms, human-engineered systems, frequently related to water supply, have historically led to the affluence and expansion of some societies. When they reached a level that was unsustainable in the face of the inevitable shock(s) that impact the natural biosphere, these societies precipitously declined.

The difference between earlier societies and modern societies is the interconnectedness of all people on Earth and the rapidity of both the physical transport of goods and services and the flow of information about their remote availability, which can provide a hedge against localized failures. Unfortunately, they also create interdependencies that may eventually precipitate collapse on a global scale.

So what does this have to do with the smart grid? To a large extent, the doomsday just described has to do with the way networks are linked and the differentials between the types and speed of feedback within and among society, technology, and natural systems. It also has to do with the immediate and potential responses and the pace of innovation (i.e., adaptation and change), through which the smart grid may become an enabler of a sustainable society.

Markets for the exchange of goods and services can also be both enablers and impediments to the ecological collapse of societies. Markets are loosely coupled networks that bring together, through piecemeal information flows, the efforts of hundreds, even thousands, of people performing highly specialized functions that result in the delivery of coordinated products to individual customers.

An even greater benefit of markets is that their rewards encourage technological innovation that adds to economic productivity in ways that benefit everyone. When innovations create negative externalities (i.e., adverse impacts on people and/or the biosphere that are not captured in the prices of goods and services), society as a whole may be harmed. The outcome depends on the nature and reparability of the insult and the speed of recognition and response. Furthermore, undoing or avoiding a negative technical externality requires collective (i.e., government) action to ensure that everyone shares in the cost, as well as the benefit, of the public good.

The same principle applies to the care and improvement of a complex natural or human-engineered network. Most engineered networks start as a way to expand markets for a particular type of business. But when enough people become dependent on the service provided by the network (e.g., roads and highways, the air traffic system and airports, telecommunications networks and the Internet, financial liquidity networks), government usually steps in to support its repair and maintenance.

Electricity Networks, an Essential Step

The link I have suggested between electricity and sustainability is important, because modern societies no longer depend on horses, water, or steam to provide energy. Instead, they depend on non-human energy, electricity instead of human or animal physical effort. For example, increased agricultural productivity improved human nutrition, which greatly increased the intensity of human effort (Fogel, 1994). Electrification compounded these improvements in per capita productivity, even though it is less efficient when measured in terms of energy conversion on a BTU-in/BTU-out basis. What matters is that electricity is an extraordinarily efficient substitute for human energy (Weinberg and Burwell, 1982).

Because electricity can be transported via thin, flexible wires and delivered precisely where and when it is wanted, production processes no longer have to be aligned to meet the physical requirements of metal shafts, gears, and belt drives. Instead, they can be arranged to satisfy the needs of their human overseers. Electricity, which powers a myriad of labor-saving devices, has unleashed the electronic, tele-information, and computer era.

Although fossil-fuel-fired power plants are today considered a blight on the environment, they facilitated an important step toward improving urban environments. Imagine how filthy New York City would be if all of its energy had to be converted (i.e., burned) within its boundaries. Instead, much of that combustion has been concentrated at distant locations and the energy shipped by wire. And because of the scaling laws of large chemical/combustion processes, these processes are more efficient and less polluting than when combustion took place in every home or building. In addition, filtering and scrubbing remove residual effluents leading to less pollution per unit of human energy saved.

But that is just the beginning. Energy by wire means we can get energy from a variety of fuels and deliver it at the speed of light. Less-polluting energy sources, like natural gas, might be located closer to people, but renewable resources must be sited where the resources are predominant (e.g., hydroelectric plants, wind farms, and geothermal plants).

The point is that with electricity as the energy intermediary, a wide range of existing and emerging technologies for energy generation can be tapped using the same delivery system and powering the same end-use appliances. The electricity network is an extraordinary hedging mechanism for future developments, even as it continues to support the most effective end-use appliances.

There are some major hitches, however. Electricity cannot be stored economically in large quantities (e.g., pumping water uphill, an indirect storage method, is limited to particular locations), and peoples’ use of electricity varies widely over the course of a day, a week, or a year. Whereas fossil fuels can be stored, renewable sources can be tapped only when nature cooperates. Thus the supply doesn’t always match human-usage patterns.

Fortunately, many electronic advances in the past half-century have already helped to smooth out the ebbs and flows of demand and supply while maintaining the reliability of the grid. A more widespread electricity network may be able to tap a larger variety of generating sources and thereby take advantage of the non-coincidence of peak demands in different geographic regions.

Another downside to electricity as our source of energy is that it leads to a second disconnect in the minds of most people. Because the primary conversion of energy takes place in distant, out-of-sight locations, most people don’t think about the adverse environmental consequences of flipping on their computers or charging their cell phones.

Smart Networks, Smart Markets

The flow of goods and services over networks, which by definition can improve reliability in many ways, is often governed by the laws of physics, chemistry, and biology, rather than the rules of commerce. In the past, this hard fact interfered with efforts to establish electricity markets in the United States because customary market transactions frequently have to be overruled to maintain system reliability. Because electricity supplied over a network provides the same protection against unannounced outages to all customers in a particular neighborhood, reliability is a public good, and its level must be determined and enforced by a regulatory authority (e.g., Mount et al., 2003).

Therefore, providing low-cost reliable electric service requires a “smart-market”—one that begins with bids and offers from buyers and sellers but accepts them only after taking into account the laws of physics that govern feasible flows over the multiple paths of an electricity network (Rassenti et al., 2003). The overall objective is to maximize the efficiency of the system, while maintaining a specified level of reliability. Today’s even smarter markets also take into account dynamic constraints on the network (e.g., the designation of operating reserves and unit ramp rates), even as they continue to ship energy.

But smart markets can also provide feedback that leads to improvements in the design and use of the electricity network. If flow constraints on transmission lines can be priced, congestion (a negative technical externality) can also be priced, thereby improving the matchup between supply and demand both geographically and over time. Feedback can also signal when, where, and how much customers are willing to pay for network improvements. In fact, this concept is beginning to be applied to other networks (e.g., congestion tolls on roads).

The other big negative technical externality for the electricity network is pollution, primarily from power generation. Fortunately, because different types of generation in different locations result in different adverse impacts, the use of price mechanisms by the environmental community, either through cap-and-trade markets or the levy of effluent fees, nicely complements existing market-based, wholesale exchanges of electricity.

Even in areas where electricity allocations and costs are determined by a regulatory process, environmental add-ons, based on estimated damage to society, can reflect the external (non-marketed) environmental costs of supplying power from different sources; in this way the externalities can be internalized! Thus for power plants that burn high-sulfur coal without scrubbing, the social costs of pollution can be added to fuel costs, which will affect the determination of whether or not the fuel is economical compared to, say, wind-generated power.

A distinction should be made between the emission of greenhouse gases and the emission of particulates and the oxides of sulfur (SOX) and nitrogen (NOX). Eventually, the adverse effects of greenhouse gas emissions will affect everyone on the planet. Thus, reducing them is a pure public good. Emissions from each source add up to what is received collectively by everyone, and carbon emissions everywhere can be assessed with the same incremental fee.

By comparison, particulates, SOX, NOX, and other pollutants affect people in different locations differently, depending on atmospheric conditions, topography, and geography. The reduction of these “criteria” pollutants is a local public good, because, even though everyone in a neighborhood receives the same benefit, the adverse impacts vary in different places and at different times.

The problem is that the atmospheric network is different from the electricity supply network, and today, the rules and regulations for each are governed by different government agencies. It is easy to imagine the tugging and pulling between these oversight bodies (Mitarotonda, 2008). Using prices to manage the twin public goods of electricity reliability and environmental quality in wholesale electricity markets can only have limited success until the ultimate “deciders” (i.e., consumers) speak up.

Smart Meters for All

To some, the smart grid implies using the latest sensors and computerized algorithms for all aspects of the operation so that everything is on autopilot. To others (so far in only a few urban areas), the change extends to the local distribution system, which will be designed and operated with the same sophistication and redundancy as the bulk power network.

Another local extension of automated systems is the micro-grid, which involves distributed, small generation sites that combine lighting, heat, air conditioning, and power managed by their own optimization routines, while accounting for the economic interface with the external network. In those locations, the existing bulk power system must anticipate and account for the sophisticated actions and responses of these micro-grids.

Evolving technologies may increase the value of a smart grid that encompasses all of these perspectives. For example, combine wind power, solar power, and the plug-in-hybrid vehicle (PHEV). The latter, for the first time, would enable the economical distributed storage of electricity at the local level. Although battery technology has been around for a century, it is becoming economical now because of the high price of gasoline. This is an example of the fuel-price hedging advantage of electricity and the technological adaptations it may facilitate.

As more small-scale generating and storage technologies become part of the distribution system, economical coordination with the customer’s use of electricity will become even more important. This cannot happen, however, until nearly every customer has a sensor that measures energy usage in real time and is charged for that usage based on time-differentiated costs that include external environmental costs.

Yet we have been reluctant to install smart meters that can instantaneously sense and record electricity usage based on the presumption that customers do not want to be bothered, and might even rebel, at real-time pricing. However, experiments suggest otherwise (Adilov et al., 2004). In studies at Cornell, for example, we paid customers (students) real money for what they saved in their simulated electricity purchases in a computerized market.

In the first scenario, customers had traditional, constant-price tariffs in a variety of weather conditions and simulated day-night differences. Next, they ran through the same sequence of purchase conditions but paid real-time market-clearing prices. In a third scenario, predetermined credits were provided for reduced consumption in a traditional, constant-price exchange, only when system stress was anticipated, similar to demand-response programs available today. The results overwhelm-ingly favored real-time pricing (Figure 1). In addition, price spikes were reduced in most peak periods, as were suppliers’ profits. In economic jargon, the industry operated more efficiently.

Figure 1

Before the experiments began, participants were asked which pricing system they thought they would prefer, and two-thirds chose constant, fixed prices with traditional demand-response incentives. After trying all three systems, however, two-thirds chose real-time pricing! This reversal is statistically significant by any criteria and refutes the popular wisdom that customers will not accept the change.

Further experiments confirmed other benefits to letting all customers into the electricity markets. In simulations of the effects of alternative pricing systems on a 30-bus electrical system with six generators, it was estimated that maximum transmission-line capacities could be reduced by an average of 7 percent and that peak-generation requirements would be reduced by 5 to 10 percent (Adilov et al., 2005). In fact, total electricity consumption increased slightly with real-time pricing, because nighttime usage increased (because of much lower prices) more than daytime usage declined. In the long run, this would translate into lower capital costs per megawatt hour sold (Figure 2).

Figure 2

However, these benefits were not included in estimates of overall customer value. In addition, the largest benefits to society can only be imagined. These benefits would result from the realization of technological advances, such as wind and solar generation, micro-grids, and PHEVs.


Imagine the economic benefits of storing electricity in your PHEV generated by low-cost, base load and wind units at night, rather than recharging the vehicle during the day with electricity produced by expensive gas-fired generation during peak hours. With real-time pricing, customers will have a greater incentive to make the extra investment in, for example, PHEVs. In addition, an entrepreneur might begin to market an “app” for a smart phone that would enable the PHEV driver to punch in the origin and destination of a trip and the desired departure and maximum tolerable travel time. The program would then respond with a route, as well as refueling (and dining) spots that minimize combined time and cost while accounting for traffic congestion.

This would be just the beginning, however. For the first time in years, most urban dwellers would once again be connected consciously with the broader environment that sustains them, even as they could now manage their own comfort and convenience. The mechanism of this connection would be the inclusion of widely varying environmental costs in the prices of consumption alternatives.

The smart grid will provide instantaneous access to a wide variety of energy sources with modest additional investments in pipes, concrete, and wires. Unlike many other proposed energy futures, this one would not require a massive nationwide investment at the outset. Making the electricity grid (and us) smart in terms of cost will provide powerful incentives for innovators to devise environmentally benign versions of goods and services that satisfy customers’ desires.

What I have just described is a bridging mechanism that will link technology, engineered support networks, the biosphere, and human society. The energy network, which starts with the smart grid, will be dynamic and will continue to evolve. Whether it will eventually work through large-scale centralized or small decentralized loosely coupled systems will depend on future developments and the paths that are chosen. Whatever those paths may be, they will reflect human creativity in ways that were not possible before.


Research for the experiments and simulations conducted at Cornell University was supported by the Power Systems Engineering Research Center (PSERC), a National Science Foundation/industry consortium, and the Consortium for Electricity Reliability Technology Solutions and funded by the U.S. Department of Energy through PSERC.


Adilov, N., T. Light, R. Schuler, W. Schulze, D. Toomey, and R. Zimmerman. 2004. Self-Regulating Electricity Markets? Presented at the 17th Annual Western Conference, Rutgers Center for Research in Regulated Industries, San Diego, California, June 24, 2004.

Adilov, N., T. Light, R. Schuler. W. Schulze, D. Toomey, and R. Zimmerman. 2005. Differences in Capacity Requirements, Line Flows and System Operability under Alternative Deregulated Market Structures: Simulations Derived from Experimental Trials. Pp. 635–641 in Proceedings of IEEE Power Systems Conference and Exposition, San Francisco, Calif., June 12–16, 2005.

Diamond, J.M. 2005. Collapse: How Societies Choose to Fail or Succeed. New York: Viking Books.

Fogel, R. 1994. Economic growth, population theory, and physiology: the bearing of long-term processes on the making of economic policy. American Economic Review 84(3): 369–395.

Harris, M. 1977. Cannibals and Kings: The Origins of Cultures. New York: Random House.

Mitarotonda, D.C. 2008. When the Transport Paths of Commodities and the Externalities They Generate Diverge: Electricity as an Example. Paper presented at the 55th North American Meetings of the Regional Science Association International, Brooklyn, New York, November 20–22, 2008.

Mount, T.D., R.E. Schuler, and W.D. Schulze. 2003. Markets for Reliability and Financial Options in Electricity: Theory to Support the Practice. Pp. 53–62 in Proceedings of the 36th Hawaii International Conference on Systems Science, Waikaloa, Hawaii, January 6–9, 2003.

Rassenti, S.J., V.L. Smith, and B.J. Wilson. 2003. Controlling market power and price spikes in electricity networks: demand-side bidding. Proceedings of the National Academy of Sciences 100(5): 2998–3003.

Schuler, R.E. 2004. Structuring Electricity Markets for Demand Responsiveness: Experiments on Efficiency and Operational Consequences. PSERC Report M-7. Available online at 2004report /schuler_demand_response_final_report.pdf.

Tainter, J.A. 1988. The Collapse of Complex Societies. Cambridge, U.K.: Cambridge University Press.

Weinberg, A.M., and C.C. Burwell. 1982. The Rediscovery of Electricity. Pp. 12–18 in Proceedings of the American Power Conference 44. Washington, D.C.: American Society of Mechanical Engineers.

About the Author:Richard E. Schuler, Ph.D., P.E., is Graduate School Professor of Economics and of Civil and Environmental Engineering at Cornell University and a board member of the New York Independent System Operator.