In the U.S., the Smart Grid is an industry-government project designed to meet future demands for electric energy without building new generating plants or transmission lines. In the U.S., peak capacity is more than adequate to meet average demand. But the peaks of the daily cycle, especially during weather extremes, may soon exceed that capacity.
The goal is to moderate the peaks and valleys through economic incentives—make the cost of a kilowatt-hour higher when demand is high, lower when it's low—creating a classic negative feedback on a colossal scale. The control loop monitors demand in near-real time and increases or decreases electricity rates to apply control.
For a more detailed explanation, see "NIST Framework and Roadmap for Smart Grid Interoperability Standards, Release 1.0".
The engineering view of the Smart Grid starts with a number of domains: customers, markets, service providers, operations, bulk generation, transmission, and distribution.
Generally, customers would be end users of electricity, yet they could also be part of a "distributed supply" or "distributed storage" resource. Industrial plants or individuals with grid-connected solar power would be suppliers. Electric vehicle owners who charge their batteries when electricity is cheap and sell it back when it is dear would be in the storage business.
The markets domain consists principally of traders like Enron. In the envisioned feedback loop, their trades, based on real-time data about demand (amalgamated from millions of meter readings), would set the price per kilowatt-hour that customers pay. This is one of the parts of the Smart Grid that interest companies like Cisco.
The service providers comprise the companies that sell electricity to customers. They may generate some electricity themselves with peaking plants, or they may not. They are the experts in pushing the electricity down the last mile to the customer. In that sense, they're like cable TV operators. With new battery technologies and business models, they may also store electricity.
Service providers get most of their energy from the bulk generators. Energy may be generated on demand by coal, gas, or nuclear steam generators, by large solar facilities, or by geothermal plants. Some service providers also store energy by pumping water uphill, between reservoirs with hydroelectric generation capabilities. Bulk generators also need instantaneous demand data to spot demand trends, because it takes them a long time to bring up an idle plant. This is a control system with many loops, some of which have very long time-constants.
Operations keeps everything in all the control loops running smoothly and handles exceptions when necessary. A large part of operations consists of what the industry calls SCADA (with a long "a"), which stands for supervisory control and data acquisition. In the Smart Grid, SCADA is largely a matter of unifying and standardizing measurements and communications while improving security for data and for the system itself.
The transmission and distribution domains comprise the entities that control the infrastructure—the high-voltage power lines and the distribution facilities that monitor and control the flow of energy to organization further down the line.
The way the energy industry and the National Institute of Standards and Technology (NIST) see it, the markets domain is the pivotal element in the feedback loop, because this feedback loop depends on money. Actors in the markets domain exchange prices and balance energy supply and demand. Its boundaries include the edge of the operations domain and of the domains that supply assets that make electricity and get it to the consumer (generation, transmission, etc.) and customer domains.
The function of the market domain in setting electricity prices takes the Smart Grid beyond the "simple" role of a continent-spanning industrial-control system. Its financial aspect gives its communications aspects the imperative for traceability and auditability. Communications must support e-commerce standards for integrity and non-repudiation.
That's going to be an evolving technical area. As the percentage of energy supplied by small distributed energy resources (DERs) increases, the allowed latency in communications with these resources will have to shrink.
The NIST report notes that "The high-priority challenges in the markets domain are: extension of price and DER signals to each of the customer sub-domains; simplification of market rules; expanding the capabilities of aggregators; interoperability across all providers and consumers of market information; managing the growth (and regulation) of retailing and wholesaling of energy; and evolving communication mechanisms for prices and energy characteristics between and throughout the markets and customer domains."
Markets domain actors comprise market managers, retailers, aggregators, and traders. Market managers include independent systems operators (ISOs) for wholesale markets or the New York and Chicago Mercantile Exchange (NYMEX/CME) for forward markets. There also are transmission and services and demand response markets as well as basic electricity markets.