Electricity Markets, Reliability and the Environment: Smartening-Up the Grid

The opportunities and challenges of implementing a smart electric supply system are discussed, including how to integrate the local public goods of electric system reliability, and increasingly of environmental compliance, in an efficient way. The full potential of the smart grid cannot be attained, however, without the wide-spread availability of real-time pricing for electricity so that all parties, particularly customers, have an incentive to play "smart". The incentives for behavioral, technological and environmental innovations resulting from a smart grid are discussed, if implemented in a market context, as are institutional and political inhibitions for doing so under a regulatory regime.