Network investments within the market paradigm the smart grid case

The introduction of market forces in the energy sector has drastically changed the climate for investments in the electricity infrastructure. In contrast with the former public monopoly situation, many new uncertainties need to be taken into account in network investment decisions. Another marked difference is the fragmentation of energy markets and the entrance of new players on the energy market stage, often in new roles. The upgrading of electricity networks to create so-called smart grids has therewith become a multi-actor investment problem, which requires a well-designed and well-managed process. Customer preferences are another important new factor to be reckoned with. As customers are triggered to become active rather than passive consumers of energy in the liberalized electricity markets, a large scale roll-out of smart grids is only feasible if it responds to customers´ needs. As several competing scenarios are possible for the roll-out of smart grids, it is likely that the scenario first entering the implementation stage will have a first-mover advantage. This, in combination with the split incentive issue for smart grids, results in the conclusion that the realisation of smart grids needs public support.