The European Commission’s Directorate-General for Energy (DG Energy) has released guidelines for conducting a cost-benefit analysis (CBA) of smart grid projects in Europe.
The guidelines, based on the methodology of the Electric Power Research Institute (EPRI), offer a step-by-step assessment framework for cost-benefit analyses, with assumptions tailored to the European context.
The proposed approach comprises three main parts:
- Definition of local boundary conditions (e.g. demand growth forecast, discount rate, local grid characteristics) and of implementation choices (e.g. rollout time, chosen functionalities)
- Identification of costs and benefits
- Sensitivity analysis of the CBA outcome to variations in key variables/parameters.
The CBA aims to look further than the costs incurred during the smart grid projects, wanting to take a societal perspective, considering the impact on the whole value chain and society at large.
The guidelines include reviewing and describing technologies, defining assumptions and setting critical parameters, elements and goals of the project, mapping assets into functionalities, mapping functionalities onto benefits, establishing the baseline, monetizing benefits and identifying beneficiaries, identifying and quantifying costs, comparing costs and benefits, performing sensitivity analyses, and complementing CBA with a qualitative impact analysis including externalities.
Portugal’s Inovogrid project is used as a case study.
The guidelines were prepared by Europe’s Joint Research Center in conjunction with DG-Energy.