Electric Dreams: The Benefits of Combining Smart Cities & Smart Grids

June 2024

Sustainability & Smart Cities

Matthew Purnell

Senior Research Analyst

In order to meet climate goals set out by governments and reduce carbon emissions, electricity generation, management, and distribution have required significant overhauls. Smart grids are a step to accomplish these targets. Smart grids are electric grids whose layers are modernised by IoT (Internet of Things) technologies and related appliances and devices. They function by enabling a two-way information exchange, digital monitoring, and responses to consumption patterns through smart meters and other appliances. Furthermore, smart grids can also integrate various types of renewable sources to produce and distribute more environmentally friendly energy.

The scope of smart grids lies well beyond the grid, with the two-way information exchange consisting of far more than simply smart meters. Smart cities, buildings, and appliances have a symbiotic relationship with smart grids, and the nuance surrounding this dynamic features novel applications that we can take for granted.

Dynamic Lighting: A Bright Idea

At a city level, intelligent street lighting solutions are one of the most common smart city features. Public street and area lighting account for up to 40% of electricity consumption by municipalities; representing a significant burden on electric grids.

Therefore, intelligent streetlighting solutions are not simply switching to more efficient LED bulbs, but an entire network that communicates with smart grids. Utilising an IoT network that connects to smart city sensors and integration within AMIs (Advanced Metering Infrastructure), streetlighting can be adjusted based on user demand and thus reduce output from grids through two-way communications channels.

This benefits not only the grid, but also end users by extending the lifespan of assets, measuring the voltage requirements for each luminaire, while also ensuring residents in municipalities feel more comfortable as a result of the lighting. Furthermore, AMI integration saves money for utilities and end users by leveraging existing assets, as well as the principal goal of reducing energy consumption and thus minimising carbon emissions.

Buildings also utilise intelligent lighting solutions in order to reduce energy consumption. Smart buildings utilise IoT sensors and advanced analytics to autonomously adjust lighting levels based on contextual cues, like occupancy, availability of daylight, and individuals’ preferences. In addition to this, smart buildings are a part of AMIs and therefore the demand for lighting can be transmitted to grids; allowing smart grids to distribute electricity accordingly, saving energy and financial costs to utilities and users.

AMI is just one aspect of how grids and cities interact with each other. Smart cities are made up of smart buildings and homes, and these comprise of EMS (Energy Management Systems). AMI and EMS are not mutually exclusive, with smart meters able to run through EMSs. Various appliances within the home managed by the EMS interact with AMI, utilising data from smart grids to operate accordingly. For example, appliances such as washers and dryers can operate automatically at times of limited electricity demand; rewarding end users with reduced electricity bills. This capability is done through the IoT appliances connecting to the grid through AMI, with the grid automatically transmitting data pertaining to energy loads, costs, and more.

Smart appliances within homes and buildings offer the same benefits for utilities by reducing the burden on grids. However, the bulk of benefits is on the consumer side. The cost of electricity is reduced, but automating the function of various appliances allows for more free time for consumers. Even then, consumer control is not completely overridden, as manual overrides are available, so consumer preference is still at the core of smart appliances.

Why Are These Benefits Important?

The interplay between smart grids and cities is more complex than many conceptualise, with the software powering both solutions often falling under the same offerings. The shared use of such software promotes the adoption of smart-city solutions to municipalities, due to decreased costs of integrating them to existing frameworks, in addition to long-term financial and environmental benefits. Utilities similarly benefit due to cost reductions as a result of automatically decreasing electricity output; diminishing the likelihood of system faults requiring attention. This ensures efficient, reliable, and cost- and energy-efficient operations of grids.

However, there is one benefit that is often overlooked in the grand scheme of smart grids, and the interplay between smart cities and buildings is the added engagement from consumers. Perceived control in regards to consumers’ decision-making is a major factor to customer satisfaction, and given the promotion of two-way communication that smart grids and cities offer, allowing participants interacting with these to have increased engagement is imperative to the success of grids.  If consumers perceive themselves as having more choice in how they interact with their electricity usage, they will be more likely to engage with features of smart grids and cities like smart meters and appliances, or even adopt other grid-related products like photovoltaic-electricity panels and energy storage systems for their homes.

It is imperative that consumers are motivated to partake in the process between smart grids and cities, such as through rewards beyond intrinsic benefits to the consumer.  Whilst reduced energy bills are the most notable benefit, other incentives such as partially-funded adoption of smart appliances or renewable-energy solutions like solar panels would facilitate consumer satisfaction for those requiring extrinsic motivation to readily participate with the grid. Such incentives require substantial investment from governments to enable, but utilities should directly offer meaningful benefits. These include implementing digital self-service options for digitally literate consumers to monitor energy consumption, make payments, personalised onboarding for new consumers, and proactive communication to ensure transparency for consumers.

Smart city and building solutions that are purposefully designed around smart grids are sparse, with only a handful of market leaders offering integrated solutions. Smart appliances especially are an aspect of the market that software and technological developers should invest seriously in due to the increased demand for these appliances in the coming years.

Ultimately, the interaction between smart grids and cities will represent a significant proportion of energy cost savings that utilities and consumers will reap; resulting in $291.4 billion saved in 2029, increasing 249% from $83.5 billion in 2024. 

Total Smart Grid Energy & Emissions Cost Savings ($m), 2024 vs. 2025 

Source: Juniper Research

As a Research Analyst, Matthew provides invaluable analysis, competitive benchmarking, and forecasting on sustainability markets including Smart Grid and Mobility-as-a-Service. His research has been covered by leading media outlets such as Bloomberg, Fortune, and Forbes.