The power grid is just about to get smarter

The latest energy buzzword, smart grid, has many in the power sector and green energy world talking. The pitch for smart grids goes something like this: as the next generation of power grids, they provide enormous opportunities to improve energy distribution and usage to benefit suppliers and end users.

Ultimately, they help optimise grid management and match energy resources to minimise wastage.

Not surprisingly, the mainland has emerged as a potential leader in the development of these advanced energy systems.

In his latest policy address, Chief Executive Donald Tsang Yam-kuen spent some time setting goals to reduce the city's carbon intensity through the wider use of cleaner and low-carbon fuels in power generation. He emphasised the importance of optimising the current fuel mix to reduce reliance on fossil fuels, and the government's commitment to enhancing energy efficiency and electricity saving.

In terms of trying to introduce the concept of energy saving to a public unaware of the huge issues at stake, the chief executive was spot on. In the future world of smart grids, we will have to be smarter in the way we think about and consume energy.

Imagine if one day you are able to review your home electricity use and choose from the latest prices and cheapest time slots provided by power companies to save money on your bills. This will all be possible in the near future.

Smart grid technology will not only alter the face of the power industry, it will also enlighten and empower consumers to take control and drive energy conservation. The technology can reduce carbon dioxide emissions by up to 10.5 billion tonnes on the mainland over the next 10 years. They can give our conventional grid a better 'brain' to optimise energy use. They can precisely pinpoint shortages and supply gaps to ensure that the overall supply is more evenly and efficiently distributed.

However, there are a few stumbling blocks to overcome before the smart grid future can be realised. The biggest obstacle is cost and how to demonstrate the cost benefits to all parties concerned to guarantee the necessary funding.

The funding responsibility should not be shouldered by the government alone, although it should help jump-start demand and interest to motivate bank financing. We need to bring policymakers, financiers and technology providers together to enable proper and sustainable financing.

For example, banks could adopt a bundling strategy by packaging a number of new technology projects together to form a combined unit and trade it as a financial product to raise funds.

Other than funding, another structural issue needs to be addressed. From the consumer's point of view, there is a lack of competition due to the existing concentration of ownership in the power sector. This needs to broken up to bring ultimate benefits to users. But that's another story.

Jerry Li is chairman of Asia Energy Platform, a non-profit organisation that promotes energy efficient and renewable energy technologies in the region and supporting organisation for GTec 2011