Contract No. DE-AC36-08GO28308

Technical Report

NREL/TP-7A40-72699

January 2019

A Report on the Implementation 

of Smart Grids in Mexico

Principal Authors

Ron Binz1 and Riccardo Bracho2

Contributing Authors

Art Anderson,2 Michael Coddington,2

Elaine Hale,2 Michael Ingram,2 Maurice Martin,2

Ismael Mendoza,2 Bo Normark,

3

Magnus Olofsson,

4 Barbara O’Neill,2

Patricia Statwick2, and Bethany Speer2,5

1 Public Policy Consulting

2 National Renewable Energy Laboratory

3 Royal Swedish Academy of Engineering Sciences

4 Energy Institute of Sweden

5 International Smart Grid Action Network
NREL is a national laboratory of the U.S. Department of Energy, Office of Energy 

Efficiency & Renewable Energy, operated by the Alliance for Sustainable Energy, LLC.

Contract No. DE-AC36-08GO28308

National Renewable Energy Laboratory

15013 Denver West Parkway

Golden, CO 80401

303-275-3000 • www.nrel.gov

A Report on the 

Implementation of Smart 

Grids in Mexico

Principal Authors

Ron Binz1 and Riccardo Bracho2

Contributing Authors

Art Anderson,2 Michael Coddington,2

Elaine Hale,2 Michael Ingram,2 Maurice Martin,2

Ismael Mendoza,2 Bo Normark,

3

Magnus Olofsson,

4 Barbara O’Neill,2

Patricia Statwick2, and Bethany Speer2,5

1 Public Policy Consulting

2 National Renewable Energy Laboratory

3 Royal Swedish Academy of Engineering Sciences

4 Energy Institute of Sweden

5 International Smart Grid Action Network

Suggested Citation

Binz, Ron, Riccardo Bracho, Art Anderson, Michael Coddington, Elaine Hale, 

Michael Ingram, Maurice Martin, et al. 2019. A Report on the Implementation 

of Smart Grids in Mexico. Golden, CO: National Renewable Energy 

Laboratory. NREL/TP-7A40-72699. 

https://www.nrel.gov/docs/fy19osti/72699.pdf

Technical Report

NREL/TP-7A40-72699

January 2019
NOTICE

This work was authored in part by the National Renewable Energy Laboratory, operated by Alliance for Sustainable 

Energy, LLC, for the U.S. Department of Energy (DOE) under Contract No. DE-AC36-08GO28308. Funding 

provided by the 21st Century Power Partnership. The views expressed herein do not necessarily represent the 

views of the DOE or the U.S. Government.

This report is available at no cost from the National Renewable 

Energy Laboratory (NREL) at www.nrel.gov/publications.

U.S. Department of Energy (DOE) reports produced after 1991 

and a growing number of pre-1991 documents are available 

free via www.OSTI.gov.

NREL prints on paper that contains recycled content.
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List of Acronyms

A/A aire acondicionado (air conditioning)

ADMS advanced distribution management system

AES advanced encryption system

AMI advanced metering infrastructure

BC Hydro British Columbia Hydro

BPA Bonneville Power Administration

CAIDI customer average interruption duration index

CAIFI customer average interruption frequency index

CEL certificados de energías limpias (clean energy certificate)

CENACE Centro Nacional de Control de Energia (National Center for 

Energy Control)

CFE Comisión Federal de Electricidad (Federal Electricity Commission)

CRE Comisión Reguladora de Energía (Energy Regulatory Commission)

CT current transformers

DA distribution automation

DER distributed energy resource

DERMS distributed energy resources management system

DLR dynamic line rating

DNP3 Distributed Network Protocol 3

DOE Department of Energy (United States)

DoS denial of service

DR demand response

DSM demand side management

DTE DTE Energy (Michigan electric utility)

EFR enhanced frequency response

EPRI Electric Power Research Institute

EPROSEC equipamiento de protección y seccionamiento (distribution control 

and protection devices)

ERCOT Electric Reliability Council of Texas

EU European Union

EV electric vehicle

FACTS flexible AC transmission system

FERC Federal Energy Regulatory Commission (United States)

FIDVR fault-induced delayed voltage recovery

FLISR fault location, isolation, and service restoration

GBps gigabits per second

GHz gigahertz

GIS geographic information system

GW gigawatt

GWAC GridWise Architecture Council

HVDC high-voltage direct current

ICPP Inter-Control Center Communications Protocol 

IEA International Energy Agency

IEC International Electrotechnical Commission
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IEEE Institute of Electrical and Electronics Engineers

IFAI Federal Institute for Access of the Information

ISGAN IEA Implementing Agreement for a Co-operative Programme 

on Smart Grids

ISO independent system operator

ISO International Organization for Standardization 

ISO-NE ISO New England (United States)

IT information technology

KWh kilowatt-hour

LIE Ley de la Industria Eléctrica (Electrical Industry Act)

LMP locational marginal price

LTC load tap changer

LTE Ley de Transición (Energy Transition Law)

MEM Mercado Eléctrico Mayorista (Wholesale Electric Market)

MHz megahertz

MVAR mega volt ampere reactive

MW megawatt

MWh megawatt-hour

NEA National Energy Administration (China)

NIST National Institute of Standards and Technology (United States)

NREL National Renewable Energy Laboratory (United States)

NYPA New York Power Authority

OASIS Open Access Same-time Information Systems

OpenPDC Open Source Phasor Data Concentrator

OSI Open Systems Interconnection

PCI-DSS Payment Card Industry Data Security Standards

PDC phasor data concentrator

PGCIL Power Grid Corporation of India Limited

PIE productores independientes energia (private generators)

PJM PJM Interconnection LLC (U.S. RTO)

PLC power line carrier

PMU phasor measurement unit

PRODESEN Programa de Desarrollo del Sistema Eléctrico Nacional 

(Program for Development of the National Electric System)

PT potential transformer

PV photovoltaic

RAS remedial action scheme

RE renewable energy

REI Redes Eléctricas Inteligentes (Smart Grid)

RGD Red General de Distribución (General Distribution Grid)

RNMF national grid phasor measurement

RNT Red Nacional de Transmisión (national transmission network)

RTO regional transmission organization

SAIDI system average interruption duration index

SAIFI system average interruption frequency index

SCADA supervisory control and data acquisition
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SDG&E San Diego Gas and Electric

SEN Sistema Eléctrico Nacional

SENER Secretaría de Energía (Secretariat of Energy)

SIRENA Colombian National Defense System against Large Scale Events

STATCOM static synchronous compensator

T&D transmission and distribution

TCSC thyristor-controlled series compensator

TSO transmission system operator

TWh terawatt-hour

UCTE Union for the Co-ordination of Transmission of Electricity (EU)

UPFC unified power flow controller

URDSM unified real-time dynamic state measurement

VAR volt-ampere reactive

VVO volt/VAR optimization

WAM wide-area monitoring

WAMPACS wide-area monitoring, protection, and control systems

WAMS wide-area monitoring system

WECC Western Electricity Coordinating Council (United States)
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Preface

This report was prepared in compliance with the requirements of the Ley de Transición 

Energética (Energy Transition Law) of Mexico.

1 The report was prepared for the Secretaría de 

Energía of Mexico (SENER) by the authors with the generous guidance of SENER and the 

National Renewable Energy Laboratory (NREL) in the United States. The report benefitted 

greatly from the helpful cooperation of Comisión Federal de Electricidad (CFE) and Centro 

Nacional de Control de Energia (CENACE). Finally, important contributions to the report were 

provided by members and staff of the International Smart Grid Action Network (ISGAN).

 

1 See section of the Energy Transition Law titled Transitorios, Décimo Séptimo.
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Acknowledgments

The authors are extremely grateful for the support of Secretaría de Energía (SENER), Comisión 

Federal de Electricidad (CFE), Centro Nacional de Control de Energía (CENACE), and 

Comisión Reguladora de Energía (CRE). Specifically, the authors are grateful to Ing. Edmundo

Gíl Borja and Ing. Telésforo Trujillo Sotelo of the General Direction for Distribution and 

Commercialization at SENER for their leadership and participation.
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Executive Summary

For the past four years, Mexico has been implementing its constitutional energy reform and 

transforming its electric power industry. Changes in law, regulation, and market structure are 

bringing forth new market participants and producing new levels of clean power with new 

technologies and expanded customer choices.

In making these power sector reforms, Mexico has understood and addressed the central 

importance of a modernized grid. The energy sector reform laws establish a Smart Grid Program, 

thus committing to making Mexico’s power grid capable of meeting the country’s lofty clean 

energy goals while improving efficiencies, maintaining system reliability, and increasing its 

security. This Report on the Implementation of Smart Grids in Mexico responds to and complies 

with the new law requirements, and it is written in service of the goal of Mexico having a Smart 

Grid—Redes Eléctricas Inteligentes—with all the benefits such an investment can bring.

This report comprises eight main sections, and it represents a compilation of data and 

information from many sources that document Mexico’s progress in implementing a Smart Grid. 

The content for each section was developed with the participation of knowledge experts in each 

topic area, who are acknowledged above. Readers may want to view the report as a reference 

guide on the eight main topic areas that are presented. Before discussing each section of the 

report below, we offer an overall assessment:

Mexico is moving on a path with ambitious and growing goals of clean energy

generation. To meet them, it has begun restructuring its power sector to make it 

more competitive, efficient, and responsive to consumers. Each aspect of the 

country’s National Electric System (Sistema Eléctrico Nacional or SEN in 

Spanish)—from generation to the customer’s premises—will be touched by the 

grid modernization called Smart Grid, and each aspect can benefit from smart 

grid investment. Careful planning and selection of smart grid measures will prove 

to be a cost-effective strategy that will ensure Mexico’s success in its energy 

transformation. And, international experience shows that a smarter electric grid 

will bring many benefits to Mexico and will aid the country in achieving its lofty 

goals on a reasonable timeframe and at a reasonable cost.

Section 1 of the report sets the stage by reviewing the legislation that created the sectoral 

transformation now underway. 

Section 2 reviews the state of technology in Mexico’s power sector and the efforts undertaken to 

date with grid modernization by the country’s biggest power sector players: the state-owned 

electricity utility, Comisión Federal de Electricidad (CFE), and the independent system operator,

Centro Nacional de Control de Energía (CENACE). In later sections, these efforts are put into 

the context of some of the best international practices.

Section 3 reviews the state of policy in the power sector and describes the development of the 

Smart Grid Implementation Plan by the Ministry of Energy, Secretaría de Energía (SENER). 

As part of the policy review, we revisit and review recent work performed for SENER and the
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Energy Regulatory Commission, Comisión Reguladora de Energía (CRE), by consulting experts, 

including ESTA International (ESTA), the National Renewable Energy Laboratory (NREL), and 

the Regulatory Assistance Project.

Section 4 reviews the country’s priorities for smart grid deployment. The eight drivers in 

Figure ES-1 express the Mexico-specific goals for Smart Grid. Section 4 also compares 

Mexico’s drivers to the drivers of smart grids in the European Union and several other areas, 

including Asia, Africa, the Middle East, and other parts of Latin America. As shown in Figure 

ES-1, the drivers in Mexico match well with those of the European Union.

Figure ES-1. Comparison of Mexico’s smart grid drivers with those of the European Union (EU)

The figure is by the authors, with content from SENER (2016a, 15) and European Commission (2011, 48).

Section 5 consists of an eight-page table that maps many smart grid measures to specific smart 

grid drivers. Though it is not exhaustive of all smart grid measures, the table serves as a 

“shortcut” to many actual and illustrative applications of Smart Grid that will assist Mexico 

in accomplishing the goals expressed in the drivers. Each of the eight smart grid drivers is 

addressed separately, with illustrative smart grid measures that could serve the driver and with 

applications in all aspects of the grid, including generation/supply, transmission, distribution, 

metering, customer premises, and “other/combined” aspects.

Section 6 is the most information-dense section of the report. In substantial detail, smart grid 

experts from the National Renewable Energy Laboratory (NREL) in the United States and from 

Swedish smart grid research centers describe smart grid measures that will assist Mexico’s move 

to a cleaner, more-efficient grid. The section contains large amounts of technical information 

about these measures and taps the rich international experience of several other countries. As 
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before, though, the expert opinions are always focused on Mexico’s goals, tying the discussion 

to the specific smart grid drivers identified by SENER.

Section 7 discusses institutional policies that are recommended for smart grid growth. The

discussion focuses on cost/benefit assessments that should be undertaken for each group of smart 

grid measures. This section also recalls the work described in other reports prepared for Mexico

that have concluded the overall benefit/cost ratio for smart grid investments will be quite 

positive, assuming careful planning and deployment of smart grid measures occur.

Section 8 discusses some of the barriers to smart grid deployment, including cybersecurity 

concerns and consumer receptivity. The section reviews an approach to introducing dynamic 

pricing that may increase residential customer acceptance.

The References section lists the publications cited in the report as well as other monographs 

and articles that will help readers dive deeper into any given smart grid topic.

Finally, the appendices contain an excerpt summarizing a report on Smart Grid that ESTA 

International prepared for CRE, as well as SENER’s Programa de Redes Eléctricas 

Inteligentes report.
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Table of Contents

1 Introduction........................................................................................................................................... 1

1.1 Purpose of this Report................................................................................................................... 1

1.2 Background ................................................................................................................................... 2

1.3 Review of Recent Mexico Energy Legislation.............................................................................. 2

1.4 Status of Power Sector Restructuring in Mexico .......................................................................... 3

1.5 Definition of Smart Grid for Mexico Used in this Report............................................................. 5

2 Technology Landscape: Review of National and Regional Smart Grid Technologies in Mexico 

and Development Perspectives .......................................................................................................... 8

2.1 The Energy Transition in Mexico ................................................................................................. 8

2.2 Strategic Objectives of Comisión Federal de Electricidad............................................................ 8

2.2.1 CFE Generation................................................................................................................ 8

2.2.2 CFE Transmission.......................................................................................................... 18

2.2.3 CFE Distribution ............................................................................................................ 19

2.3 Centro Nacional de Control de Energía (CENACE)................................................................... 22

2.4 Smart Grid Technology Players in Mexico, the Americas, and the World................................. 24

3 Technology and Policy Landscape: Technologies and Policies Available for Mobilizing Smart 

Grid Deployment in Mexico ............................................................................................................... 27

3.1 SENER’s Smart Grid Program.................................................................................................... 27

3.2 SENER’S Policies for the Deployment of Smart Grids.............................................................. 27

3.3 Major Reports, Events, and Proceedings..................................................................................... 28

3.3.1 ESTA International Report............................................................................................. 28

3.3.2 CRE Smart Grid Summit................................................................................................ 29

3.3.3 NREL Support for SENER ............................................................................................ 29

4 SENER’s Smart Grid Priorities.......................................................................................................... 32

4.1 Review of Mexico’s Smart Grid Priorities.................................................................................. 32

4.1.1 Improved Quality, Reliability, Continuity, Safety, and Sustainability........................... 34

4.1.2 Quality of Supply ........................................................................................................... 34

4.1.3 Energy Efficiency........................................................................................................... 35

4.1.4 Electricity Losses ........................................................................................................... 35

4.1.5 Efficient Operation of National Interconnected Electric Grid ....................................... 37

4.1.6 Clean Energy.................................................................................................................. 37

4.1.7 Customer Involvement in System Management ............................................................ 37

4.1.8 Additional Service Offerings ......................................................................................... 38

4.2 How Smart Grid Measures Can Serve Mexico’s Energy Goals.................................................. 38

4.3 Survey of International Experience with Smart Grid Technologies............................................ 39

4.3.1 China .............................................................................................................................. 39

4.3.2 France............................................................................................................................. 39

4.3.3 India................................................................................................................................ 40

4.3.4 Italy ................................................................................................................................ 40

4.3.5 United States .................................................................................................................. 40

4.3.6 European Union.............................................................................................................. 41

5 Mapping Smart Grid Measures to Key Drivers in Mexico .............................................................. 42

6 Smart Grid Measures for Mexico ...................................................................................................... 51

6.1 Driver 1: Quality, Reliability, Continuity, Safety, and Sustainability......................................... 51

6.1.1 Generation/Supply.......................................................................................................... 51

6.1.2 Transmission .................................................................................................................. 51

6.1.3 Distribution .................................................................................................................... 55

6.2 Driver 2: Quality of Supply......................................................................................................... 58

6.3 Driver 3: Energy Efficiency ........................................................................................................ 59
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6.3.1 The Meter....................................................................................................................... 59

6.3.2 Metering System Technology and Standards................................................................. 61

6.3.3 Demand Response.......................................................................................................... 62

6.4 Driver 4: Electricity Losses......................................................................................................... 64

6.4.1 Nontechnical Losses....................................................................................................... 64

6.4.2 Technical Losses............................................................................................................ 65

6.5 Driver 5: Efficient Operation of National Electric Grid.............................................................. 66

6.5.1 Bulk Power Level........................................................................................................... 66

6.5.2 Transmission Measures.................................................................................................. 68

6.5.3 Distribution Measures.................................................................................................... 70

6.5.4 Customer Measures including DR ................................................................................. 71

6.6 Driver 6: Clean Energy ............................................................................................................... 72

6.6.1 Renewable Energy Integration ....................................................................................... 72

6.6.2 The Role of Storage........................................................................................................ 74

6.7 Driver 7: Customer Involvement in System Management.......................................................... 78

6.7.1 Demand Response.......................................................................................................... 78

6.7.2 Time-of-Use Rates ......................................................................................................... 80

6.8 Driver 8: Additional Service Offerings....................................................................................... 81

6.9 Need for an AMI platform .......................................................................................................... 81

6.10 Enabling of Smart Grid Vendors to Find a Market ..................................................................... 81

6.11 Need for Customer Education ..................................................................................................... 82

7 Analysis of Costs and Benefits for Smart Grid Investment........................................................... 83

7.1 Cost and Benefits of Smart Grid Investments............................................................................. 83

7.1.1 Cost-Benefit Analysis of Smart Grid as a High-Level Strategy..................................... 83

7.1.2 Cost Benefit Analysis at the Measure or Program Level ............................................... 85

7.2 What Should be Considered Costs and Benefits......................................................................... 86

8 Obstacles to Implementation of Smart Grid Programs and Investment in Them........................ 88

8.1 International Experience and the Valuation of Flexibility .......................................................... 88

8.2 Cybersecurity Concerns .............................................................................................................. 89

8.2.1 Confidentiality, Integrity, and Availability .................................................................... 89

8.2.2 Guidelines for Smart Grid Cybersecurity....................................................................... 90

8.2.3 Architectural Considerations.......................................................................................... 91

8.2.4 Regulatory Framework................................................................................................... 92

8.3 Consumer Receptivity ................................................................................................................. 92

9 Summary ............................................................................................................................................. 94

References................................................................................................................................................. 95

Bibliography ............................................................................................................................................ 104

Appendix A. Summary of the ESTA International Report................................................................... 106

Appendix B. Summary of Mexico’s Smart Grid Program ................................................................... 110
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List of Figures

Figure ES-1. Comparison of Mexico’s smart grid drivers with those of the European Union (EU)............ 7

Figure 1. Pre-reform electric industry structure In Mexico .......................................................................... 4

Figure 2. New (post-reform) electric industry structure in Mexico .............................................................. 5

Figure 3. Electricity use (megawatt-hours) by sector in Mexico, 2017 ........................................................ 6

Figure 4. Residential electricity consumption by end use in Mexico, 2008 ................................................. 7

Figure 5. Electric capacity by technology in Mexico, 2017 ......................................................................... 9

Figure 6. Energy generation by technology In Mexico, 2017....................................................................... 9

Figure 7. Clean energy projects of the first and second auctions, by state ................................................. 10

Figure 8. Percentage of participation in the first and second auctions, by technology............................... 12

Figure 9. Clean energy statistics from the Mexican energy auctions.......................................................... 14

Figure 10. Integration of CFE distribution smart grid applications............................................................ 21

Figure 11. The Networked Grid 150 vendor taxonomy.............................................................................. 25

Figure 12. Smart Grid pathways for Mexico .............................................................................................. 30

Figure 13. Comparison of smart grid drivers: Mexico and the EU............................................................. 33

Figure 14. Trend of electricity losses (pérdidas) in the interior of Mexico, 2002–2015............................. 36

Figure 15. Trend of electricity losses (pérdidas) in the Valley of Mexico, 2002–2015.............................. 36

Figure 16. Navigant ranking of residential demand response providers..................................................... 71

Figure 17. Variety of electrical storage services......................................................................................... 75

Figure 18. Costs of electrical storage.......................................................................................................... 76

Figure 19. Supply curve for battery-provided regulation service ............................................................... 77

List of Tables

Table 1. Statistics from the Mexican Energy Auctions............................................................................... 13

Table 2. Winning Projects from First Auction............................................................................................ 15

Table 3. Winning Projects from Second Auction ....................................................................................... 16

Table 4. Winning Projects from Third Auction. ......................................................................................... 17

Table 5. FLISR Equipment Installed on the Medium Voltage Level, 2015 ............................................... 20

Table 6. Actual and Projected AMI Installations, 2017–2021.................................................................... 22

Table 7. CENACE'S New Smart Grid Projects, 2017 ................................................................................ 23

Table 8. Top 10 Networked Grid Vendors (Groarke 2013)........................................................................ 26

Table 9. Four Themes of Smart Grid Pathways.......................................................................................... 31

Table 10. International Smart Grid Drivers................................................................................................ 34

Table 11. Mapping Smart Grid Measures to Drivers.................................................................................. 43

Table 12. Smart Grid Measures and Expected Impacts.............................................................................. 55

Table 13. Smart Grid Distribution Measures Affecting Power Quality...................................................... 59

Table 14. Demand Response Costs in Selected Nordic Countries.............................................................. 63

Table 15. Report from IEA Task 17: Integration of DSM, Energy Efficiency, Distributed Generation and 

Renewable Energy Sources.................................................................................................... 79

Table 16. EPRI-Estimated Cost and Benefits of the Smart Grid ................................................................ 84

Table 17. EPRI-Estimated Distribution of Smart Grid Benefits................................................................. 84
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1 Introduction

In December 2013, the Mexican government approved constitutional energy reform. Following 

this, it issued the Electrical Industry Law in August 2014 and the Energy Transition Law in 

December 2015. These pieces of sweeping legislation catapulted Mexico into the international 

energy spotlight for its leadership on energy policy reform. The new laws address all Mexican 

energy sectors, including power and hydrocarbons, transportation fuels, and energy efficiency. 

For the electric sector, the new laws make major changes, including (SENER 2017): 

• Creation of a wholesale power market

• Establishment of an independent system operator, Centro Nacional de Control de 

Energía (CENACE)

• Creation of an incentive system for clean energy deployment using “clean 

energy certificates”

• Restructuring of the vertically owned utility by splitting the generation function of the 

Comisión Federal de Electricidad (CFE) into six competing and independent companies, 

and creating separate independent businesses for its transmission division, its distribution 

division, and its commercialization division.

• Endorsement of a Smart Grid program

• Assignment of increased policy responsibilities and regulatory powers, including on 

smart grid issues, to Secretaría de Energía (SENER) and Comisión Reguladora de 

Energía (CRE).

1.1 Purpose of this Report

The purpose of this report is to fulfill a requirement of the new law concerning Smart Grid in 

Mexico. The Energy Transition Law (Ley de Transición Energética—LTE) requires Mexico’s 

Ministry of Energy, SENER, to provide a report concerning smart grid technologies in Mexico, 

as follows:

The Ministry of Energy (SENER), with the support of CENACE, CRE (Comisión 

Reguladora de Energía), Transmission companies, Distributors and Suppliers 

shall develop and publish no later than August 2015 a report including: the 

benefits, costs and the technologies available for the implementation of Smart 

Grids in Mexico, the current status of smart grids in Mexico, at the national and 

regional level, and their development prospects. Also identify potential obstacles 

for implementation, as well as current and potential impacts for deployment of 

such technologies.2

The report fulfills this requirement by setting out the current state of smart grid investment in 

Mexico, reviewing the available technologies, and assessing the costs and benefits of pursuing 

various smart grid measures. 

In addition to responding to the specific requirements of this section of the LTE, the report 

identifies smart grid measures—or drivers—that will most likely succeed in serving the eight 

 

2 Transitorios, Décimo Séptimo section of Ley De Transición Energética
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drivers for Smart Grid adopted by SENER in its smart grid policy statement (SENER 2016, 15).

This guidance should provide SENER, CFE, CENACE, and CRE with information to make 

informed choices about the choice of smart grid architecture, the priority and timing of smart 

grid investments, and an estimate of the benefits Mexico will derive from smart grid investments.

1.2 Background

The era of power sector reform in Mexico dates to 1992, when it first became possible for

non-government entities to own and operate electricity generation. This led to the entry of 

independent power producers (productores independientes de energía—PIEs) into the market. 

However, Mexico’s state utility, CFE, remained the sole (monopsony) buyer of power produced 

by the PIEs.

In August 2013, the President of Mexico submitted a proposal for constitutional reforms of the 

energy sector of Mexico. The national legislature and most of the legislatures in the Mexican 

states passed this sweeping constitutional reform, making it effective in December 2013. 

Secondary implementing legislation was introduced in 2014; the 21 legislative measures enacted 

as a result include the Electricity Industry Act (Ley de la Industria Eléctrica—LIE), which 

complements the energy reform and gives better

guidance to the different institutions and participants.

3

The final important legislative piece of the power sector reform is the LTE and its regulation, 

which became law in December 2015 and May 2017 respectively, after protracted legislative 

consideration. The LTE addresses many issues, including Mexico’s clean energy and energy 

efficiency commitments and the Smart Grid Program.

1.3 Review of Recent Mexico Energy Legislation

The LTE established an overall clean energy goal of 35% clean energy generation by 2024, with 

intermediate goals of 25% by 2018 and a 30% by 2021, which Mexico committed to meeting at 

the 2015 United Nations Climate Change Conference or “Paris climate summit.” The law also 

established energy efficiency goals and an annual process for promoting the penetration of 

clean energies, including distributed generation (DG). SENER is responsible for planning the 

transmission and distribution grids. SENER publishes on an annual basis its 15-year indicative

electric system expansion plan through a document called PRODESEN (Program for 

Development of the National Electric System). In it, SENER presents its plans for expanding 

generation and works with CENACE and CFE to include the proposed expansion and 

 

3 Leyes Secundarias de la Reforma Constitucional en Materia Energética

Reform legislation has 

catapulted Mexico into 

the international energy 

spotlight
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modernization of the national transmission grid and the general distribution networks, 

as well as recommendations for installing and retiring power plants.

SENER issued PRODESEN for the first time for 2015–2029 in July 2015; SENER subsequently

issued PRODESEN for 2016–2030 in May 2016, for 2017–2031 in May 2017, and for 2018–

2032 in May 2018. All subsequent PRODESEN reports must be issued in May of each year. 

The 2017–2031 PRODESEN document estimated that Mexico would have to (1) expand its 

transmission grid over the 15-year period by 23,773 kilometers. This new transmission would 

bring the current 2018–2032 PRODESEN transmission total from 107,042 kilometers to 130,815

kilometers and (2) add transformers and reactive power sources, at a total cost of approximately 

USD 9.6 billion, in order to meet the demands of growth. Some of these new transmission 

projects are specific to meeting the clean energy goals in the Energy Transition Law. Mexico 

also would have to expand and modernize its distribution networks, at a total cost of 

approximately USD 7.7 billion over the 2018–2032 period. Funding for this expansion 

is expected to come from a mix of government and private sector investment. 

The current PRODESEN calls for total installed capacity of 130 gigawatts (GW) by 2032, which 

includes 55 GW of new capacity to cover the electricity demand for the coming 15 years. From 

the expected new capacity, approximately 34% is expected to come from conventional fossil fuel 

sources and 66% is to come from clean energy sources. This roadmap foresees new solar 

capacity of 11.4 GW for this period. When the 2018–2032 PRODESEN was issued, solar 

capacity in Mexico was estimated to be only 214 MW (SENER 2018a).

The LTE also established the details of the program for clean energy certificates (certificados 

de energías limpias—CELs), which will be facilitated by the establishment of a public registry. 

The CEL program began in 2018 with an initial 5% target.

1.4 Status of Power Sector Restructuring in Mexico

It is helpful to understand how the structure of the Mexican power sector has changed because 

of the reform efforts of the government. Figure 1 and Figure 2 present a “before-and-after” 

diagrams of the industry structure as presented by SENER:
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Figure 1. Pre-reform electric industry structure In Mexico

(Pavlovic n.d.)

Notable about the pre-reform industry is that for the public utility (“public service”) function,

CFE is the sole buyer and the sole seller of electricity for retail purposes. Under this structure, 

residential and business consumers had no choice other than buying from CFE. To serve such 

smaller customers, PIEs had to sell their power to CFE, the sole buyer for power delivered to 

residential and small commercial customers. Large commercial and industrial customers had 

certain additional options through a regime of self-supply. However, those activities were 

isolated and not integrated into the rest of the public service function. There was no market 

that would integrate the two regimes in a way that optimized production costs.

As illustrated by Figure 2, the reform changed the status quo in several ways. Separating CFE 

generation into competing companies modified the near-monopoly of CFE in generation. PIEs

were placed on the same footing as the CFE generating subsidiaries so that all generators 

participated in a spot market administered by CENACE, formerly a CFE subsidiary. Capacity

and energy auctions were created, in which retailers and qualified users may obtain capacity 

contracts. Finally, this structure permits the deregulation of wholesale electric prices.
5

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Figure 2. New (post-reform) electric industry structure in Mexico

(SENER n.d.)

1.5 Definition of Smart Grid for Mexico Used in this Report

The LTE addresses Smart Grid in Articles 37 and 38, brief statutory sections that describe 

the law’s vision of a Smart Grid program for Mexico:

Article 37: The Smart Grid Program aims to support the modernization of the 

National Transmission Network and General Distribution Networks, to maintain 

a reliable and secure grid infrastructure to meet electricity demand in an 

economically efficient and sustainable manner. The Smart Grid program should 

also facilitate the incorporation of new technologies to achieve electricity cost 

reductions, the provision of additional services through the electric network, and 

promotion of Clean Energy and Clean Distributed Generation by allowing greater 

interaction between end user devices and the electrical system.

Article 38: The Smart Grid Program shall identify, evaluate, design, establish and 

implement strategies, actions and projects related to the electricity grid.

4

 

4 Ley de Transición Energética (LTE)
6

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Around the world, many definitions of smart grid have been proffered, and they have evolved 

over time. For this report, we use the definition contained in the law in Mexico:

A Smart Grid is one that integrates advanced technologies of measurement, monitoring, 

communication and operation, among others, to improve the Efficiency, Reliability, 

Quality or Security of the National Electric System.

Each country is different, and Smart Grid will mean different things for different countries. 

Among many differentiating factors is the final use of electricity by customers. Two factors may 

distinguish Mexico from other situations. First is the use of electricity by each customer class. 

Figure 3 shows that most electricity use in Mexico (56%) is by medium and large industrial users

(sector mediana industria and sector gran industria respectively). Residential electricity usage

(sector residencial), which is often the focus of Smart Grid in popular literature, is the thirdlargest sector and constitutes only about a fourth of Mexico’s electricity use.

Figure 3. Electricity use (megawatt-hours) by sector in Mexico, 2017

(SENER 2016c)

A closer look at residential energy use (using 2008 data, shown in Figure 4) reveals that 

residential electricity use is mainly for refrigeration (refrigerador) and lighting (focos), 

followed by TV, air conditioning (A/A), and ironing (plancha).

Essential Elements of a Smart Grid 

1) Applies information and communication 

technology to the electric power sector 

2) Affects all segments of the electric power 

sector (e.g., generation, delivery, and 

consumption) 

3) Can produce a variety of useful outcomes 

that improve the value of the electric grid.
7

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Figure 4. Residential electricity consumption by end use in Mexico, 2008

(SENER 2011, 94–95)

participation in the total consumption of electricity by appliance (left)

and average power consumption per unit (right) 

A/A = aire acondicionado (air conditioning), focos = lighting, lavadora = washing machine, microondas = microwave, 

plancha = iron, refrigerador = refrigerator, Otros = other, including computer equipment, and hair dryers

Undoubtedly, this profile of residential usage will change as customer use evolves and national 

average income grows. It is reasonable to believe, for example, that the fraction of use dedicated 

to air conditioning (A/A) will grow. Energy efficiency programs and increasing appliance 

efficiency, especially for refrigeration and lighting, are also likely to change the balance of uses 

as existing appliances and lighting components are replaced by more efficient technologies.

These considerations (e.g., electricity use dominated by industrial customers and the changing 

profile of residential use) will be important factors in determining the pace and priority of 

“retail” smart grid investment.
8

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2 Technology Landscape: Review of National and 

Regional Smart Grid Technologies in Mexico and 

Development Perspectives

Before turning to the question of recommended smart grid solutions for Mexico, we describe 

the state of smart grid investment by three major power sector players: CFE Distribution, 

CFE Transmission, and CENACE. 

2.1 The Energy Transition in Mexico

In December 2015, Mexico published the LTE. This law aims to regulate the sustainable use of 

energy; establish requirements for energy efficiency, clean energy deployment, and the reduction 

of polluting emissions of the electricity industry; and maintain the competitiveness of the 

productive sectors. The LTE includes a goal of implementing a total of 35% of energy generation 

from clean energy sources by the year 2024. Mexican policymakers recognized the challenges 

of achieving that goal under the then-current electrical industry structure. They concluded that 

major restructuring of the existing model—a vertically integrated system in which a single 

company-controlled generation, transmission, and distribution—would allow new and different 

players to produce electricity and compete in the newly created wholesale power market. With 

appropriate incentives and competitive markets, these players could help Mexico transition to 

cleaner energy and meet its energy efficiency and clean energy generation goals. 

With increased variable renewable energy in the system comes increased need for system 

flexibility. And, the Mexican government determined that a key enabling element that could 

provide additional flexibility and help the transition succeed would be a Smart Grid that helps 

achieve interoperability between conventional and renewable systems to cushion or correct 

events affecting the grid. 

2.2 Strategic Objectives of Comisión Federal de Electricidad

2.2.1 CFE Generation

Mexico’s transition to a cleaner energy generation profile would be no easy task. At the end of 

2017, the installed generation capacity in Mexico consisted mainly of combined cycle, thermal, 

carbon, and hydro plants, with a very small percentage of clean energy (PRODESEN 2018–

2032), as shown in Figure 5. To accomplish the goal set by the LTE, Mexico saw that retrofitting 

existing power plants to natural gas would not be cost-effective. To expedite the process and 

entice new generation development, SENER worked with CRE to create and auction a CEL for 

each clean megawatt-hour (MWh) generated. These certificates could then be sold to consumers 

in the wholesale power market. SENER also implemented a minimum of CEL purchases for 

basic service providers, services suppliers, emergency suppliers, and large consumers that will 

increase over time, from 5% through 2018, increasing to 5.8% through 2019, 7.4% through 2020, 

10.9% through 2021, and 13.9% through 2022. 
9

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Figure 5. Electric capacity by technology in Mexico, 2017

(SENER 2018a, 19)

Turbogas = gas turbine (Includes mobile generation plants), Combustión Interna y Lecho fluidizado = internal 

combustion and fluidized bed, Hidroeléctrico = hydroelectric, Eólica = wind, Nucleoeléctrica = nuclear, Geotérmico =

geothermal, Solar = Solar, FIRCO = Ministry of Agriculture Shared Risk Trust, GD = Distributed Generation, FR = 

Regenerative Brakes, Bioenergía y Cogeneración eficiente = biomass and efficient cogeneration, Ciclo Combinado = 

combined cycle, Termoeléctrica convencional = conventional thermal generation, Carboeléctrica = coal generation

Figure 6 shows the corresponding percentage of Mexican energy production (GWh) produced 

by each generation technology.

Figure 6. Energy generation by technology In Mexico, 2017

(SENER 2018a, 22)

See Figure 5 for English notations.
10

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New Models for Generation Deployment in Mexico Renewable Energy 

Capacity Auctions

As of the end of 2017, Mexico had held three clean energy auctions, all directed by SENER in 

collaboration with CENACE. For the auctions, project developers could offer bids to provide 

power, clean energy certificates (CELs), or readily available capacity; however, only the clean 

energy projects could compete for the auctioned power and CELs, while any available 

technology could participate in the capacity offers. 

The first and second auctions were held to allow CFE (the basic service provider) coverage 

of its requirements for clean energy generation through 15-year contracts and clean energy 

certificates through 20-year contracts. The results of the first two auctions in 2016 included 

5 GW of new renewable energy capacity, and the auctions were considered a success with 

a total expected investment of USD 6.6 billion in 15 Mexican states (Figure 7). Twenty different

national and international companies representing 11 countries won awards, and they plan 

to provide new clean energy generation of 14,312 terawatt-hours (TWh)/yr and over 14 billion 

CELs/yr.

Figure 7. Clean energy projects of the first and second auctions, by state 

(SENER 2017a)
11

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The auctions are focused on (1) bringing renewable energy projects to Mexico, particularly in 

areas with the greatest potential for renewable energy generation and (2) using a nodal price 

adjusting mechanism to discourage development near nodes where supply already exceeds 

demand while incentivizing development near nodes where generation is less available such as in 

the following states:

• Sonora

• Chihuahua

• Coahuila

• Nuevo León

• Tamaulipas

• Baja California

• Baja California Sur

• Yucatán

• San Luis Potosí

• Oaxaca

• Puebla

• Morelos

• Guanajuato

• Jalisco

• Aguascalientes

The northern portion of the country has the greatest potential for solar energy, as can be seen 

in the percentage of projects awarded in that area. The auctions’ goal evolved to increase the 

types of technology available and integrate them into the evolving energy portfolio. 

During the first two auctions, 61% of CELs were offered to solar photovoltaic (PV) projects,

36% to wind projects, 1% for geothermal, and 2% for hydro projects. The first auction resulted 

in projected energy generation per year of 4.0 TWh from PV and 1.4 TWh from wind. The 

second auction resulted in projected energy generation of 4.84 TWh from PV, 3.9 TWh from 

wind, and 0.2 TWh from geothermal. Figure 8 and Table 1 provide information about the auction

(subastas) results.
12

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Figure 8. Percentage of participation in the first and second auctions, by technology.

(SENER 2017a)

Technology percentage participation in the 1st (left) and 2nd (right) auction 

Certificados de Energías Limpias = clean energy certificates, Energía = energy, Potencia = capacity, Eólica = wind, 

Fotovoltáica = solar PV, Hidroeléctrica = hydroelectric, Ciclo Combinado = combined cycle, Geotérmica = geothermal

Subastas

Porcentaje de Participación por Tecnología

57 57

43 43

Certificados

Energías Limpias

Energía

Eólica

Fotovoltaica

2a Subasta

53 54

15

41 43

11

2

2

2

72

3

Certificados

Energías Limpias

Energía Potencia

Hidroeléctrica

Ciclo Combinado

Geotérmica

Eólica

Fotovoltaica

1a Subasta 2a Subasta
13

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Table 1. Statistics from the Mexican Energy Auctions

(SENER 2017a)

First Auction – March 2016 Second Auction – September 2016

Number of Participants

69 57

Winners

11 23

Average Winning Price

USD 41.80/MWh USD 33.47/MWh

Clean Energy Certificates

5,380,911 9,000,000

Representing 84.39% of the auctioned CELs Representing 87.26% of the auctioned CELs

Capacity

1,187 MW/year

Representing 80.05% of the auctioned capacity

Investment in USD millions

 6,600

Mexico’s first two energy auctions attracted over 120 participating project proposals, with 

27% moving forward as viable projects to meet the clean energy and demand requirements.

With the first auction, Mexico increased its renewable energy capacity by 37% of all the PV and 

wind energy installed in the previous 18 years. The second auction, held just six months later,

added capacity equal to 98% of the PV and wind energy installed in the previous 18 years. With 

the overall installed capacity from both auctions, the Mexico energy sector has been able to 

cover 5.1% of the country’s annual energy consumption with clean energy resources, as shown 

in Figure 9.
14

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Figure 9. Clean energy statistics from the Mexican energy auctions.

(SENER 2017a)

The first auction took place in March 2016, with 11 companies from 7 countries5 investing 

approximately USD 2,615 million over three years and increasing generation capacity by a 

planned 2,085 MW. Selected bids covered 85% of the generation and CELs offered by CFE. 

Winning offers are detailed in Table 2. The majority (67%) of the proposed projects were 

awarded to PV and the rest were for wind. The projects were scheduled to come online by mid2018, and we do not have an update on their status.

 

5 Mexico, China, India, Italy, Peru, Spain, and the United States 
15

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Table 2. Winning Projects from First Auction

(CENACE 2016)

The second long-term auction took place in September 2016, with 23 companies from 

11 countries investing USD 4,000 million. Selected bids covered 84% of the generation offered, 

87% of the CELs offered, and 80% of firm capacity offered by CFE. During the first auction, no 

capacity was awarded. Winning offers for the second auction are detailed in Table 3. As in the 

first auction, most proposed projects (58.9%) were awarded for PV generation. The rest of the 

winning bids were distributed as follows: 17.8% for wind, 10.7% for both combined cycle and 

hydroelectric, and 1.7% for geothermal. The projects are scheduled to come online by mid-2019.

The countries that have actively participated in both auctions, other than Mexico, include China, 

France, Germany, Great Britain, Italy, Korea, Netherlands, Portugal, Spain, and the United 

States. During the second auction, CFE was able to contract 1,187 MW/yr of capacity, which 

during the first auction, it failed to do. Of the total capacity awarded, 337 MW were won by 

clean energy projects, including 184 MW from solar, 128 MW from wind, and 25 MW from 

geothermal (Table 3).
16

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Table 3. Winning Projects from Second Auction

(CENACE 2016)

The first long-term two auctions were developed to provide CFE with a vehicle for contracting 

its estimated amount of clean energy generation and certificates needed to meet its initial 

requirements. For the third auction, which was convened in 2017, the government of Mexico 

used its Camara de Compensación (Clearinghouse) for the first time. The clearinghouse is now 

the intermediary between the qualified offtakers and the auction projects, which provides a way 

for entities outside CFE to participate in the auctions. This time, apart from CFE basic service

providers, two other corporations—Menkent (CEMEX) and Iberdrola—participated in the 

auction, and together they contracted 534 GWh/yr of power, and 534,000 CELs/yr. The third 

auction also awarded projects in two additional states of Mexico, bringing the total number of 

states participating to 17.

From the third auction, the 14 new clean energy projects selected can provide 689 MW of 

additional wind and 1,323 MW of additional solar capacity. These new projects represent 

additional contracts for 5.49 TWh/yr of renewable energy generation and 5.9 million additional 
17

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CELs/yr. The new contracted energy and CELs represent 90.20% and 97.75% of the offered

amounts respectively. Winning offers are detailed in Table 4.

Table 4. Winning Projects from Third Auction. 

(CENACE 2017)

The Camara de Compensación, or clearinghouse, was originally included in the wholesale 

market rules, but it was during the third auction that it was finally instituted and allowed nonCFE offtakers to participate as potential buyers in the auction. The clearinghouse manual 

includes various mechanisms for mitigating potential risks with the winning projects.

Lessons learned from the initial three auctions include that clean energy, specifically wind and 

solar, can be competitive in today’s market as indicated by the very low prices of the winning 

offers. Weighted average prices by technology as well as weighted average prices for all projects 

combined during the first auction were considered some of the lowest in the world, and they

have continued to decline in subsequent auctions. During the first auction, weighted average 

prices for solar and wind, which include generation and CELs, were USD 45/MWh and USD 

55/MWh respectively. For all projects combined, the average contracted price was USD 

47.6/MWh. Although these prices were considered low, the second auction resulted in even 

lower prices: the government contracted at 30% lower prices, at USD 33.5/MWh on average. 

Solar average prices declined to USD 31.9/MWh (-29%), while wind declined to USD 

35.8/MWh (-35%) and geothermal, which was the first time it won projects in an auction, had

prices of USD 37.3/MWh. The small hydro projects were only awarded CELs at USD 7.3/MWh.

Another lesson learned is that the government of Mexico could successfully incentivize projects 

to be developed where the system most needs them. By applying adjustments to the nodal 

marginal prices, the government has discouraged projects near nodes where supply exceeds 

demand, and it has promoted projects near nodes where generation is less available. During the 
18

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first auction, these nodal adjustments for the National Interconnected System (SIN) had a wide 

range and varied between USD/MWh +10 and -22 depending on the node. As a result of these 

adjustments, almost half the first auction projects were awarded to Yucatán, the state with the 

highest local discounts.

Interestingly, during the second and third auctions, nodal price adjustments did not show such a 

wide variance between nodes. In the second auction the adjustment range for the SIN was just 

USD/MWh +0.06 and -0.06, while for the third auction, the range for nodes in the SIN was 

USD/MWh +2.9 to -3.6—both times, the ranges were significantly lower than they were in the 

first auction. The result was a much lower impact on the locations of the winning bids. In fact, 

the reduced adjustments are assumed to push developers to lower their bids to remain 

competitive, and as a result, several selected projects were chosen in states with unfavorable 

nodal price adjustments. During the third auction, the weighted average prices were USD 

20.8/MWh for solar, USD 18.6/MWh for wind, and USD 19.8/MWh for wind and solar 

combined. Average auction prices represented a decline of 41% over the second auction results, 

and they were 58% lower than those of the first auction.

Cleaner Generation and Smart Grid

Mexico’s first three auctions indicate that significant potential for Mexico to add more clean 

energy to its electricity generation mix. As Mexico adds higher percentages of variable 

renewable energy to its portfolio of power system generation, it will need to identify and 

incorporate new sources, and better utilize existing sources, of power system flexibility to ensure 

system reliability and cost-effective management. Smart grid technologies enable 

communication and coordination among all parts of the electricity system, which allow the 

overall system to cost effectively deploy all the flexibility resources that are available. Sections 

below will detail smart grid investments that Mexico should consider as it transitions to cleaner 

electricity generation.

2.2.2 CFE Transmission

CFE’s transmission division will begin making smart grid investments in communication and 

automation improvements so that they can better visualize the current state of the transmission 

grid. These investments will improve the response time in case of an event and will provide 

condition monitoring for equipment in the field. In line with this goal, CENACE and CFE 

Transmission are proposing the use of phasor measurement units (PMUs) and Flexible AC 

Transmission Systems (FACTS). The immediate effect will be to (1) help with improved grid 

performance by providing power flow and angular calculations and (2) serve as an alarm or 

indicator in case of an event. 

The vision for the PMUs is that they will provide real-time state estimation to help with 

generation and load shedding to improve power reliability and quality. They will also serve as 

a window to help identify the locations of faults in the system and to help consolidate and reduce 

downtimes in affected areas. The FACTS systems will improve control of grid performance for 

reliability and increase power transfer capability. The objective is to automate at least 80% of 
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existing substations and 100% of new substations to IEC 618506 by 2024 to assist with the 

protection and interoperability of the grid. This will serve to minimize technical losses and 

improve productivity (SENER 2017). 

The goal is that all this information and interconnection will allow grid operators to develop realtime visualization applications of the dynamic behavior of the grid and better understand the 

protection schemes required during corrective actions. Currently, CFE is working with the 

implementation of a power quality monitoring system (SIMOCE for its acronym in Spanish) that 

will acquire the information from all field devices, perform the analysis, and make the correction 

to comply with the strict power quality requirements of the end user.

2.2.3 CFE Distribution

CFE Distribution is responsible for providing energy to 41 million customers with a total annual 

energy use of 218,072 GWh (as of the end of 2016). Mexico predicts energy consumption will 

grow 2% annually for the next few years (SE 2016). With that in mind, CFE’s main goal is to 

continue to improve the quality of service and reduce technical and nontechnical losses. 

As of the end of 2016, 1.42% of the country’s population did not have access to the grid. Mexico 

has a goal of providing electrification either by extending the grid or through DG and microgrid 

solutions. For areas that are marginal or islanded, the plan is to use alternative methods giving 

priority to renewable energy. The goal is to have 99.2% coverage in five years.

To enable these service improvements, CFE is working on various projects that would 

enable end users to be informed and able to make educated decisions regarding their energy 

consumption, and to have DG systems. To improve the service, CFE initially began working 

to implement the Common Information Model and the Business Process Model to accomplish 

the interoperability of the various systems used for energy delivery. It is hoped that this effort 

will make the system more efficient and capable of meeting growing energy demand. 

Implementation of the Common Information Model and Business Process Model allows CFE to 

take advantage of the fault location isolation and restoration (FLISR) system. The goal of FLISR 

is to “instrument” the medium voltage grid so that in case of an event that affects 1,000 or more 

customers, CFE can isolate the affected customers in 1–2 minutes automatically or in 3–5 

minutes manually and restore or reroute power to the portions of the grid that are affected.

By the end of 2016, 47.1% of the Valley of Mexico (Valle de Mexico), a central region in which 

Mexico City lies, and 33.2% of the interior of the country were equipped with the required

monitoring to participate in the FLISR program (Table 5). With the implementation of this 

program, the interruption time has improved by 40%, with average outage times of 58.2 minutes 

in 2011 and 31.7 minutes in 2016.

 

6 IEC 61850 is a standard issued by the International Electrotechnical Commission (IEC) that defines the 

communication between intelligent electronic devices (IEDs) in the substation and the related system requirements. 

See “Core IEC Standards,” IEC, http://www.iec.ch/smartgrid/standards/.
20

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Table 5. FLISR Equipment Installed on the Medium Voltage Level, 2015

(SENER, 2015, 22)

Distribution Branches Remaining for 

Completion

Installed as of 

December 2016

Interior

Baja California 693 799

Noroeste 3,645 1,014

Norte 2,443 1,279

Golfo Norte 4,320 2,400

Golfo Centro 2,719 774

Bajío 2,293 1,586

Jalisco 3,167 1,080

Cento Occidente 2,472 1,684

Centro Sur 2,527 1,724

Centro Oriente 1,732 1,323

Oriente 2,086 1,516

Sureste 3,687 743

Peninsula 1,902 836

Subtotal 33,686 16,758

Valle de Mexico

Valle de Mexico Norte 894 1,400

Valle de Mexico Centro 1,524 1,814

Valle de Mexico Sur 2,344 1,410

Centro Sur 145 612

Centro Oriente 702 147

Subtotal 5,609 4,993

Total 39,295 22,141

At the operational level, the Common Information Model and Business Process Model uses the 

coexistence and information exchange of the applications. To expedite a response during a power 

interruption event, CFE is working to have available the integrated distribution management 

system (DMS), visualization capabilities, geographic information system (GIS) reporting, and 

workforce management GIS applications. For example, if the supervisory control and data 

acquisition (SCADA) system detects a fault, it immediately generates an alarm for the operator 

with the information about the affected area and devices. At the same time, the system uses GIS 

information for the affected area to visualize and identify the affected customers, so the operator 

can focus on restoring power. When the event is confirmed, the system generates a report to 

notify all affected repair personnel. The workforce management GIS helps identify the crews 
21

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that are available to help restore power. Figure 10 illustrates the type of information that this 

combination of systems provides to the operator.

Figure 10. Integration of CFE distribution smart grid applications

SISNAE-GEO = Sistema Nacional Para La Atención de Emergencias de CFE = National System for the Attention 

of CFE Emergencies

(CFE 2016)

In 2016, CFE Distribution calculated a total loss of 14.74%, including 8.44% nontechnical losses 

and 6.29% technical losses. With substantial effort, CFE has decreased its losses by 1% per year 

in its distribution system the last couple of years, and it has a goal of decreasing its losses to 11% 

total by 2018.

Advance metering infrastructure (AMI) has been deployed in various regions of the country 

to try to address some of the losses. The objective of AMI has been to have reliable and timely 

supply records to reduce losses and help engage consumers. Five AMI pilot projects have 

already been completed, and 11 AMI projects were being implemented at the end of 2016. 

As shown in Table 6, Mexico’s goal is to install 4,690,266 smart meters by 2021. CFE calculates 

an internal rate of return of 24.4% on the investment; exceeding the threshold internal rate of 

return of 12% means the AMI investment is viable. 

Table 6 shows the planned installation of AMI meters from 2017 to 2021.
22

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Table 6. Actual and Projected AMI Installations, 2017–2021

(SENER 2015, 22)

Distribution 

Branches

Actual Projected

2015 2016 2017 2018 2019 2020 2021

Baja California 19,339 19,339 19,339 19,339 19,339 19,339 19,339

Noroeste 16,067 21,130 40,716 59,638 80,452 103,346 128,530

Norte 7,574 16,425 30,389 44,353 59,713 76,609 95,195

Golfo Norte 11,440 11,440 31,235 51,030 72,805 96,758 123,105

Centro Occidente 10,246 10,246 10,246 10,246 10,246 10,246 10,246

Centro Sur 87,584 89,551 125,723 147,814 172,113 198,843 228,245

Oriente 683 21,139 44,383 69,349 94,917 123,040 153,976

Sureste 3,118 3,118 244,491 298,047 356,958 421,759 493,040

VM Norte 224 88,944 504,082 514,336 525,616 538,023 551,671

VM Centro 52,509 352,558 549,900 691,320 702,539 714,880 728,454

VM Sur 306 20,496 643,928 1,128,793 1,144,840 1,162,492 1,181,910

Bajío 11,585 70,612 88,824 107,036 127,069 149,106 173,346

Golfo Centro 4 4 18,646 37,288 57,794 80,352 105,164

Centro Oriente 6,749 6,749 54,878 103,007 155,949 214,184 278,242

Peninsular 16,423 16,423 128,576 147,488 168,292 191,175 216,347

Jalisco 24,227 24,227 56,000 87,773 122,722 161,166 203,456

Meters/Year 268,078 772,401 2,591,356 3,516,857 3,871,364 4,261,318 4,690,266

2.3 Centro Nacional de Control de Energía (CENACE)

CENACE serves as an independent system operator (ISO) for Mexico’s national grid and the 

wholesale electricity market. Its duties are to coordinate, control, and monitor the grid and 

guarantee access to the transmission and distribution networks. Furthermore, CENACE operates 

the wholesale power market to guarantee fair designation and dispatch to satisfy the energy 

demand of the national grid. CENACE has the responsibility to formulate projects to help 

improve and enhance the national grid. 

CENACE is currently working on demonstration projects to investigate the performance of 

energy storage resources and understand how storage can contribute to operational security. 

Another project is the development of calculation tools that can provide information about line 

carrying capacity based on current thermal limits, potentially providing greater ability to 

integrate variable resources. In terms of power quality, CENACE is implementing tools for 

optimal dispatch of reactive resources in different time frames (e.g., seasonal, day-ahead, 

and real-time).
23

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CENACE recently completed a short-term smart grid project to improve their statistical weather 

and demand forecasting to a two-hour in-advance window with 15-minute resolution, which has 

improved the reliability and operational performance of energy generation. The long-term goals

are to (1) develop and deploy advanced tools for forecasting from current output up to weekahead forecasting at sufficient spatial and temporal resolution and (2) understand the potential 

benefits and risks of probabilistic forecasts in operations. Table 7 displays the most recent listing 

of CENACE’s new smart grid priorities (SENER 2017).

Table 7. CENACE'S New Smart Grid Projects, 2017

(CENACE 2017)

Project Project Tasks

Energy storage, deployment,

and control 

Implement demonstration projects to investigate the performance of 

energy storage resources and understand how storage can 

contribute to operational security

Wind and solar 

power forecasting

Develop and deploy advanced tools for forecasting from current 

output up to week-ahead forecasting at sufficient spatial and temporal 

resolution

Investigate potential for new sensors to be deployed (e.g., sky 

imagers and lidar)

Understand potential application of probabilistic forecasts in 

operations

Next-generation phasor 

measurement network

Build out a phasor measurement network to enable applications 

envisioned by CENACE and CFE; Phase I will define the future 

applications, determine the requirements for the network, and 

evaluate the existing network.

Thermal limit calculation tools Develop an operational tool that can provide information about 

current thermal limits of transmission lines based on wind/solar based 

generation and load, as well as online resources

Demonstrate tool in several locations to improve flexibility of the 

system to integrate wind and solar

Real-time operational security 

assessment tool

Develop an online tool that uses SCADA, PMUs, and other 

information tools to determine current operating limits

Analyze potential changes in wind and solar output and determine 

whether mitigating strategies are required

Consider inertia levels on the system as well as reactive control

Link this operational assessment tool with needs for operating 

reserves

Incorporation of risk-based 

methods and flexibility in 

planning process

Implement probabilistic methods in planning processes to ensure 

transmission system build-out considers costs and reliability 

appropriately

Consider flexibility needs in the transmission build-out

Optimal dispatch of 

reactive power

Implement tools for optimal scheduling of reactive power resources in 

different time frames (seasonal, day-ahead, and real-time)

Implementation of intelligent 

tools to guide system 

restoration

Implement tools for optimal system restoration during faults
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Project Project Tasks

Investigation of the use of new 

technologies to assist blackstart process

Research the use of energy storage, voltage source converter HVDC

(high-voltage direct current), DG

Response to the operation of 

the network

Implement various tools to adequately analyze the behavior of 

different types of load in Mexico

From the analysis, identify the demand response functions that can 

be used to maintain reliability and increase the efficiency of the SEN

2.4 Smart Grid Technology Players in Mexico, the Americas,

and the World

Mexico has access to numerous international firms providing smart grid services, including

several Mexican firms whose products compete in the international marketplace. Figure 11 and 

Table 8 list the major players in Smart Grid around the world.
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Figure 11. The Networked Grid 150 vendor taxonomy

(GTM 2013)
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Table 8. Top 10 Networked Grid Vendors (Groarke 2013)

Networked Grid Vendor Submarket

ABB Transmission and Distribution Automation

CISCO Communications

IBM Integration and Consulting

Itron AMI Infrastructure

Siemens Transmission and Distribution Automation

S&C Distribution Automation/Grid Support

Schneider Electric Distribution Automation

Opower Soft Grid

Silver Spring Networks Communications

Tendril Home Energy Management
27

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3 Technology and Policy Landscape: Technologies 

and Policies Available for Mobilizing Smart Grid 

Deployment in Mexico

3.1 SENER’s Smart Grid Program

SENER’s statement of its view of Smart Grid is contained in Programa de Redes Eléctricas 

Inteligentes (Smart Grids Program) (SENER 2016d). Key elements of the implementation 

plan include:

1. Intelligent electrical networks projects

2. Program pillars—to be developed or strengthened by CENACE, CFE Transmission,

and CFE Distribution

3. Candidate smart grid projects—to be developed by CENACE

4. Candidate smart grid projects—to be developed by the carrier

5. Candidate smart grid projects—to be developed by the distributor.

For details about these projects, see Appendix B.

3.2 SENER’S Policies for the Deployment of Smart Grids

SENER’S policies for the deployment of smart grids include the following, according to SENER 

(2017):

1. Promote interagency cooperation among agencies in the energy sector so that, within the 

scope of their powers, they contribute to the planning and implementation of the Red 

Eléctrica Inteligente (REI, or Smart Grid) in the SEN

2. Reduce the level of energy losses to 13.38% for 2018, thus increasing the efficiency 

of the SEN

3. Incorporate strategies for the dissemination of REI projects, initiatives, and actions 

to promote active participation of members of the electricity industry and end users 

4. Promote interoperability of the SEN systems and equipment, using standards and 

protocols to ensure compatibility of the technological infrastructure

5. Ensure system cybersecurity to maintain the operation of the SEN with criteria of 

reliability and safety

6. Promote the development of REI, using open source codes

7. Maintain the security and integrity of the information of the participants and users, 

guaranteeing the legitimate and controlled treatment of information 

8. Promote training programs, innovation centers, and other initiatives under the concept 

of value chain development and training of human resources specialized in REI 
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9. Promote the use of REI in the modernization of the national transmission network and 

general distribution networks to increase flexibility, resilience, reliability, efficiency, 

safety, and sustainability

10. Prioritize the use of REI technologies for the operation and operational control of the 

SEN that are aimed at improving reliability, continuity, efficiency, and security 

11. Reduce curtailment of economically dispatched energy due to technical and operational 

limitations of SEN, to contribute to the efficient operation of the Mexican wholesale 

electricity market (MEM)

12. Ensure ISO (CENACE) has access to the information of distribution and transmission 

systems for monitoring SEN

13. Promote the use of electric vehicles and their incorporation into SEN management

14. Include intelligent technologies that facilitate the efficient integration of clean energy 

and DG in the expansion and modernization of the SEN

15. Promote participation of end users in schemes of controllable demand, provision of 

additional services, or management of consumption to encourage maximum use of the 

SEN infrastructure

16. Include REI projects in the expansion and modernization programs when they present 

an advantageous cost-benefit ratio and thus help improve SEN efficiency, quality, 

reliability, continuity, security, and sustainability.

3.3 Major Reports, Events, and Proceedings

3.3.1 ESTA International Report

In 2012, CRE began exploring the potential to implement smart grid solutions in Mexico and 

authorized the development of a regulatory roadmap for implementation. CRE envisioned the 

outcome of the exploration to be guide to a regulatory framework under which implementation 

and operation of the Smart Grid would be permitted and encouraged. 

ESTA International (ESTA), an expert smart grid consultant, was selected in October 2012 to 

begin developing the implementation roadmap. During 2013 and in early 2014, ESTA worked 

with the major stakeholders in Mexico—including SENER, CFE, CRE, CENACE, and others—

to research and develop the roadmap. Work on the roadmap was enhanced by the assistance of 

these agencies and the commitment of time from the CRE Chairman, commissioners, and staff.

The final report of the roadmap was completed by ESTA in September 2014 and presented to 

CRE for its consideration. Subsequently, official Spanish and English versions of the report were 

released. Appendix A contains information about the roadmap.

The ESTA project proceeded in seven phases:

1. Review of international experiences and feasibility of development

2. Development of the regulatory roadmap

3. Evaluation of investment opportunities

4. Preliminary assessment of environmental impact and development
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5. Economic analysis and implementation plan

6. Initial exploration on financing possibilities for implementation

7. Preparation of the final report and recommendations.

Upon completion, the ESTA-produced roadmap contained 91 recommendations for smart grid 

implementation for Mexico’s consideration. They addressed mainly actions that could be taken 

by CRE but also areas in which CFE or SENER would have primary responsibility to act. 

The ESTA report (ESTA 2017) also identified areas in which best practices regulation from 

other countries implied that additional legislation would be needed in Mexico to provide certain 

additional authority to CRE or other agencies. Many of the ESTA report recommendations were 

used by CRE while Mexican energy reform was enacted. Subsequently, Mexican law was 

amended to give CRE a major role in the development of Smart Grid.

One of the most significant recommendations in the ESTA report was the creation of a 

multiparty council to guide the development of Smart Grid. ESTA noted that this group should 

eventually include Mexican government agencies as well as representatives of academia and the 

private sector involved in Smart Grid development. 

When the Grupo Nacional de Redes Eléctricas Inteligentes (Grupo Nacional) was initially 

formed, it consisted of representatives of SENER, CRE, CFE, and CENACE. It was later 

expanded to include the representatives of National Electricity Institute and the National Energy 

Efficiency Commission. Ultimately, the Grupo Nacional was superseded by the Smart Grid 

Consultative Committee, which was established by the 2015 Energy Transition Law. 

Membership of the Consultative Committee includes SENER and representation from all of the 

government of Mexico, electricity and energy efficiency organizations, industrial and smart grid 

associations, and electric-sector research institutions.

3.3.2 CRE Smart Grid Summit

On February 24, 2015, more than one 100 energy policymakers, industry leaders, and other 

stakeholders gathered in Mexico City to discuss the future of Smart Grid in Mexico. The

meeting—titled The Regulatory Roadmap for Smart Grids in Mexico: Next Steps—marked 

another step in the country’s progress toward reform of the energy sector and the introduction 

of technologies that will modernize the electric grid, improve its operations, and empower 

consumers. The meeting was hosted by the Grupo Nacional and was facilitated by CRE and 

the 21st Century Power Partnership.

7

3.3.3 NREL Support for SENER

Since early 2014, the 21st Century Power Partnership has been providing technical assistance to 

SENER on the development of public policies needed to move forward with Smart Grid. NREL

commissioned the Regulatory Assistance Project and Public Policy Consulting to develop a 

selection of potential pathways for implementing Smart Grid. Each pathway consisted of 

a set of recommendations for policies that SENER should consider in promoting Smart Grid 

development in Mexico. In September 2015, the 21st Century Power Partnership, the Regulatory 

Assistance Project, and Public Policy Consulting made a presentation to the Subgroup on 

 

7 The 21st Century Power Partnership is an initiative of the Clean Energy Ministerial and is managed by NREL.
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Policies of the Grupo Nacional that outlined five potential “pathways” in which public policies 

on Smart Grid could be developed. Development of the pathways depended significantly on 

the two predecessor documents discussed above:

1. The ESTA Smart Grid Regulatory Framework (September 2014), which provides a 

comprehensive vision of electricity sector reform and Smart Grid development

2. The Regulatory Roadmap for Smart Grid in Mexico: Next Steps (February 2015), 

which captures stakeholder conversations discussing implementation of the 

91 recommendations included in the Smart Grid Regulatory Framework.

The September 2015 presentation emphasized there are several possible pathways in moving 

toward and ultimately achieving the energy reform goals through Smart Grid deployment. 

The presenters used research presented in Power Systems of the Future: A 21st Century Power 

Partnership Thought Leadership Report (Zinaman et al. 2015) to organize and articulate the 

range of pathways. Figure 12 illustrates how the five pathways differ in their comprehensiveness 

and the speed of change that would follow their selection for the path forward.

Figure 12. Smart Grid pathways for Mexico

(Linvill, Binz, and Bracho 2016)
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Pathways 1–4 can be characterized thematically by the main impact each would have on the 

developing energy sector in Mexico. Table 9 lists the four themes.

Table 9. Four Themes of Smart Grid Pathways

(Linvill, Binz, and Bracho 2016)

Pathway Theme

Pathway 1 Improve Status Quo and Reliability 

Pathway 2 Improve Customer Choice

Pathway 3 Move Utility toward Platform Role

Pathway 4 Enable Competitive Markets

Pathways 1–4 align with four distinct approaches described in Zinaman et al. 2015: Adaptive, 

Evolutionary, Restructured and Revolutionary. Pathway 5— the Optimal Feasible Pathway—

was constructed to be a “middle” pathway to change. From Linvill, Binz, and Bracho (2016),

here are the elements of Pathway 5:

• Complete wholesale smart grid investment; proceed to retail smart grid applications

• Plan and implement selective smart meter installation

• Develop and implement smart grid standards

• Streamline interconnection processes

• Undertake consumer education on energy use

• Improve regulation, adding performance incentives

• Implement full wholesale market unbundling and competition

• Apply dynamic pricing for customers with smart meters; facilitate commercial and 

industrial self-provision tariffs

• Establish shared renewable programs

• Enable third-party role in smart grid services

• Develop data sharing for customer usage data

• Allow retail customer aggregation.

As we will see, this list of actions along Pathway 5—the Optimal Feasible Pathway—is

consistent with the recommendations of the international experts tapped for their contributions 

to this report.
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4 SENER’s Smart Grid Priorities

4.1 Review of Mexico’s Smart Grid Priorities

The Smart Grid Program (SENER 2016d) identifies the drivers of Smart Grid in Mexico. In this 

section, we review each of the eight identified drivers listed in that report:

1. Improved quality, reliability, continuity, safety, and sustainability

2. Improved quality of supply

3. Increased energy efficiency

4. Reduced electricity losses

5. Efficient operation of the national electric grid

6. Greater deployment of clean energy

7. Increased customer involvement in system management

8. Additional service offerings.

This list of drivers is specific to Mexico, but it shows a relationship to other lists of smart grid 

drivers. For example, the European Union (EU) identifies seven drivers in three major 

categories: sustainability, competitiveness, and security and quality of supply (EU 2011, 48):

• Sustainability

o Reduction of carbon dioxide emissions

̶ System losses

̶ Transportation

o Integration of distributed energy resources (DER)

• Competitiveness

o Increased market participation

̶ Through aggregation of DG, storage, and demand response

̶ Improved market transparency

o Interregional markets (harmonized)

• Security and quality of supply

o Safe integration of large-scale renewable energy sources

o Cyber security and data protection

o Operational improvements.
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The drivers for Mexico correspond closely with those selected by the European Union, as seen 

in Figure 13.

Figure 13. Comparison of smart grid drivers: Mexico and the EU

(SENER 2016d, 15); (European Commission 2011, 48)

In 2012, ESTA surveyed countries around the world on Smart Grid drivers. The results 

(Table 10) indicate the top five motivations for Smart Grid by region. Once again, we see 

that Mexico’s drivers generally correspond with the identified drivers in other regions.
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Table 10. International Smart Grid Drivers

(ESTA 2014)

Latin America and 

the Caribbean Europe and Eurasia Middle East and Africa

Asia & Oceania

1 Reliability 

Improvements

Integration with 

Renewable Energy

Optimizing Energy 

Consumption

Reliability 

Improvements

2

Power Quality 

Improvements

Demand Response 

and Management

Reducing Operating 

and Maintenance 

Costs

Power Restoration 

Improvements

3

Improving revenue 

collection and 

assurance; reduction 

of commercial losses

Reducing Operating 

and Maintenance 

Costs

Reducing Losses Optimizing Energy 

Consumption

4

Power System 

Restoration 

Improvements

Integration of 

Distributed Energy 

Resources

New and Improved 

Services for the 

Customer

Reducing Operating 

and Maintenance 

Costs

5

Energy Efficiency Power Quality 

Improvements

Improved Revenue 

Collection and 

Assurance

Power Quality 

Improvements

4.1.1 Improved Quality, Reliability, Continuity, Safety, and Sustainability

The first driver of Smart Grid in Mexico concerns the overall performance of the electric system. 

As we will see, this is an area in which smart grid technologies can play a significant role.

The LIE provides that transmission and distribution of electric power will be subject to the 

rules issued by the CRE in terms of quality, reliability, continuity, safety, and sustainability. 

For transmission and distribution service, the relevant parameters are:

• Voltage

• Availability of network elements

• Power interruptions

• Harmonic components

• Electricity losses

• Any other technical aspect that the CRE deems necessary.

When adopting the appropriate standards for each of these parameters, CRE must consider the 

associated economic aspects. Similarly, the operation of the wholesale electricity market is 

subject to the electricity market rules, which apply to all market participants. These rules provide 

operating procedures concerning security dispatching, reliability, quality, continuity, and 

efficiency of the wholesale electricity market, and they include rules to be applied in case 

of emergency.

4.1.2 Quality of Supply

Parameters related to the quality of supply are also relevant for transmission and distribution 

service, and it is important to take actions to increase the quality of supply that is provided to 

the end user. Such improvements in quality are in addition to the standards established in the 
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administrative provisions that apply to the supply of electricity. In other words, smart grid 

investment should allow utilities to exceed the traditional measures of power quality. In view 

of society’s growing dependence on an uninterrupted supply of high-quality electricity that is 

suitable for use by many sectors (e.g., information technology and communications), continuous 

improvement in quality of supply is needed for economic growth.

4.1.3 Energy Efficiency

The LTE defines energy efficiency as all actions that lead to an economically viable reduction 

of the amount of energy required to meet the energy needs that society demands, thus ensuring a 

level of quality equal to or greater than that delivered before the actions were taken. Lawrence 

Berkley National Laboratory (Rybka et. al 2015) uses an equivalent, shorter definition of energy 

efficiency: “using less energy to provide the same service.” 

Energy efficiency offers many benefits to Mexico. It is usually the least-cost new “supply” 

resource, leading to the adage that the least-expensive kilowatt-hour is the one that is not used. 

In addition to reducing total system cost, energy efficiency saves natural resources and has 

positive environmental effects.

Smart grid technologies can increase the efficiency of energy use in several ways, including 

energy efficiency at the customer level but also upstream in the transmission and distribution 

grid. In the upstream applications, smart grid technologies reduce losses and inefficiencies, 

reducing the supply requirements for the same set of services consumers use and thus fulfilling 

exactly the definition of energy efficiency.

4.1.4 Electricity Losses

Electricity losses in Mexico’s national grid, mainly in the distribution network, are at values well 

above those recorded worldwide, and the losses represent a major problem affecting the 

economic viability of utilities that are “productive state companies.” Implementing smart grid 

solutions to reduce these losses represents an important opportunity to significantly improve the 

efficiency and the economics of the SEN. The LIE requires that the operation of SEN be within

efficient parameters, such that, among other efficiency parameters, electricity power losses must 

be reduced.

Figure 14 shows the trend of distribution losses (pérdidas) in the interior of Mexico from 2002 

through 2015; Figure 15 shows the trend of electricity losses in the Valley of Mexico for the 

same period. The losses are shown in absolute units (GWh) and in relative units (percent of 

energy delivered).
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LOSS OF POWER (Kilowatt-Hour [KWh]) 2002–2015 DISTRIBUTION IN INTERIOR OF MEXICO

Figure 14. Trend of electricity losses (pérdidas) in the interior of Mexico, 2002–2015

(SENER 2016d, 16)

LOSS OF POWER (KWh) 2002–2015 DISTRIBUTION IN THE VALLEY OF MEXICO

Figure 15. Trend of electricity losses (pérdidas) in the Valley of Mexico, 2002–2015

(SENER 2016d, 16)

These charts suggest progress in reducing the percentage of energy lost, particularly in the 

Valley of Mexico, which was served by Luz y Fuerza del Centro until 2010, when it was taken 

over by CFE. However, the losses are still well above industry standards. SENER has identified 

smart grid investments in meters as one of the leading tools for reducing these losses.
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4.1.5 Efficient Operation of National Interconnected Electric Grid

To increase operational efficiency, mainly in transmission and distribution, all parts of those 

systems must operate properly according to their design conditions. CFE must regularly upgrade 

and expand its infrastructure, incorporating new technologies, and removing inefficient 

equipment from service. 

CFE must also incorporate asset management systems to extend the life of the equipment—based 

on analysis and monitoring of the operating conditions and the state of all its elements—to 

ensure optimal maintenance processes and to identify and implement modernization or 

replacement of assets.

Smart grid technologies essentially apply information and communications technologies to the 

power grid. In the same way that internet capabilities have improved the efficiency of other 

processes in society, information and communications technology capabilities can provide 

a similar service to the electric grid.

4.1.6 Clean Energy

Mexico has adopted strong goals for the acquisition of clean energy, including 35% of electricity 

generation by 2024. Meeting these goals will require open access to the national transmission 

network and general distribution networks on terms that are equitable to all forms of generation.

The goals and obligations set out in the LTE regarding clean energy and reducing polluting 

emissions will require review of the planning process, and they will include all required 

modernization and expansion. This will be especially important in areas with high potential for 

clean energy that can be developed or modernized efficiently and at market conditions. All this 

must be accomplished in a way that ensures the stability of the electric network. Furthermore, in 

terms of economic sustainability, new technologies must be used in the operation of the national 

transmission network and general distribution networks to allow greater penetration of clean 

energies and efficient management of the variability of the same, according to international best 

practices, strengthening the stability and security of the network, all within conditions of 

economic viability.

Smart Grid can assist Mexico in meeting its clean energy goals. Properly designed and executed, 

smart grid investment can address multiple objectives, such as modernization and expansion of 

the transmission grid, thus helping integrate larger amounts of renewable energy and improving 

the stability and security of the grid.

4.1.7 Customer Involvement in System Management

One of the most significant long-term effects of smart grid technology will be to enable 

the grid’s dealings with customers to be two-way instead of the traditional one-way 

communication from utility to customer. Two-way communication allows more-effective 

system management through, for example, more-efficient matching of load and supply.

One application of customer involvement will be options for demand response (DR). In 

determining and structuring electricity tariffs, it will be important to consider the controllable 

demand mode and promote more efficient use of energy by the customer by incentivizing them 
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to manage their consumption within a framework of dynamic tariffs. Customer involvement will 

need to be implemented gradually, with consideration given to the impact this may have on rates.

4.1.8 Additional Service Offerings

Smart Grid will spawn new services and open the power market to new players at the customer 

level. This will increase the usefulness of the utilities’ existing investments and increase value of 

the SEN for customers.

In planning the SEN, it is necessary to involve consumers, including large and small companies 

through their chambers and associations, and to consider their business plans and expectations 

of additional services in the energy field, which should be in accordance with the policies and 

regulations issued by the authority.

4.2 How Smart Grid Measures Can Serve Mexico’s Energy Goals

Before considering various individual smart grid measures, it is helpful to consider, at a high 

level, the systematic approach to implementing a smart grid that will be necessary for success.

While well-known and established in industries such as aerospace, the application of a systems 

approach to policy is infrequently (or incompletely) considered in the power sector. Its 

applications in science and engineering rely on detailed models, but the notion of looking at a 

problem as a whole and in context is fundamental to the systems approach. The process involves 

three high-level steps that are similar in any decision evaluation methodology (e.g., Kepner and 

Tregoe 1976):

1. Objectives

A. Investigate the objectives of the desired change

B. Determine ways to measure the effectiveness of alternatives to achieve change

C. Define criteria for applying the measures (e.g., scoring and weighting) to 

select alternatives

2. Alternatives

A. Discover alternatives within the whole and in context, involving the breadth of 

stakeholders involved in the desired change

B. Analyze alternatives for feasibility, risk, and cost

3. Decision

A. Compare alternatives in terms of the established criteria 

B. Minimize risk by exploring expected outcomes, both positive and negative,

to identify contingencies and preventive actions

C. Consider testing through evaluation-periods, pilots, or demonstrations.

Ideally, Smart Grid deployment projects should be selected and supported in proportion to how 

they contribute to national policy goals. It is helpful to illustrate this process by examining the 

development of Smart Grid in international settings. A sampling of that rich experience is 

contained in the next section.
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4.3 Survey of International Experience with Smart Grid Technologies 

A compendium of case studies discussing important Smart Grid deployments in the transmission 

and distribution system can be found in the report, ISGAN: Spotlight on Smart and Strong Power 

T&D Infrastructure 2.0 (Normark 2016), which includes the following country examples:

• Austria: maximizing the distributed energy resources (DER) hosting capacity of lowand medium-voltage networks

• Belgium: increasing hosting capacity by intelligent control of PV inverters

• Canada: energy storage and DR for improved supply reliability

• China: Multi-terminal system demonstrates that true networks can be built with HVDC.

• Denmark: more-efficient energy system by combining electricity and heat 

• Germany: High-temperature superconducting transmission and distribution cables 

enable increased capacity in congested urban area.

• Ireland: An HVDC interconnector enables integration of wind power and improves 

electricity market.

• Italy: Wide-area measurement enhances the power system; the case study also explores 

the impact of the enforcement of a time-of-use tariff on residential customers in Italy.

• South Africa: Eskom establishes a grid situational awareness proof-of-concept.

• Sweden: An optimal combination of transmission technologies solves transmission 

congestion.

• United States: Wide-area measurement systems are used to avoid large-scale outages.

Additional relevant country experiences are discussed in the following sections.

4.3.1 China

Demand Side Management

Sixty GW of China’s total capacity operate only 50 hours per year. This 60 GW of capacity 

represents 5% of demand and an expensive operational cost to the State Grid Corporation of 

China (State Grid). This peak is thus an opportunity for demand side management (DSM).

The State Grid, in collaboration with the National Energy Administration (NEA) of China, the 

U.S. Trade and Development Agency, and the U.S. Department of Energy (DOE) selected DSM

as China’s first smart grid pilot project. The pilot, which monitored and managed electricity use 

in two commercial buildings using an automated demand response grid-to-building control 

system, reduced loads by 15%.

Following the pilot, in 2015, Chinese partners including Shanghai Electric Power, NARI Group,

and the State Grid enlisted 33 commercial and public buildings and 31 industrial customers with 

a combined 100 MW of load-shedding capacity to participate in further testing.

4.3.2 France

Smart Substation

The Smart Substation project, commissioned in 2016, is operating two fully digital smart 

substations in the northern France. It showed the feasibility of a global process bus, 
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implementing the IEC-61850 standard, and it demonstrated the concept of a wide-area 

automation solution. The project was supported by the French government and was developed 

through a consortium led by RTE France, the French transmission system operator (TSO). 

Members of the consortium are the European Regional Development Fund (ERDF), Alstom 

Grid, Alcatel Lucent, Schneider Electric, and the start-up Neelogy.

4.3.3 India

Unified Real-Time Dynamic State

Power Grid Corporation of India Limited assembled the world’s largest grid wide-area 

monitoring system (WAMS), with over 1,100 PMUs installed at more than 350 substations, and 

34 phasor measurement unit (PMU) data systems in operation. To meet the communication 

requirements associated with synchrophasors, a fiber optic network is either available or under 

implementation to connect all PMU and PDC (phasor data concentrator) locations. 

Energy Accounting

Maharashtra State Electricity Distribution implemented data and information technology (IT)

applications for energy accounting, auditing, and consumer service centers for 95 towns in India.

GIS-based indexing and asset mapping were included in the upgrade. By integrating GIS-based 

information and IT-based solutions, Maharashtra can effectively measure the aggregate technical 

and commercial losses and increase the reliability and quality of electric supply.

4.3.4 Italy

Wide-Area Measurement System Platform

Oscillatory stability is a concern, especially for the risk of undamped inter-area oscillations 

throughout large interconnected systems. The Italian system participates in the oscillatory modes 

of the continental European system, and it may experience internal oscillations, typically 

between north and south because of its longitudinal structure.

At Terna, the Italian TSO, algorithms were developed to evaluate the oscillatory stability 

determined from the WAMS. The WAMS developed in Italy consists of a set of PMUs, a 

dedicated data network, and computer systems for data processing and management, including 

monitoring applications and intelligent display at the National Control Center of Terna in Rome.

4.3.5 United States

In the United States, Smart Grid is regarded as an important tool to reach the country’s energy 

goals. One of the most significant impacts of Smart Grid will be to enable DR.

In March 2011, the Federal Energy Regulatory Commission (FERC) issued Order 745, titled 

Demand Response Compensation in Organized Wholesale Energy Markets. It required 

institutions that administrator regional energy markets in the United States—known as regional 

transmission organizations (RTOs) and independent system operators (ISOs)—to compensate 

“demand response resources . . . at the market price for energy” as an alternative to generation of 

additional electricity “when dispatch of that demand response resource is cost-effective” (FERC 

2011).
41

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Because smart grid technologies are essential to the success of DR, especially within the classes 

of small commercial and residential customers, DR has become a major driver of smart grid 

investment in the United States.

4.3.6 European Union

Much like the SENER’s smart grid drivers, European Union (EU) energy policies are driven by 

three main objectives:

• Sustainable energy consumption

• Operation of a competitive environment that ensures affordable prices

• Secure energy supplies.

In an attempt to assess the progress of EU member nations’ efforts to accomplish these three 

policy objectives, the Joint Research Centre Institute for Energy stratified them. By establishing 

the follow categorization, the research center provides a model roadmap for linking drivers to 

initiatives:

• Sustainability

o Reduction of carbon dioxide emissions

̶ System losses

̶ Transportation

̶ Integration of DER

• Competitiveness

o Increased market participation 

̶ Through aggregation of DG, storage, DR

̶ Improved market transparency

o Interregional markets (harmonized)

• Security and quality of supply

o Safe integration of large-scale renewable energy sources

o Cyber security and data protection

o Operational improvement.
42

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5 Mapping Smart Grid Measures to Key Drivers in 

Mexico

Table 11—on the following pages—presents options for implementing smart grid measures that 

address each of the eight drivers identified by SENER. In some cases, the table highlights the 

categories of smart grid activities; in other cases, specific measures are identified.

The table is not intended to be comprehensive but rather to be a guide to some of the specific 

smart grid measures that match with the drivers. The contents of the table are discussed in depth

in the Section 6.
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Table 11. Mapping Smart Grid Measures to Drivers

Driver 1: Quality, Reliability, Continuity, Safety, and Sustainability

Where in Grid Smart Grid Measures Comments

Generation/Supply

Install PMUs at large generator terminals and utility 

renewable sites for monitoring and active response 

during grid event and for generator model validation

Install lidar or other instrumentation for better 

forecasting 

In Sections 6.1.1 and 6.1.2, see:

• PJM case study for generator PMUs

• ERCOT case study for wind site PMUs

• Case study for generator control of Colombia XM, the 

Colombian electric utility (Leon and Gomez 2011).

Transmission

Develop PMU data for post-mortem outage analysis

Acquire software and IT for real-time use of PMU data

Deploy FACTS devices for transmission control

Install “smart wire” technology, and wide-area 

monitoring, protection, and control systems

(WAMPACS)

See the Bonneville Power Administration case study 

addressing oscillatory stability (Section 6.1.26.1).

Distribution

Implement FLISR and integrate into business systems 

(e.g., outage management and asset management)

Install sensors on all secondary transformers to 

enhance outage management and preventative 

maintenance

See Section 6.1.3 for additional smart grid applications that 

increase quality and reliability of service.

Customer Premises

Implement interruptible load, critical peak pricing, or 

other tariffs that let load reductions contribute to 

providing capacity on peak days; alternatively, utility or 

third-party aggregators could enroll customers and 

subsequently bid into the wholesale market

Other/Combined Implement cybersecurity measures
44

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Driver 2: Quality of Supply

Where in Grid Smart Grid Measures Comments

Generation/Supply Use DR for voltage and frequency support Smart inverters enable this application.

Transmission

Install power quality measurement units or integrate 

comparable functionality into revenue metering for 

large (e.g., industrial) customers served at 

transmission-class voltages to inform service quality 

and system compatibility (i.e., flicker, harmonics), fast 

fault clearing, and other devices.

An important application here is traveling wave fault 

location and clearing.

Distribution

Employ Volt/VAR (volt-ampere reactive) optimization

(VVO), DER voltage control schemes

Reduce nontechnical losses and implement FLISR 

technology to shorten the time and affected customers 

during an outage

Meter Use AMI for superior power quality measurements

Other/Combined Use smart inverters in solar applications
45

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Driver 3: Energy Efficiency

Where in Grid Smart Grid Measures Comments

Generation/Supply Optimize generator dispatch with merit order dispatch Merit order dispatch is enabled by Smart Grid 

communication system upgrades.

Transmission

Consider “smart wire” technologies to optimize 

transmission system, thus avoiding overloaded lines 

reducing losses, and improving efficiency

Distribution

Implement voltage optimization, smart power factor 

correction schemes, and conservation voltage 

reduction schemes

Significant energy savings—enabled by AMI meters and 

enhance communications—are possible here.

Meter

For AMI customers, provide information portal to 

educate customers about their usage

Provide customers the ability to control their bills, 

deliver messages about energy efficiency, 

communicate incentive offers, and other functions

Promoting energy efficiency will accompany the use 

of DR.

Customer Premises

Implement power factor correction 

Use metering data to inform energy audits and 

subsequent energy efficiency incentive offers
46

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Driver 4: Electricity Losses

Where in Grid Smart Grid Measures Comments

Transmission

Implement dynamic line ratings technology to measure 

thermal and/or physical line tension (or sag) to optimize 

line flows

This can be addressed using PMU's.

Distribution

Implement VVO

Employ DR to reduce peak loads, when resistance 

losses are highest in transformers and in conductors

Use AMI data to inform preventative maintenance at 

secondary transformers, thus increasing their efficiency 

and reducing losses

An emerging application is using PMUs in the 

distribution grid.

Meter

Install tamper-proof AMI devices where theft is high to 

reduce nontechnical losses

Employ AMI to measure feeder losses accurately, 

identifying maintenance needs

Improve meter accuracy with AMI

Customer Premises Employ rate structures that incentivize peak load 

reductions and lead to lower technical losses

The highest gains will be with customers with the 

highest usage.

Other/Combined

Use distributed energy resource management systems

(DERMS) to provide control and feedback to DG

systems and help control local voltage levels
47

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Driver 5: Efficient Operation of National Electric Grid

Where in Grid Smart Grid Measures Comments

Transmission

Implement near-term or real-time forecasts of solar and 

wind power generation and use in dispatch decisions

Increase the efficiency of power flow, considering 

system losses while accounting for generation dispatch

(e.g., using wide-area measurements)

Provide substation automation, centralized protection, 

intelligent switch technologies, and dynamic line 

ratings for more efficient and more reliable operation 

of the grid

See Section 6.5.2 for additional smart grid applications 

that increase efficiency of operations. Also see Driver 1, 

above in this table.

Distribution

Implement voltage conservation

Utilize dynamic line ratings

Upgrade to automated substations

Customer Premises

Implement dynamic pricing (e.g., time-of-use, peak load 

pricing, and real time pricing) for AMI-served customers

Consider starting with the largest users in the residential 

class for AMI installation.
48

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Driver 6: Clean Energy

Where in Grid Smart Grid Measures Comments

Generation/Supply

Improve forecasting for renewable resources to enable 

smooth integration of large amounts of variable 

resources

Implement long-term planning that captures geospatial 

diversity and temporal variability of renewable 

resources, along with realistic cost trajectories and 

operational interactions with other generators, 

transmission, storage, and DR

Transmission

Evaluate and co-optimize potential transmission 

projects that consider potential renewable energy 

deployments

Distribution

Implement energy storage and load controls for 

enabling greater renewable penetration

Enable DG at residences

Deploy combined heat and power generation for large 

commercial customers to reduce fossil fuel generation

Customer Premises

Investigate to what extent DR and energy efficiency 

could contribute to (1) firm capacity and (2) reduced 

curtailment assuming high solar and wind penetration

Other/Combined

Use smart inverters to optimize the use of distributed 

solar generation
49

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Driver 7: Customer Involvement in System Management

Where in Grid Smart Grid Measures Comments

Generation/Supply Enable customers to choose an energy supply 

company through market design

Meter Install AMI meters on all large commercial and largeuser residential customer premises

High cost-effectiveness is possible if this measure is 

applied to large users in residential class.

Customer Premises

Promote DR aggregation by third parties.

Couple any real-time pricing with enabling automation 

that can schedule appliances and/or adjust set-points 

based on prices and customer preferences

Evaluate any proposed time-of-use rates against the 

expectation of how net load curves may evolve over time.

Other/Combined

Create a customer portal tied into AMI for customer 

education and awareness of usage

Provide incentive schemes to improve load shape
50

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Driver 8: Additional Service Offerings

Where in Grid Smart Grid Measures Comments

Meter

Mandate AMI for large customers and for commercial 

and high-usage residential customers

Mandate dynamic pricing (time-of-use or real-time) 

Enable meters to provide local access to metering data

(i.e., allow users to obtain real-time consumption data 

using a web portal via mobile devices)

Customer Premises

For AMI, offer web-based information portal accessible 

by mobile devices that provides feedback on real-time 

and historical energy use.

Such a feature could also be used to let customers 

preview other, more responsive tariffs or to learn how their 

energy use and service levels might change under a 

particular DR program.

Other/Combined Utilize microgrids with renewable energy supply

This measure represents a means of helping extend grid 

services to the remaining 2% of the population without 

access (e.g., PV Magazine 2016).
51

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6 Smart Grid Measures for Mexico

We now visit each of the drivers for Smart Grid in Mexico and discuss smart grid measures that 

would serve that driver. The discussion elaborates on the measures identified in the previous 

section; each subsection is mapped to a driver, and each driver subsection is subdivided into the 

various points of application in the grid.

6.1 Driver 1: Quality, Reliability, Continuity, Safety, and Sustainability

6.1.1 Generation/Supply

Smart grid technologies can improve many existing generation practices and enable grid 

operators to improve reliability with greater insight into the variability of renewable generation.

Installing PMUs at large generator terminals and at large renewable generation sites can 

(1) enable improved system monitoring and active response during grid events and (2) improve 

modeling of generators. Installation of lidar or other smart grid instrumentation will lead 

to greater accuracy in forecasting wind and solar performance, increasing reliability and 

often reducing costs because the operator will have advanced information about changes 

in variable generation.

6.1.2 Transmission

PMU-Based Wide-Area Monitoring, Protection, and Control Systems (WAMPACS)

One of the earliest and most successful smart grid measures for transmission is the use of PMUs, 

which can capture conditions on the transmission grid at an instantaneous moment across the 

grid. CENACE has installed PMUs on its system, and it is helpful to review here the applications 

of PMUs and other smart grid applications for transmission.

PMU-based WAMS have been the focus of smart grid investments for the transmission systems 

in the United States and across the world in the past few years. In addition to providing 

transmission situational awareness, the WAMS are being increasingly deployed for system 

operations—including monitoring of large generators and renewable sites—and for model 

validation and disturbance recording. 

Though most newer digital protection relays and other digital recorders have embedded PMU 

functionality, a modern communication architecture consisting of PDCs, higher bandwidth 

communication channels, and central phasor processing capabilities is required for effectively 

using these systems. Though commercially available, WAMS-based real-time applications, 

including real-time path rating and inter-area oscillation detection and control, are limited;

development of other applications is of immense interest in the power systems research 

community. Other offline applications include large disturbance and outage analysis, digital 

disturbance recording, generator model validation, network equivalents, and study of disturbance 

propagation in large systems (NASPI n.d.).

We now turn to a review of some successes with WAMPACS and related technologies around 

the world.
52

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United States

PMUs are being widely deployed for wide-area monitoring (WAM) of the bulk power system 

across all three interconnections in North America: the Eastern Interconnection, the Electric 

Reliability Council of Texas (ERCOT), and the Western Electricity Coordinating Council 

(WECC, which includes a part of CFE in Mexico). Regional entities such as PJM,

8 ISO-NE9

(Ghiocel et al. 2014), ERCOT (Chen et al. 2012), and WECC (Kincic et al.) in the United States 

are using high-resolution PMU data to validate planning models of wind farms, FACTS devices, 

generators, fault-induced delayed voltage recovery (FIDVR) response (Bravo and Chassin 2016),

and HVDC systems, ensuring better accuracy for system planning and operational contingency 

analysis. 

The Bonneville Power Administration (BPA), a large utility located in the U.S. Pacific

Northwest, has 134 PMUs located at 230-kV and 500-kV substations. These PMUs collect 

synchrophasor data for 445 voltage and current signals. The WAMS is used for operations such 

as real-time situational awareness and alarms, wide-area remedial action scheme (RAS), power 

plant model validation, and post-event analysis (Faris 2016; Huang et al. 2013). Other large 

utilities such as Dominion Virginia Power (Jones, Pal, and Thorp 2015), Tennessee Valley 

Authority (Zhang et al. 2010), and Entergy (Werho et al. 2016) have deployed significant 

WAMS systems for phasor-based state estimation, wide-area system separation, islanding, and 

restoration. California ISO and ERCOT use PMUs for real-time monitoring of PV and wind 

generation sites. 

China

With an installed capacity of about 1,056 GW, WAMS plays a major role in grid operations 

in China. WAMS was operational at the China National Electric Power Dispatching and 

Communication Center in 2002. The functionality of the system was subsequently extended to 

include dynamic model parameter validation, low-frequency oscillation analysis, power system 

state estimation improvement, and wide-area protection against cascading trips. Two types of 

PMUs are widely deployed: substation PMUs and generator PMUs. Currently, WAMS is 

deployed in every regional and provincial power grid, covering all 500-kV substations, some 

critical 220-kV substations, and all generators rated above 100 MW (Bi 2013; Sun 2016).

India

India has an installed capacity of about 237 GW, with renewable sources constituting about 

30 GW of that total. Synchrophasor technology has been identified as a key technology for grid 

operations, especially with a growing share of renewables. A total of 62 PMUs have been 

deployed. A fully fledged WAMS—called the Unified Real-time Dynamic State Measurement 

Scheme—is under implementation. This system is envisaged to consist of over 1,700 PMUs, 

32 PDCs, and 11,000 kilometer (km) of optical fiber communication links. WAMS has been 

 

8 PJM Interconnection LLC is a regional transmission organization (RTO) serving a large portion of the eastern 

United States. Its name derives from Pennsylvania-(New) Jersey-Maryland interconnection. 9 ISO New England (ISO-NE) is the independent not-for-profit company authorized by the Federal Energy 

Regulatory Commission in 1997 to operate the regional power system, implement wholesale markets, and manage 

the regional power system planning process for the region spanning Connecticut, Rhode Island, Massachusetts, 

Vermont, New Hampshire, and most of Maine.
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used to provide real-time situational awareness, angle-based line monitoring, calibration of 

“special protection schemes,” oscillation monitoring, and system operation during natural 

calamities. In addition, the PMUs are used as islanding detection tools and for dynamic model 

validation and state estimation (Mukopadhyay 2014).

Europe

A series of blackouts in the European grid in 2003 led to the adoption of PMU-based WAMS for 

improved situational awareness. WAMS was also selected as the tool for addressing technical 

challenges in large interconnections when multiple Union for the Co-ordination of Transmission 

of Electricity synchronous zones were integrated and the Turkish power grid was subsequently 

added. Each European TSO has 3–30 PMUs installed that are connected to its individual data 

concentrator. In addition, PMU data from strategic locations are exchanged between the TSOs. 

The applications include voltage phase angle difference monitoring, real-time line thermal 

monitoring, voltage stability monitoring, and online monitoring of inter-area oscillations

(Sattinger 2011; ENTSO‐E 2015).

South America

The main driving force for the adoption of Brazilian Interconnected Power System was the vast 

geographical spread of the country’s power grid and long-distance power transfers among its 

five interconnected regions (Moraes, Volskis, and Hu 2008). The MedFasee Project for 

deploying WAMS across Brazil was developed in three phases, at the end of which several 

PMUs were installed at low voltages and were interconnected using MedFasee PDCs, 

supplemented by OpenPDC as the front-end PDC. The WAMS applications include monitoring 

of electromechanical oscillations, validation of system controls, evaluation of special protection 

schemes, system-wide model validation, and post-event analysis (Decker et al. 2011).

The Colombian utility, XM, which manages the National Energy Transmission System, has 

deployed PMUs at major generating stations and strategic locations. The SIRENA10 WAMS 

project was launched after a total system blackout in April 2007. Specifically, PMU 

measurements were used to identify and improve the damping of the 0.06-Hz forced oscillations 

that had previously caused load shedding of up to 1,100 MW. Other WAMS applications include 

risk assessment of loaded transmission corridors, post-event analysis, model validation, and 

oscillatory stability monitoring and control (Leon and Gomez 2011). Novel technology concepts 

such as “angle-controlled power plants” and automatic generation control are also being pursued

(Sierra, Mendez, and Arenas 2014).

Accurate Fault Location Using Traveling Waves

Accurate fault location on transmission lines enables quicker service restoration of the faulted 

line. With extra-high voltage lines, faulted components are indistinguishable from non-faulted 

ones by visual inspection alone, hence the need for accurate fault location. Even if visual 

inspection alone were sufficient, with transmission towers 500 meters apart, visual inspection 

along a stretch would be time-consuming, causing unnecessary delays in service restoration. 

While other advanced technologies such as wavelet transformation are under development, 

 

10 SIRENA is the Spanish acronym for the Colombian National Defense System against Large-Scale Events.
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traveling wave fault location technologies are commercially available and provide a more 

accurate fault location than the current impedance-based methods (Fischer et al. 2012).

Such equipment leverages the accurate GPS signals and processing capabilities that are already 

available in transmission relays, making it easy to incorporate these systems. With improvement 

in communication and computational capabilities of modern digital relays, these systems can 

reliably estimate fault location within an error of 60 meters, greatly improving crew dispatch

efficiency and service restoration. Such systems are being widely deployed in critical 

transmission lines and along rights-of-way with difficult terrain (Schweitzer et al. 2014).

Flexible AC Transmission Systems (FACTS)

FACTS refers to a wide range of power electronics-based controllers that can increase the 

flexibility and controllability of power systems. In the United States, FACTS has been identified 

as critical to the Smart Grid for enhancing controllability, stability, and power transfer capacities

(NETL 2007).Common technical objectives for these systems include providing dynamic 

reactive power support, improving the transmission corridor capacities that are stabilityconstrained, improving system stability through control of real and reactive power flows,

and mitigating subsynchronous resonance problems. 

Examples of FACTS include unified power flow controllers (UPFCs), thyristor-controlled series 

compensators (TCSC), and static synchronous compensators (STATCOM). Initially proposed 

for the bulk power grid, these technologies are now being proposed for distribution systems for 

a range of objectives, including power quality improvement, integration of renewables, and 

voltage support (Song and Johns 1999). Smart inverters can perform STATCOM-like functions 

through their ability to control the reactive power output. A coordinated Volt-Var control scheme

is needed to achieve effective voltage control.

San Diego, California, United States

A study conducted by California Energy Commission (CEC 1999) identified UPFC as the most 

suitable FACTS technology for the power-congested San Diego area and the associated benefits 

in terms of improved import capability. The identified UPFC configuration would enable San 

Diego Gas & Electric (SDG&E) to increase import capacity by 300 MW, from 2,450 MW to 

2,750 MW, with a payback period of 13 years.

PingGuo, China

A TCSC was installed in the China Southern Power Grid network at PingGuo. Such an 

installation could increase the capacity of the west-to-east transmission corridors by 242 MW. 

The TCSC system was designed for a total capacity of 800 megavolt ampere reactive (MVAR),

providing a serial compensation of 40% (35% fixed and 5% controllable). In addition to 

improving the power transfer capabilities, the TCSC station is also used for improving the 

damping of lower frequency oscillations (Yue and Bailu 2005).

Santiago, Chile

Transelec, the main TSO in Chile, has installed a FACTS system comprising a STATCOM and 

a static VAR compensator. The STATCOM was installed at the Cerro Navia 220-kV substation 

and is rated at -65 to +140 MVAR. And, the static VAR compensator at the Polpaico 229-kV 
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substation is rated at -65 to +100 MVAR. The objective of these systems is to provide stability to 

the 220-kV grid during steady-state and contingency conditions by providing fast reactive power 

response for system contingencies and by regulating the voltage. In addition, these systems 

increased the power transfer capability by 200 MW (from 1,400 MW to 1,600 MW) through the 

300-km 500-kV corridor (ABB 2012).

6.1.3 Distribution

The design and operation of electricity distribution systems throughout the world have seen 

significant changes over the past few decades. The changes have mainly focused on improving 

safety, reliability, and cost-effectiveness while increasing deployment of DG resources. Each 

electric distribution utility has a different service territory, and their voltage and frequency 

metrics differ from place to place, even within the same country or the same utility. In Mexico, 

for example, each distribution system differs from place to place and time to time, with respect 

to voltage levels, types of customers, overhead versus underground designs, types of system 

protection devices used, methods used to monitor system status, and operational options for 

switching. However, new smart grid technologies can benefit all utilities.

Because of operational constraints and financial limits for adopting and deploying these potential 

smart grid measures, utilities must make prudent choices. Because cost is a limiting factor for 

every utility in the world, no matter the governance structure, we focus primarily on non-cost 

criteria in selecting new devices and systems for distribution system upgrades in Mexico. 

There are many smart grid measures that Mexico can deploy to help improve safety, reliability, 

power quality, and sustainability, including those shown in Table 12.

Table 12. Smart Grid Measures and Expected Impacts

Smart Grid Measure Expected Area of Improvement

Electronic recloser controls 

with SCADA

This measure is expected to reduce the overall duration of outages. 

Smart controls may improve safety for personnel working on lines using 

remote “one-shot” controls.

Power-operated switches 

with local or remote control

These systems may reduce the overall duration of outages or reduce 

the number of customers impacted by the outage.

Fault indicators, with or 

without remote monitor

(CIRED 1998)

Fault indicators help operations personnel restore outages and locate 

the source of the problem. 

FLISR systems (DOE 

2014a)

These fault sensing and restoration systems can greatly reduce 

duration and frequency of outages.

Electronic programmable 

fusesa

These devices can greatly enhance fuse and circuit breaker 

coordination, resulting in shorter outages and fewer impacted 

customers.

Electronic relays for 

breakers, secondary 

networks, electronic 

reclosers, and other 

devicesb

These controls help the operator and engineer program the behavior of 

devices, resulting in safer and more reliable systems.
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Smart Grid Measure Expected Area of Improvement

Power line carrier (PLC)

communication systems

These communication systems can be very helpful in the monitoring 

and control of smart grid devices and can help increase DER integration 

and control.

SCADA systems (Thomas, 

and McDonald 2015, 131)

SCADA helps operators better visualize their systems and offers

superior control of distribution system devices at the substation and 

beyond. Improvements in reliability, as well as in system operations, are 

common.

Intelligent capacitor controls Advanced controls help keep voltage levels and VAR flow levels at 

appropriate settings, improving power quality, VVO, and DER 

integration.

Voltage regulator controls 

with bidirectional capability 

and co-gen modes

Advanced controls for voltage regulators allow improved voltage control 

and integration of DER.

Smart power measurement 

devices—current 

transformers (CT) and 

potential transformers (PT)

Improved power quantity measurement allows greater visibility onto the 

distribution system by operators, and it can improve reliability, power 

quality, and levels of DER integration.

ADMS Advanced distribution management systems, in whole, promise 

significant improvements in system operations, losses, power quality, 

and improved reliability.

DERMS Distributed energy resources management systems promise greater 

control and increased levels of DER integration, and they also afford 

greater control of power quality.

AMI Advanced metering infrastructure improves system operations by 

reducing meter reads, increasing billing accuracy, enabling theft 

detection, enabling load control, and providing information that helps 

forecast future usage. AMI improves customer service by improving 

billing accuracy, providing faster service restoration, and enabling 

flexible billing and time-based rate options that can save the customer 

money and support load control for the utility (EPRI 2007).

Advanced controls for load 

tap changers (LTC)

LTCs control the voltage levels on a substation, and they are very 

common for many utilities. Advanced controls allow greater voltage 

control and better power quality, but also can improve DER integration.

a See Kothandaraman, Iyer, and Subramanian (2002) for more information. 

b See examples of these at “Products: Reverse Lookup,” Schweitzer Engineering Laboratories,

https://selinc.com/products/?configurable.yes.

These smart grid technologies are examples of systems being deployed by utilities, and the 

criteria that help determine which systems are deployed represent a starting place for decisionmaking. But, often the most impactful approach is for one utility to meet with a similar utility 

and share experiences. Most utility personnel are very interested in what their counterparts 

are doing at similar utilities, and they are often willing to share experiences to gain new 

perspectives. 
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Customer Premises

Users of electricity routinely impact power system reliability and sustainability by dictating rates 

of load growth, adopting energy efficiency measures, choosing the retail tariff they would like to 

be billed under, and participating in other DR programs.

11

Energy efficiency and other mechanisms for tempering load growth contribute to system 

reliability and sustainability by reducing the need to build new generators. With less load growth, 

higher planning reserve margins can be achieved with less investment on the utility side and 

likely with less investment overall, assuming almost all energy efficiency investments have 

positive returns. Emissions should also generally be reduced, assuming some of the saved 

electricity would have been generated using fossil fuels. As power systems become more and 

more decarbonized, the sustainability benefits of energy efficiency may become less clear, in the 

sense that its ultimate impact on the overall system will be more entangled with flexibility and 

other time-dependent considerations. However, in the main, less electricity consumed means 

fewer natural resources exploited.

Demand response—both traditional implementations that rely on interruptible load or time-ofuse tariffs and more recent or emerging versions that rely on some combination of customer 

aggregation, direct load control, real-time pricing, and sophisticated energy management 

systems—can improve system reliability by serving as a peak net load resource. This service 

can take several forms in both its procurement and deployment, but it essentially amounts 

to counting DR as firm capacity (or a reduced peak load forecast) in planning processes or 

capacity auctions and then actually deploying that DR in times of high wholesale prices 

or emergency/contingency. 

For example, in the 150-GW PJM system, there are 12,866 unique MW of DR capacity (PJM. 

2016a; McAnany 2016). Some of that capacity participates primarily in energy and ancillary 

service markets, but most of it (11,635 MW) participates in what PJM calls their “load 

management” programs, which are called on during reliability events. In some years, that 

capability is not called on at all. In many years, it is called on a few times (five times or 

fewer per resource). And, in exceptional circumstances, it is relied on heavily to provide 

basic reliability, but still, fewer than ten times per resource per year. 

For example, during an extended period of cold weather in January 2014—when a polar vortex

occurred—there were six load management events, with calls for from 140 MW to 3,042 MW, 

which helped meet a higher-than-usual load while the generation fleet was crippled by coldweather operational issues (PJM 2016b).

12 Also, while PJM is exceptional in the degree to 

which it has integrated demand-side resources into its economic energy and ancillary service 

operations, capacity payments are still the biggest source of DR revenue, comprising 98% of DR

market revenue in 2015, and about 90% of revenue even in 2014 when DR saw significant levels 

of dispatch (McAnany 2016). Overall, in the regions of the United States served by ISOs and 

 

11 Also, at the premises level, unsafe or illegal practices may negatively impact system quality, reliability, 

continuity, and safety.

12 More than 40 GW of PJM’s 180 GW were unavailable (PJM 2015).
58

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RTOs, the Federal Energy Regulatory Commission (FERC 2015) reports that about 6% of peak 

demand is available to serve as a capacity resource.

Some forms of DR do not simply reduce load but rather shift load from one period to another. 

At low renewable penetrations, this type of DR tends to increase emissions by shifting 

generation from gas generators to coal. However, as more zero-marginal cost renewable 

resources are integrated, DR-based arbitrage shifts loads to times of surplus renewable 

generation, thereby reducing curtailment and emissions. Hummon et al. (2013) demonstrate DR

increasing the dispatch of coal generators, decreasing dispatch of natural gas generators, and 

leaving wind and solar dispatch unchanged for one particular test case. Denholm et al. (2013)

explicitly show an increasing emission to decreasing emissions crossover point from the addition 

of a storage resource to a test system simulated at various wind and solar penetrations.

Thus, the operation of DR resources can improve reliability and continuity in times of peak net 

load or contingencies. The sustainability impacts of energy shifting DR depends on system 

composition, and of course, grid operation rules. Under a basic least-cost framework without a 

price on carbon, DR will typically increase emissions from low renewable systems and will 

decrease them when more wind and solar generation is present. A nuanced sense of timing with 

regard to the simultaneous deployment of DR and renewables, or rules formulated to dampen the 

negative emissions impacts of quicker DR deployment timelines, may be in order, depending on 

the relative importance of system efficiency and sustainability.

6.2 Driver 2: Quality of Supply

Power quality is often measured by a utility as maintaining voltage levels within normal 

operating boundaries (often a nominal level of +/- 5%), maintaining frequency of the system, 

minimizing outages, and controlling undesirable harmonic currents that can cause serious 

damage to customer equipment and the utility system. Organizations such as IEEE13 and the 

IEC14 have working groups that have developed and maintain standards that support power 

quality metrics and operations.

Quality of supply, or simply power quality, is a critical metric for any utility and its customers, 

because poor power quality can result in higher energy consumption, overheating of equipment, 

an increased number of outages, and often damage to both utility and customer equipment. 

Damage to any equipment can then cause disruptions in goods, services, quality of life, and 

safety if power disruptions are extensive. Therefore, those making any Smart Grid deployments 

should consider the impact to the utility and utility customer.

Ultimately, all smart grid measures will have direct or indirect impacts on power quality. All 

utility organizations in Mexico need to agree to and adopt suitable power quality standards and 

the operators must strive to maintain. 

 

13 See, for example, “IEEE Power Quality Standards,” Power Standards Lab, 

http://www.powerstandards.com/IEEE.php. 14 See, for example, “IEC Power Quality Standards,” Power Standards Lab, 

http://www.powerstandards.com/IEC.php.
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A variety of smart grid measures can improve power quality. In some cases, they are completely 

new technologies; in other cases, the measures are simply intelligent upgrades to existing 

technologies. Table 13 highlights a subset of the previously discussed transmission and 

distribution smart grid measures that can be employed to improve power quality.

Table 13. Smart Grid Distribution Measures Affecting Power Quality

Smart Grid Measure Expected Area of Improvement

Intelligent capacitor controls Advanced controls help keep voltage levels and VAR flow levels at 

appropriate settings, improving power quality, VVO, and DER 

integration.

Voltage regulators controls with 

bidirectional capability and cogen modes

Advanced controls for voltage regulators allow improved voltage 

control, integration of DER.

Smart power measurement 

devices: current transformers 

and potential transformers

Improved power quantity measurement allows greater visibility onto 

the distribution system by operators. And, it can improve reliability

and power quality, and can increase levels of DER integration

ADMS ADMS systems, in whole, promise significant improvements in 

system operations, losses, power quality, and improved reliability.

DERMS DERMS systems promise greater control and increased levels of 

DER integration, and they also afford greater control of power 

quality.

AMI AMI supports system monitoring that can quickly detect voltage 

issues and power quality problems.

Advanced controls for LTCs LTCs control the voltage levels on a substation, and they are very 

common for many utilities. Advanced controls allow greater voltage 

control and better power quality, but they can also improve DER 

integration.

6.3 Driver 3: Energy Efficiency

As reflected under Driver 3 in Table 11, energy efficiency can be enhanced by Smart Grid at 

either the retail or wholesale level, that is, at the customer level or upstream from the customer. 

The wholesale electric system will save energy by becoming more efficient at the generator, 

transmission, or distribution level. Those efficiencies are characterized in other parts of this 

report. For that reason, this section addresses energy efficiency at the customer level.

The meter is essential to customers’ improved energy efficiency. The growth of customer 

efficiency programs, time-sensitive customer rate structures, and DR programs will depend on 

having frequent and accurate data from an advanced meter.

6.3.1 The Meter

If a utility uses the metering platform to support communication with grid technology, a utility 

must consider whether the metering system can handle grid communication as well as meter 

reading.
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In addition, a metering system should support industry standard protocols, such as the InterControl Center Communications Protocol15 or the Distributed Network Protocol.

16 If a 

metering system supports existing standards, a utility can more easily integrate the metering 

communication platform with existing systems such as distribution automation or SCADA 

systems. Supporting industry standards allows a utility to integrate hardware from various 

vendors and/or integrate multiple systems. A metering vendor that requires use of its own grid 

hardware—rather supporting industry standards—represents a warning sign.

Utility metering systems are communication platforms. A technology evaluation for smart meters 

should start with utility use cases and then map those use cases to system requirements. The 

system architecture for a smart meter system is critical because metering system design, its level 

of capability, and how the metering system is implemented will all determine how useful it is to 

the utility.

Typical use cases for a utility include the following:

• Metering: Typical AMI systems transmit meter reads from every five minutes to every 

hour.

• Distribution Automation: Several metering systems can support grid devices on their 

communication platforms, so utilities can deploy technologies such as line sensors and 

capacitor bank controllers on their metering communication platform.

• Home Energy Management Systems: Metering systems often have home energy 

management capability by which the utility can manage devices in residences through the 

metering communication platform.

• DER Integration: As DERs become more prevalent, the need to communicate with 

components such as PV inverters, storage inverters, and electric vehicles becomes 

necessary. A utility may use the metering communication platform to communicate with 

DERs and renewable energy generating facilities (e.g., California Rule 2117), in which 

case that capability becomes a criterion for meter selection. A utility may not need to 

communicate with renewable generation components directly; however, the ability to 

measure and sense bidirectional power is needed in many new meter deployments.

• System Maintenance: Many metering systems have upgradeable firmware and software, 

so metering systems should be able to provide over-the-air upgrades to meters, access 

points, grid-level components, and connected devices behind the meter.

Establishing well-defined requirements is critical when selecting a smart meter system. 

The necessary system capabilities are determined by examining use cases and determining 

the system functions needed to implement those use cases.

 

15 The Inter-Control Center Communications Protocol or ICCP is an international standard for data exchange over 

wide-area networks between utility control centers, utilities, power pools, regional control centers, and non-utility 

generators. 16 The Distributed Network Protocol or DNP3 is a set of communications protocols used between components in 

process automation systems. Its main use is in utilities such as electric and water companies. 17 See “Rule 21 Interconnection,” California Public Utilities Commission, http://www.cpuc.ca.gov/Rule21/. 
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If certain functionality is not needed in the short term but may be needed later, it is important

that the systems being considered can either implement those features now or implement them

in the future via over-the-air upgrades.

Finally, any functionality advertised by a metering or communication system vendor should be 

available for demonstration with actual hardware, and it should be ready to implement in the 

field in the short term.

6.3.2 Metering System Technology and Standards

Communications

AMI metering systems in the United States typically use the unlicensed spectrum at 900 

megahertz (MHz). Some older systems use 450 MHz or 2.4 GHz radios, but these are not as 

commonly used. Raw data throughput in these metering systems ranges from 100 kilobits per 

second (Kbps) to 1 gigabit per second (GBps). The bandwidth capability will reflect the age 

of the system or the sophistication of the system design. The higher the throughput, the more 

capable the system is. Better throughput allows the implementation of multiple features, with 

multiple technologies, without causing degradation in system performance or reliability. 

Security

The meter is considered the firewall into the utility, and metering systems implement security by 

using industry standards, such as IPv4 (Internet Protocol Version 4) and IPv6 (Internet Protocol 

Version 6), as well as AES, the Advanced Encryption Standard. Metering systems that use their 

own technology to communicate with the metering end point instead of an industry standard such 

as IPv4 or v6 may introduce vulnerabilities that are unknown until they are tested. 

Metering systems are more secure when they use industry-accepted methods of encryption, 

such as AES. Any utility should hire an independent third-party security firm to conduct 

objective penetration testing to verify that metering system’s security implementation is 

successful and secure.

System Maintenance

Over-the-air upgrades are critical to any metering system, so a request for proposal should 

include a demonstration of system upgrades, metering firmware upgrades, meter program 

upgrades, and home energy management system or inverter upgrades if required. When any 

metering system is demonstrated, a utility should require the vendor to refer larger clients that 

have conducted such upgrades. As part of the request for proposal, a utility considering a 

metering implementation should contact these large metering clients and walk through the 

upgrade process with them. It is very valuable to learn from the experience of those who have 

implemented—and have upgraded—large-scale metering systems.

Web Access and Data Warehouse

Finally, meters that execute readouts every five minutes or every hour produce a great deal 

of data. Different communities have different requirements for data retention, but regardless, 

metering data becomes very large very quickly. So, a utility considering a metering deployment 

should also plan on implementing a data warehouse.
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Another factor of smart meter implementation is customer access via a website or mobile 

application. This type of implementation should be supported through a data warehouse and not 

through a transactional billing system. These considerations should be included up front in the 

metering system design and should be planned on throughout the implementation.

6.3.3 Demand Response

DR is emerging as a critical component for system operators, as it allows greater flexibility 

regarding when and where loads consume power on the grid while allowing consumers the 

option to use power when costs are lower. Though DR programs are often designed and 

deployed by third parties rather than utilities, they often utilize communications, control systems,

and technologies that are outside the utility system. Most DR is aimed at load relief at the system

level rather than the distribution level, but that may change as utility operators find new methods 

of using the more granular approach that may yield load relief at the feeder level. Studies from 

Sweden, in which DR/DSM solutions are based on temperature control systems from Swedish 

company Ngenic, concluded economic savings are mainly to be found in energy conservation 

and in cost savings from shifting demand to lower-cost periods in time (Persson et al. 2012).

The system operator can leverage the installation of smart meters and the detailed information 

these devices provide through DR programs such as demand bidding and market participation 

for capacity and ancillary services. Access to a web-based provision of energy prices via the 

internet—such as via OASIS, Organization for the Advancement of Structured Information 

Standards—is necessary to effectively and efficiently allow consumer participation.

Demand bidding allows consumers to bid on specific load reductions in the electricity wholesale 

market. A bid is accepted if it is lower than the market price. When a bid is accepted, the 

customer must curtail his or her load by the amount specified in the bid or face penalties.

Capacity market programs are offered to customers who can commit to providing prescheduled 

load reductions when system contingencies arise. Participants usually receive a day-ahead notice 

of events and are penalized if they do not respond to calls for load reduction. Ancillary services 

market programs allow customers to bid on load curtailment in the spot market as operating 

reserve.

18

However, because the system operator does not have physical control of the customer’s load 

response, information on the actual performance of DR resources during system emergencies 

or in response to high prices is crucial to assessing the long-term viability of DR resources. For 

these resources to be treated comparably to traditional generation assets, system operators must 

be confident that nontraditional resources perform in consistently and predictably. Measurement 

and verification, enabled by AMI, offers all market participants, and especially system operators, 

the opportunity to tangibly recognize the value of DR. 

 

18 U.S. Department of Energy, “Benefits of Demand Response in Electricity Markets and Recommendations for 

Achieving Them,” Report to the United States Congress, February 2006. https://eta.lbl.gov/publications/benefitsdemand-response-electricity. 
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DR may reduce unwanted loading of electrical networks. In fact, it provides system flexibility 

that may be used to optimize use of network assets and to balance loading of generation units. 

In a particular moment, there may be multiple purposes for which DR could be used. 

Smart grid systems can provide utility operators and consumers with situational awareness

during times of grid stress or limited energy availability (e.g., during a large power plant outage). 

Thus, any devices that can monitor system conditions, such as AMI or ADMS, can help inform 

utility operators of potential or real problems with feeders or substations, or even system-wide

problems. That information can be conveyed to DR system operators so that loads can be shed 

appropriately. 

Communications systems that support Smart Grid deployment, such as PLC technology, as well 

as the communication capabilities of some AMI systems, may be leveraged to help control 

devices for DR on a distribution feeder. 

There are several international networks in the DR and DSM areas. The International Energy 

Agency (IEA) has a “technical collaboration programme” named IEA DSM in which several 

organizations and countries are represented. The International Smart Grid Action Network 

(ISGAN)19 is another technical collaboration programme with international participation. 

Furthermore, in industrial collaborations such as the Global Smart Grid Federation, national 

smart grid alliances are represented. 

For the Mexican market, it is likely that U.S. DR and DSM companies will be most active. 

A collection of service providers in the Nordic countries can be found in THEMA Consulting 

Group (2014, 47). A list of DR services and some DR service providers are found in Table 14.

Table 14. Demand Response Costs in Selected Nordic Countries.

Country Service Provider Product Installment 

Cost (euros)

Fixed Monthly 

Cost (euros)

Finland Helsingin Energia Termo home 

automation

600 6.00

Finland Fortum Fortum Fiksu 124 15.00

4.95

Norway Lyse Energi Smart Heating 

Control

850 4.75

Norway Lyse Energi Smart Light 

Control

1,000 3.50

Sweden Ngenic Ngenic Tune 550 

333 

0.00

5.50

(Nordic Council 2014)

 

19 For more information about ISGAN, see http://www.iea-isgan.org/. 
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6.4 Driver 4: Electricity Losses

As noted previously, Mexico’s electricity losses from both technical and nontechnical causes are 

significantly larger than those of the industry on average. The losses affect both the cost of 

electricity to the system20 and the equity of prices charged to customers who pay their electric 

bills.21 Smart grid measures can contribute to lowering the level of electrical losses in various 

ways, including those described in this section.

6.4.1 Nontechnical Losses

AMI systems have alarms that indicate when a meter has been disconnected or tampered with, 

alerting the utility to a potential power theft attempt.

With electromechanical meters, power can be stolen by unplugging the meter and turning it 

upside down. However, newer meters will operate efficiently and not malfunction if turned 

upside down, so this method of theft is circumvented with the advent of AMI. 

Metering systems now contain logic to evaluate meter readings to analyze whether the usage 

is typical for that user or is somehow unusual. If a metering system does not have this logic, 

a meter data management system usually will. The objective of this type of system is to alert 

the utility when a meter reading is unusual. This will occur when power usage drops dramatically 

or increases in an out-of-the-ordinary manner. Such data logic, analytics, and usage evaluation 

can help identify theft.

Since 2011, BC Hydro22 has installed 1.93 million smart meters, replacing more than 99% of its 

customers’ meters. One of the drivers for the project was to detect and reduce energy theft 

(nontechnical losses). They projected a 75% reduction in electricity theft by the end of fiscal 

2016, and they are now approaching theft reductions of more than 80%. Nontechnical energy 

losses have been significantly reduced from 850 GW per year to nearly 175 GW per year (BC 

Power Hydro Smart 2016).

According to Forbes (Kelly-Detwiler 2016), the new network of smart meters allowed BC Hydro 

to turn these losses into a mathematical problem. Elizabeth Fletcher, BC Hydro’s Deputy 

Director of Smart Metering and Infrastructure Programs, said that with the new data, BC Hydro 

can “analyze energy going into a part of grid, and compare it with what is being consumed, plus 

technical losses, and determine where in fact there is energy that is missing... We can isolate 

sections of grid.” BC Hydro created an application to analyze the massive amounts of data, 

including some two million measurements per day, with an integrated geospatial interface to 

pinpoint energy theft.

 

20 Technical losses consist of energy lost to the system, which raise the cost of electricity for all. 21 Nontechnical losses consist primarily of electricity theft and non-payment of bills. 22 The BC Hydro and Power Authority is a Canadian electric utility in British Columbia generally known simply 

as BC Hydro.
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6.4.2 Technical Losses

Transmission

With increased congestion on transmission line corridors and the increased costs and regulations 

associated with laying new transmission lines, generator dispatch and power transfer are not 

optimal. This leads to a high cost of generation and transmission of electricity and to high losses. 

The maximum carrying capacity of a transmission line is defined as the thermal limit. The 

transmission lines are typically limited by voltage and small signal stability considerations. 

On top of these constraints, system planners and operators impose operating margins that are 

often very conservative, thereby further limiting the line capacity. However, the use of DLR

technologies can increase the efficient use of an existing transmission network and mitigate 

transmission congestion (DOE 2014b). These technologies enable operation of the lines closer to 

their “true stability” limits rather than imposing conservative margins. These technologies also 

include dynamic security assessment whereby the security of the grid operation is evaluated on 

a real-time basis. This reduces the need for conservative margins on power system operation,

including reserves and line capacities. The effect is to reduce the overall cost of operation and 

extract maximum value from the assets without adversely impacting grid security. Additional 

information on this topic is provided in Section 6.5.2.

Distribution

The distribution system should be operated with safety, reliability, power quality, and costeffectiveness in mind. Grid operators focus on restoring power after an unplanned outage, but 

during normal operations, they focus on maintaining power quality and voltage levels. Several of 

the smart grid measures previously noted will support efficient grid operations, and some may 

help reduce losses on the system. 

AMI systems have been very useful for utilities that employ comparative methods to measure 

technical losses on a feeder or substation. If the total energy consumed on a circuit is compared 

to the total energy supplied at the substation feeder head, the loss can be accurately calculated 

and compared with similar feeders. If the difference is significant, there may be reason to suspect 

nontechnical theft of power on the system rather than technical losses only associated with line 

losses or heating of equipment. Once theft is identified, AMI can help pinpoint where the theft 

is occurring.

Voltage level control is a primary component of helping reduce system losses; thus, VVO is a 

potentially powerful tool that could be used to reduce losses. VVO methods, enabled by smart 

grid technologies, leverage voltage regulators, LTCs, capacitor banks, and measurement devices 

to reduce overall losses and reduce customer consumption levels. One utility estimated that with 

some field verification, a 1% reduction in nominal voltage resulted in a 1% reduction of system 

losses (NEMA n.d.). Smart grid devices that may help VVO methods include:

• Improved LTC controls with remote measurement feedback systems

• Voltage regulator controls with SCADA or other communications

• Capacitor controls that maintain VAR supply and balance voltage levels simultaneously
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• AMI systems that allow system operators to monitor service voltage levels and help 

control voltage regulation systems

• ADMS, which can utility a host of equipment and monitoring devices and offer holistic 

feeder control for optimized VVO

• DERMS systems that provide control and feedback to DG systems and assist in 

controlling local voltage levels.

6.5 Driver 5: Efficient Operation of National Electric Grid

6.5.1 Bulk Power Level

Bulk power operations are most economically efficient when load and variable generation 

forecasts are accurate, demand elasticity is captured with demand (demand-side) or DR (supplyside) bids, and generators bid their true marginal costs and flexibility. Smart grid elements such 

as additional and higher-fidelity sensors, fast communications, better algorithms, and improved 

software interfaces play into this by improving forecasts and enabling demand-side aggregation.

Variable generation forecast improvements, especially on the order of hours to days out, involve 

pairing weather forecasts with particular wind and solar plant characteristics represented by some 

combination of physical plant modeling, statistical modeling (e.g., regression, exponential 

smoothing, and time series modeling) or machine learning techniques (e.g., neural networks and 

support vector machines). The appropriate forecasting methods vary somewhat by technology. 

For example, while simple persistence forecasts are remarkably accurate for wind on short 

timescales (one minute to a few hours out), to be applicable to solar plants, the persistence 

heuristic must be applied to the fraction of clear sky output rather than the absolute output to 

account for the obvious diurnal and seasonal patterns (Soman 2010; Ibanez et al. 2012).

Furthermore, for solar plants, cloud motion forecasts derived from satellite imagery provide 

significant forecast improvements in the two- to five-hour-ahead timeframe. This is in 

comparison not only to fraction of clear sky output persistence forecasts but also to using 

numerical weather prediction data, which only becomes the most accurate forecasting method 

for solar for forecasts that are at least six hours out (Pelland et al. 2013). 

This is like the period in which weather forecasts become important components of wind 

forecasts. Wind differs from solar, however, in that there is no equivalent measurable feature like 

cloud cover that can significantly improve forecasts one to six hours out. Typically, machine 

learning or statistical methods are used to improve wind persistence forecasts in those 

timeframes (Soman et al. 2010).

A whole different set of problems and questions arise with distributed solar. In particular, how 

should distributed solar be folded into load forecasts? Will explicit visibility enabled by smart 

grid communications eventually be needed? Will curtailment be necessary? Without adding 

additional communications, either existing load forecasting methods can, over time, adapt to 

the PV being added to the system. Or, distributed solar profiles can be proactively forecast,

assuming the institutions in charge of PV interconnections maintains a locational database 

of installed systems. 
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California23 and Hawaii24 have both started down the path of the latter approach, recently adding 

behind-the-meter solar forecasting to their energy management systems. In addition to making 

use of data on PV installations, the forecasting methods are also calibrated with (partial) 

measurements of both actual PV production and net load. Comparing net load at particular 

substations on clear and cloudy days can be especially helpful. However, there do not appear to 

be any studies describing the extra value being realized by explicitly modeling distributed PV 

versus having load forecasting methods simply adapt to net load over time (Hoff 2014; Nakafuji, 

Hong, and Enayati 2014).

At penetrations of distributed PV that are even higher than those California and Hawaii are 

experiencing, additional communications with at least some systems may be needed, but 

when and where such capabilities might be needed is purely speculative for now. One-way 

communications (from the distributed PV systems back to the system operator) would provide 

explicit visibility into real-time production and real-time on-off status. Upgrading to two-way 

communication would further enable the system operator to send signals instructing distributed 

systems to modulate or curtail operations. Smart inverter control settings are likely sufficient to 

handle system stability needs in the medium term, but centrally issued curtailment orders may be 

desirable in the longer term.

Some aspects of demand-side elasticity, such as investments in energy efficiency, the effects of 

different tariff structures (e.g., time-of-use or demand charges), and the capacity value of a 

collection of interruptible load tariffs can be reflected in demand bids without smart-grid enabled 

aggregation methods. However, other methods aimed at tapping demand elasticity and flexibility 

require more large-scale, automatically coordinated communication. On the simple end, critical 

peak pricing can be implemented by the utility simply sending out mass e-mail and phone (voice 

or text) notifications. That has been shown to be sufficient to obtain significant responses in 

several trials (NV Energy 2015).

However, deeper response is generally possible with electronic signals flowing directly to 

energy displays at a minimum, and also to control-enabled devices such as programmable 

communicating thermostats or smart appliances (Faruqui, Hledik, and Palmer 2012).

Furthermore, such operator-to-controller signals are necessary for more sophisticated DR

programs based on real-time pricing or direct load control; however, the methods for sending 

those signals can vary. 

Real-time prices can be broadcast by the utility either directly to smart-meters or by using 

internet protocols. Direct load controllers can set the state of equipment directly based on a 

centrally issued signal. Alternatively, DR aggregators may send their own signals via internet 

protocol, and those signals may feed into the objective function of a site-wide energy 

management system, or they may simply adjust one particular appliance (e.g., a programmable 

communicating thermostat). In these cases, the demand-side dispatch signals reflect what the 

 

23 “Integration of Behind-the-Meter PV Fleet Forecasts into Utility Grid System Operations ,” DOE, 

http://energy.gov/eere/sunshot/integration-behind-meter-pv-fleet-forecasts-utility-grid-system-operations. 24 “Distributed Resource Energy Analysis and Management System (DREAMS) Development for Real-time Grid 

Operations,” DOE, http://energy.gov/eere/sunshot/distributed-resource-energy-analysis-and-management-systemdreams-development-real-time. 
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demand-side aggregator (e.g., utility or third party) needs to do to fulfill their operational 

obligations, as determined by the wholesale market or other coordinating mechanism.

Information Systems

The sophistication of electronic information systems is one of the most important factors for the 

functioning of effective, efficient, and competitive markets. Information systems can mitigate

market barriers by enabling real-time management of energy flows and transactions.

In the United States, OASIS (Open Access Same-time Information Systems) provides 

information on capacities, prices, transactions, and other variables. This information is essential 

to facilitate a properly functioning marketplace.

Information systems for electricity can support alternatives to traditional generation, including 

independent third-party marketers of DG and storage, as well as consumer participation 

(e.g., DR). Using electronic information, these entities can package capacity and energy services 

and build flexible arrangements between the distributed suppliers and the system operator to 

compete with traditional generation.

Markets cannot function properly unless information is accessible. Energy policy may have a 

role to play in this regard. Regulators, as market facilitators, can target information asymmetries.

Nodal Representation

Parson et al. (2015) suggest the dispersed nature of the Mexican system may justify nodal 

representation of the system for transmission and market analysis. In the United States, 

locational marginal prices are used to evaluate the marginal cost of supplying load at individual 

locations. Identifying and valuing system constraints may lead to improvements grid efficiency 

and increased market participation by nontraditional participants. Additionally, by including 

regionalism—versus single-node transmission-modeling—in resource planning, markets may

better incorporate locational differences in fuel price and load growth, as well as resource 

capability (e.g., geothermal, solar, and wind).

6.5.2 Transmission Measures

As we have seen, the efficiency of Mexico’s national electric grid can be positively influenced 

by applying information technologies to the power supply function. Similarly, improvements 

in the operation of the transmission system can offer large gains in overall system efficiency, 

providing operators with more options for plant dispatch, load balancing, and loss reduction. 

Dynamic Line Rating (DLR) Technologies

Transmission lines are rated for their load-carrying capacity, which is limited based on the 

characteristics of the conductor and associated equipment. It can also vary depending ambient 

temperatures, solar radiation, and wind speed and direction (Aivaliotis 2010). Where traditional 

static line ratings provide conservative operational limits of overhead transmission-circuits,

dynamic line rating (DLR) technologies provide real-time capacity information and 

measurements of the condition of the conductor, which improves the efficient and safe 

operation of transmission.
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New York Power Authority (NYPA) and Oncor Electric Delivery Company LLC of Texas (DOE 

2014c) each accomplished work through the DOE Smart Grid Investment Grant program to 

implement technologies collectively referred to as DLR. Comparing DLR to static line ratings “is 

a bit like comparing a high-tech video to a black-and-white photograph,” wrote NYPA in a case 

study (DOE 2015). Between NYPA and Oncor, four different technical approaches to DLR were 

demonstrated and evaluated. Both companies confirmed the presence of real-time capacity above 

the static rating in most instances—with up to 25% additional usable capacity at NYPA—which 

was made available for system operations.

Substation Automation

Substation automation is a broad category of devices and processes that contribute to moreefficient and reliable operation of the bulk power system. Power electronics and control systems 

coupled with sophisticated algorithms have made significant strides in the area of substation 

operation. Removing the human element and its capacity for error has resulted in operational 

improvements and contributed positively to continuity of supply metrics. Furthermore, a 

decrease in the hours spent working in the field in high-voltage situations has increased safety 

metrics. However, equipment is generally upgraded and vintage substation elements are 

generally replaced in stages, and it is difficult to directly attribute performance changes.

Steps for implementing these automation efficiencies include data collection, supervisory 

analysis, and control. The first step requires instrumentation for each stage of power flow in 

a substation. The data collected are transmitted to a centralized control center, which makes 

decisions using algorithms and programming logic. Next, a control command is issued to 

substation equipment to optimize the power flow. This may be coordinated with any substations

on the system, which are also automated for ensuring all elements are performing efficiently 

and reliably. 

Centralized Substation Protection

Modern protection technologies at the substation level play an important role in maintaining the 

reliability of power system operations. Each power system component in a substation requires 

protection against abnormal currents, abnormal voltages, internal faults, external faults, and 

other unexpected circumstances. In traditional systems, each of these functions is performed 

by a separate relay. Programmable digital relays are increasingly replacing traditional

electromechanical versions; a digital relay can replace several electromechanical relays. Digital 

relays also provide for the added ease of updating the relay settings and accurately defining the 

operational characteristics. 

The next level of protection digitalization is “centralized protection” architecture, where the 

idea is to provide a data bus for all field measurements in the substation. Thus, all these 

measurements are available to all digital relays in the substation. In traditional systems, a current 

or voltage reading outside a specified range may cause a relay to trip. With centralized systems, 

an aberrant data read could be checked against other measurements for veracity, thereby 

improving the reliability of relay operations. 

When measurements are unavailable, derived measurements from existing measurements can be 

used, providing redundancy to these systems. Such a scheme reduces the impact of undetected 

failures that have enabled blackouts to propagate in the past. Other benefits include improved 
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relay asset management, enhanced power equipment management, including condition-based 

maintenance, and improved cybersecurity from reduced access points (Das 2015).

Intelligent Switch Technologies

Intelligent switches are smart grid technologies for the distribution system. They enable 

rerouting of power to minimize the number and duration of customers impacted by outage. Such 

automated outage detection and management technologies overcome the problems of time delays 

and crew management associated with manual outage management procedures. Pacific Gas & 

Electric (PG&E), a large utility serving Northern California, installed these switches in 20% of 

their circuits through its Targeted Circuit Program. The circuits selected were those most 

vulnerable to outages. These measures enabled PG&E to record the lowest outage indices in 

company’s history in 2013.

25 The upgrades have put the utility in a better position to face future 

challenges, such as increased penetration of renewables and integration of electric vehicles. 

6.5.3 Distribution Measures

Significant work has been accomplished in the United States through the DOE Smart Grid 

Investment Grant program. Such efforts advance the auxiliary systems and communications 

networks that are essential to the transmission and grid considerations discussed in this section, 

where two examples illustrate this point.

First, Detroit-based DTE Energy (DTE) significantly increased the scope of its smart grid 

technology deployment, installing 725,000 smart meters and distribution automation (DA) 

devices at 11 substations and on 55 circuits (ABB Wireless 2017). Deploying the new devices 

and systems was not without challenges. DTE underestimated the volume of data generated by 

the new technologies and its impact on IT needs. DTE partially addressed this challenge by 

adding IT system capacity. In addition, DTE worked with its vendors to improve the speed and 

performance of their products by deploying a new bus architecture—the systems that transfer 

data between different IT components—using the Common Information Model. “This was a 

cost-efficient solution for us. At some point in time, increasing system capacity by simply adding 

more hardware becomes cost-prohibitive,” explained Tony Melton, DTE’s IT Portfolio Manager.

In the second example, the Georgia System Operations Corporation modernized bulk power 

management and control center operations for 38 electric membership corporations in Georgia. 

The goals for the project were to improve economics of power transactions, deploy infrastructure 

to more effectively communicate grid reliability and security information, and defend against 

cybersecurity threats. The project added a dual-path fiber optic network for enhanced 

communications, developed new models and data management tools for outage management 

and cybersecurity, and implemented a new integrated transmission network model for enhanced 

state estimation and dispatcher training.

 

25 “PG&E’s Smart Grid Delivers Customer Benefits and Improved Reliability,” PG&E News Releases, October 1, 

2014, 

https://www.pge.com/en/about/newsroom/newsdetails/index.page?title=20141001_pges_smart_grid_delivers_custo

mer_benefits_and_improved_reliability
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6.5.4 Customer Measures including DR

Here, the IEC Vocabulary definition of DR is applied: “action resulting from management of the 

electricity demand in response to supply conditions.” It should be noted that IEC defines the 

related term DSM as, “process that is intended to influence the quantity or patterns of use of 

electric energy consumed by end-use customers.”(IEC 2018). Although the definitions to a large 

extent conceptually overlap, DR may be seen as focusing on load shifting in time, whereas DSM 

is that plus demand reduction/energy conservation.

Navigant Research (2017) has ranked top DR service providers for residential customers

(Figure 16). It should also be noted that many new companies, including those from the digital 

communications sector are continuously entering the area.

Figure 16. Navigant ranking of residential demand response providers

(Navigant Research 2017)
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6.6 Driver 6: Clean Energy

6.6.1 Renewable Energy Integration

Renewable energy integration efforts are necessary when renewables reach high penetration 

levels. Renewable power has variable characteristics and, in some cases, lacks inertia, so a utility 

distribution management system must manage renewables differently. 

Smart Grid can facilitate the integration of renewables in several ways. First, renewable energy 

integration requires integration of functionality like that specified in Phase 2 of California’s 

Rule 21. This ruling specifies standards for inverter communications, which can enable 

management functions such as curtailment, emergency shut off, and frequency ride through. 

Such communications can be direct, with hardware such as inverters. And, some 

communications can occur through system management using aggregators, such as PV 

management companies. If a utility wishes to communicate directly with residential or 

commercial renewable components, this capability should be evaluated in the metering request 

for proposal. The technology to reach the inverters can vary from cellular, to Wi-Fi, to 900 MHz 

(as a meter), or 2.4 GHz, like a home energy management system. If a utility manages 

renewables through companies functioning as aggregators, the utility will specify requirements 

at the business-to-business level. Aggregators typically use their own cellular or Wi-Fi

communication infrastructure, so a utility can use that infrastructure and specify distribution 

requirements, as well as the required latency and reliability level. 

Second, DERMS are another smart grid measure that can help in the monitoring and control of 

renewable energy systems and can help maximize the amounts of the renewable energy tied to 

the grid. DERMS are systems that are mostly in the nascent phase. They are akin to the ADMS 

systems being considered by many utilities. But, there are several smart grid systems that can 

help improve the levels of integration of clean renewable DG systems. Starting at the substation, 

smart controls for LTCs and for substation breakers help maintain optimum voltage and 

protection on a circuit, which are two of the most important metrics when considering DER. 

Improved microprocessor-based controls with communications and intelligence can greatly 

improve the conditions on a circuit and thus improve DER hosting capacity. 

Third, voltage regulators are used on many distribution circuits, especially where there are longer 

and more rural circuits. When replacing older controls with smart grid technology, intelligent 

voltage regulator controls will enable bidirectional flow of energy, allow voltage control in two 

directions, and can increase the operational flexibility of the system and support DERs. 

Fourth, smart grid capacitor controls are critical in helping support voltage and reactive power 

flow (VAR). With the advent of smart inverters, the use of reactive power absorption methods to 

increase hosting capacity is becoming very common for utilities with larger amounts of DER tied 

to distribution systems. Ensuring the capacitors are turned on when needed—and turned off 

when not needed—is an important consideration for distribution system operators and engineers. 

NREL has done significant work on the integration of high penetration of renewables, including 

wind. Here are some important excerpts from Ela (2013), which discusses the challenges and 

approaches that can work to permit significant renewable energy integration”
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...through the use of inertial response, primary frequency response, and automatic 

generation control (also called secondary frequency response), wind power can 

aid in balancing the generation and load on the system. These active power (i.e., 

real power) control services have the potential to assist the electric power system 

in terms of disturbances and during normal conditions while also potentially 

providing economic value to consumers and variable renewable generation 

owners.

Wind turbines can provide an inertial response similar to that of conventional 

generators by using energy stored in the rotating blades or capturing more energy 

from converters...The controls on the power electronics-based converters sense 

the frequency drop and then determine the appropriate increase in power output. 

Although wind plants are not widely required to provide inertial response, some 

plants in Quebec do so. Unlike wind turbines, solar energy systems do not have 

rotating masses, so they require auxiliary energy to provide a similar response.

When equipped with governor-like controls, wind generating plants can 

contribute to grid frequency through torque or pitch control. Solar plants can 

provide this entirely through electronic controls. Wind and solar plants respond

best to grid frequency increases, which require a drop in power generation. They 

can provide primary frequency response to frequency drops, which require a 

power increase, only when they are operating below maximum output levels. 

Such curtailment of energy could have a significant economic impact on a wind 

or solar plant. Although primary frequency response from wind and solar plants is 

not widely required, some wind plants in Texas do provide frequency response 

because of recent requirements in the Electric Reliability Council of Texas.

Wind generators can respond to automatic generation control signals to provide 

regulation service, although they do not typically do so today. In the same way 

that wind turbines can provide frequency response, their blades can be pitched to 

rapidly increase or decrease output. However, to be able to increase output, they 

must be scheduled below maximum power output. To date, the primary growth 

in solar energy penetration has been on the distribution grid. As solar energy 

penetration increases on the transmission grid, the ability of solar plants to 

provide regulation could become more important.

Active power controls are not widely used today by wind and solar generators 

because economic barriers – including upfront equipment costs, lost opportunity 

costs, and potential to increase loading impacts on the turbine components –

discourage their use. Renewable generation operators are not able to justify such 

costs unless they are compensated for providing these services or are required to 

do so. In addition, wind and solar generators must operate below full generation 

output to provide certain balancing services. This has economic consequences. 

The cost for renewables to provide support services is the lost opportunity cost 

of generating energy that could be sold into market. Renewable generators have 

higher opportunity costs than conventional generators that save on fuel costs 

by not providing power. Thus, wind and solar generators require greater 

compensation to provide grid support services because otherwise they could 

provide power to the system from a free fuel supply—the wind or sun.
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6.6.2 The Role of Storage

New challenges are created by the increase in renewable energy penetration in the electricity 

system, which are driven by:

• Increased variable generation of electricity, mainly from renewable energy sources

• Increased electrification of the energy system (e.g., electrification of the transport sector).

The many opportunities to solve these challenges include:

• More flexibility in production

• More flexibility through the use of DSM

• Increased transmission capacity over broader geographic areas allowing sharing of 

resources

• Energy storage.

Energy storage is a key area of focus whenever Smart Grids are discussed. The main reason 

electricity storage has become relevant to Smart Grids is the recent dramatic cost reductions in 

battery storage, which have been driven largely by the electrification of the transport sector. 

Leading Storage Technologies

Beyond traditional large-scale storage technologies such as pumped hydro, we believe that 

new storage technologies (e.g., lithium-ion batteries and super-capacitors) will become essential, 

as these technologies are best suited for short-term storage. In addition, there is rapidly 

increasing interest in local storage combined with PV solar to support trends toward selfconsumption. But, local energy storage could also be used to provide several other services such 

as peak load reduction, energy arbitrage, and ancillary services to the system. For local storage,

lithium-ion batteries will be the natural choice, as the cost performance, which is driven by the 

development of electric vehicles, is rapidly increasing. A very significant development is that 

several automotive companies (Tesla, Mercedes, and Nissan) have started offering local storage 

solutions. These new entrants in the market come from extremely competitive environments,

and this will likely drive down the cost for home storage and increase the market uptake.

Super-capacitors will have a role to play where the combination of high power requirements 

and many cycles are needed. Typical applications could be frequency regulation and short-term 

storage supporting fast chargers for buses and cars. High-power batteries or super-capacitors 

can be combined with traditional frequency regulation sources such as hydro to provide initial 

fast response.

Main Requirements and Challenges

In the short term, the main focus must be on bringing down the cost of storage and developing 

new business models that support deployment of the product. But beyond that, there is a need to 

increase the awareness of how storage can solve challenges in the power system. This awareness 

must be improved for utility planners and operators who have not operated in an environment 

in which storage can be cost-effective and can address many problems in the power system. 

Furthermore, regulators’ awareness of this new product must be improved—regulation 

sometimes presents a challenge by not allowing distribution companies to own storage. 
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The Storage Market

The market uptake for storage is very local. For example, in Germany, local storage is a wellestablished business driven by both incentive schemes and high awareness among customers. 

The main application is increased self-consumption when storage is paired with PV installations. 

Other examples of good market uptake are Italy and the UK, where centralized storage is used 

for ancillary services. For example, National Grid UK has just concluded a bidding round for 

commercial installation of battery storage for frequency regulation. The total capacity for the 

project is 200 MW, and the pricing appears very competitive with other solutions. The conditions 

for applying storage are as good in many markets as they are in Germany, Italy, and UK, so we 

should expect that when the lessons learned from these early adopter countries are disseminated,

we will see a rapid market uptake in other countries.

The market for battery storage is growing rapidly. To properly understand the market, it is 

important to understand that battery storage can be located in many parts of the electric system

and also offer so many different services. This is illustrated in Figure 17.

Figure 17. Variety of electrical storage services

(European Parliament 2015)
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Cost of Battery Storage

It is interesting to dig deeper into the cost for stationary energy storage. The recent price level for 

stationary batteries is significantly higher than it is for automotive (mobile) storage. Figure 18 is 

a good illustration of battery cost trends. It suggests that in 2015 the price per kWh was about 

three times higher for stationary storage than it was for automotive storage. The batteries for 

stationary storage generally have a less demanding application in terms of environment and load 

cycle, and the large price difference can only by explained by limited competition and a small 

market today. However, it should also be pointed out that the stationary Tesla Wallpack already 

offers a battery price of USD 350/kWh for a battery system, and competition for this application 

is heating up. 

One reasonable conclusion is that the costs for home storage will drop dramatically, and this 

will also drive the market for home storage to grow beyond current expectations. Even so, the 

profitability will continue to be greater in the home storage market for the cell producers for 

the foreseeable future.

Figure 18. Costs of electrical storage

The figure is by the authors, with data provided by Cairn ERA Advisors in 2018.
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Potential Market for Battery-Supported Frequency Regulation

Frequency regulation is an important market that could develop quickly where the value is high. 

National Grid UK has recently purchased 200 MW of stationary batteries to support frequency 

regulation.

26 In the United States, PJM has also bought several 100 MW of batteries to support 

frequency regulation (Haywood Queen 2016). An example is included in Figure 19.

Figure 19. Supply curve for battery-provided regulation service

(National Grid 2016)

EFR = enhanced frequency response

Conclusions on Storage

As mentioned, there are many ways to solve the new challenges in the electricity system; clearly,

there will not be one “winning solution” and many of the mentioned solutions will be applied. 

But, equally clearly, energy storage in general—and battery storage in particular—will play a 

major complementary role to smart grid technologies and will help enable a modernized grid. 

This is driven by many factors, including:

 

26 “Enhanced Frequency Response,” National Grid UK, 

https://www.nationalgrid.com/uk/electricity/balancing-services/frequency-response-services/enhancedfrequency-response-efr
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• As a result of large improvements in price/performance for batteries in the automotive 

sector, battery prices have dropped by 80% in the last decade. Today, complete battery 

packages are below USD 150/kWh, and prices are expected to fall to below USD 

100/kWh in the next 5–10 years.

• Battery solutions can be deployed more quickly than many competing solutions, such as 

building additional grids.

• Battery solutions are highly scalable; that is, batteries can be economically deployed from 

utility-scale installations down to the individual household level.

IT solutions are becoming very inexpensive. This allows aggregation of services, including 

battery storage services, from many distributed systems, which makes it possible to bundle many 

services into what appears to the purchaser to be service from a single supplier (e.g., Isono et 

al 2014).

6.7 Driver 7: Customer Involvement in System Management

6.7.1 Demand Response

In September 2016, IEA released comprehensive reports on flexible consumers and prosumers, 

as well as DSM, which are summarized in Table 15.
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Table 15. Report from IEA Task 17: Integration of DSM, Energy Efficiency, Distributed Generation 

and Renewable Energy Sources

IEA Subtask:

Title Summary Notes Report Reference

Subtask 10: Roles 

and Potentials of 

Flexible 

Consumers and 

Prosumers

Overview of roles, 

technology 

characteristics and

potentials

This report discusses DR-based 

drivers of flexibility. Cost structure is 

one driver, and the relation of fixed 

and dynamic pricing is of importance

for customer incentives. Other 

potential drivers from a customer 

perspective include carbon 

conservation. The report presents 

experiences from European countries 

and summarizes how U.S. legislative 

directives are supporting DR. Roles of 

actors in the power system are 

presented. The system benefits in 

terms of reduced network loading, 

balancing, and services for the TSO in 

periods of alert operation. Finally, 

energy storage in boilers and batteries 

are assessed.

Stifter et al. 2016a

Subtask 11: 

Valuation Analysis 

of Residential 

Demand Side 

Flexibility

Analysis of 

business cases 

and existing 

valuation 

frameworks

This report presents several methods 

for measuring valuation of flexibility. 

It also summaries some sample 

valuations of selected smart grid 

projects.

Esterl et al. 2016

Subtask 12: Best 

Practices and 

Lessons Learned

Collection of 

demonstration 

projects and 

country specific 

background 

information

This report is comprehensive 

documentation of demonstration 

projects from around the world.

Stifter et al. 2016b

Subtask 13: 

Conclusion and 

Recommendations

Reflects the 

summary of Task 

17 with 

conclusions and 

recommendations

This report presents conclusions and 

recommendations based on findings 

in the other reports. Benefits and 

potential of flexibility at each level of 

the power system are discussed (i.e., 

on macro, meso, micro and nano 

levels). Finally, the report discusses 

how to make valuations of electricity 

and energy flexibility.

Stifter et al. 2016c

Clearly, market design is essential for the success of DR. Thus, policymakers and the regulator 

have a key role in creating the right conditions. Preferably, grid tariffs should be designed so 

the true cost drivers are part of the design. Also, the instant wholesale market price should be 

reflected in the price for the users. 
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It is important that customers have access to their real-time energy data so that they can receive 

and act on real-time price signals to incentivize decisions that support load management across 

the system. 

6.7.2 Time-of-Use Rates

Dynamic pricing for residential electricity use will bring significant advantages to utilities and 

their customers; the customer response elicited by time-of-use rates will lower overall system 

cost to the benefit of all consumers. Properly implemented, time-of-use rates are more equitable

and will induce customers to use electricity more efficiently. There is no serious debate about 

these statements. 

But utilities and their regulators have notably not moved toward dynamic pricing for residential 

customers in the United States. The reasons for the lack of movement include concerns about the 

cost of new metering infrastructure needed to support dynamic pricing and fears of consumer 

resistance. But, the pressures to move to dynamic pricing are mounting and the foregone benefits 

are adding up. There are several ways in which regulators might introduce time-sensitive rates in 

a way that will be acceptable to consumers.

Time-of-use rates have always enjoyed theoretical support. But now, there are several new, 

practical reasons that utilities and their regulators should move toward them.

• Electrification of Transportation. Demand for electric vehicles will grow steadily over 

the next two decades. A mechanism is needed to induce or require customers to charge 

vehicles during off-peak times. Today’s time-insensitive residential prices will lead to 

higher system costs if customers plug in their vehicles after work, adding to the lateafternoon summertime peak load on generation and distribution systems. In the other 

direction, nighttime energy loads from electric vehicles will be desirable by utilities with 

significant wind generation. 

• Residential Distributed Generation. Residential adoption of DG, especially small-scale 

solar systems, appears to be accelerating as the cost of systems fall and residential 

financing options grow. Unless electricity is priced on a time-sensitive basis, the correct 

value of such DG to the utility system is obscured. Net metering at time-sensitive rates 

will increase payments to solar systems, permitting utilities to charge compensatory rates 

to solar customers for distribution service. 

• Deployment of Smart Meters and the Associated Market Opportunities. The 

deployment of smart meters and the arrival of those operating between utilities and their 

customers will require rational retail pricing of electricity. Time-of-use rates are essential 

to the new energy markets that will develop because of grid modernization.

• Market for Residential Energy Efficiency and DR Technologies. Usage-sensitive 

pricing will stimulate the use of home energy management tools. Energy efficiency and 

residential DR will be boosted by the use of dynamic pricing, which will also be required 

by vehicle-to-grid transactions.

There may be non-price approaches to each of these challenges, involving separate metering 

of vehicles, solar panels, and smart appliances. But only dynamic pricing addresses all four 

considerations simultaneously and consistently.
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6.8 Driver 8: Additional Service Offerings

Most of the smart grid applications “upstream” from the customer are relatively well 

characterized and are being implemented by utilities around the world. Less well understood are 

new services that Smart Grid will produce for consumers. These new products and services will 

arrive based on the creativity of smart grid vendors and the evolving appetites of consumers. 

There are several necessary conditions to enable the growth of those services.

6.9 Need for an AMI platform

AMI systems can integrate with home energy management systems, and systems exist to do so in 

different ways with different technologies and standards. The mix of technologies and standards 

that is best for any utility is determined by the programs that a utility wants to implement.

In the United States, home energy management systems typically use ZigBee 2.4-GHz radios 

running Smart Energy Profile 1.x or IEEE 2030.5. Another communication standard used is WiFi, which supports the Open ADR (automated DR) standard. If a utility implements an industry 

communication standard, customers can purchase compliant devices on their own, without utility 

involvement. This scenario will work as long as the market supports these standards by 

producing and selling the compliant devices.

If a utility requires a particular functionality, a metering vendor should be required to show how 

the functionality currently works and with which supporting devices.

6.10Enabling of Smart Grid Vendors to Find a Market

Consumers will soon be introduced to smart grid applications (apps) provided by third-party 

vendors. These may entail hardware (e.g., thermostats or motion sensors) but might also be 

software (e.g., applications to analyze customer usage data). For many customers, the apps will 

provide a level of control that allows them to affect the time and quantity of consumption 

without having AMI metering capability. 

Allowing third parties to sell such services directly to customers reduces the need for distribution 

utility investment and thus limits the commitment of ratepayer funds to supporting deployment. 

Distribution utility DR programs or tariffs can be paired with deployment of the third-party apps 

to establish a compensation stream for customers that reflects the contribution of participating 

customers on mitigating system loads. A more favorable system load shape benefits all 

customers, and thus appropriate compensation from all customers to those who choose to 

invest and participate in these tariffs is justified.

In the longer term, as third-party aggregators emerge, the apps can be marketed by aggregators 

as part of an overall retail customer service package. The aggregator recovers the value created 

by the app by beneficially participating in the wholesale market, the participating customer 

benefits from having a preferred tariff offered by a competitive provider, and all customers 

benefit by having low-cost demand side resources bid into wholesale markets.

Government policy should enable and encourage new third-party providers to enter the market 

in Mexico. 
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6.11Need for Customer Education

The success of the modern electric grid will depend in part on the active participation of 

consumers, or of agents on their behalf, such as aggregators or third-party smart grid providers. 

Specifically, accomplishing Mexico’s energy goals may require a consumer base that is more 

informed about its energy use. Consumer education can also be used to help achieve less lofty 

goals, such reducing nontechnical losses caused by theft of electricity.

Channels through which SENER, CRE, CFE, and CENACE might act to build customer 

knowledge about energy use including: 

• CFE-promoted use of customer engagement services such as Opower or Tendril; peer 

comparison of usage is interesting to customers and familiarizes them with their own 

electric profile.

• A public information campaign focused on a well-defined message (e.g., a campaign to 

brand the theft of electricity as socially unacceptable and harmful to others)

• A customer web portal at which customers can, for example, see their bills, pay their 

bills, estimate the benefits of solar, and learn energy efficiency techniques

• A speakers’ bureau of representatives of SENER, CRE, CFE, and CENACE who would 

available to present at community meetings

• Use of bill inserts or other customer contact opportunities (point of sale for pre-paid

services)

• Greater use of social media to engage customers; agencies should engage an expert to 

ramp up their presence on all social media platforms and convey energy-related messages 

in a way that is appealing to younger people.
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7 Analysis of Costs and Benefits for Smart 

Grid Investment

7.1 Cost and Benefits of Smart Grid Investments

A policymaker will want to examine the cost-effectiveness of smart grid investments. The 

traditional method for assessing this is called a cost-benefit analysis. This section explores what 

is known about the benefits and costs of smart grid investment.

First, we distinguish between two levels of analysis: (1) the cost-benefit analysis of Smart Grid 

as a high-level strategy and (2) the application of cost-benefit analysis to individual smart grid 

projects consisting of small sets of smart grid measures.

7.1.1 Cost-Benefit Analysis of Smart Grid as a High-Level Strategy

One of the more important recent studies of Smart Grid’s net benefits was conducted by the Joint 

Research Centre of the European Union. Their cost-benefit analysis (Giordano et al. 2011) 

estimated the costs and benefits of extending a small pilot project to all of Rome, Italy. The 

project was limited to the distribution system operated by Azienda Comunale Elettricità e Acque, 

the electricity distribution system operator for Rome. The smart grid improvements studied were 

intended to serve three purposes:

1. Improve system quality and continuity of Rome’s energy network through automation 

systems for fault detection and isolation on the medium-voltage energy network

2. Improve the distribution network observability through monitoring and remote control 

of the low-voltage energy flows 

3. Assess the positive impact of automation with the new grid management criteria. 

In other words, the Rome study examined only a fraction of the smart grid activities considered 

in this report for Mexico.

The results of the cost-benefit analysis for Rome showed that, over an 18-year period, the net 

present value of the benefits from the project is estimated to be € 39.1 million. This equates to an 

internal rate of return of 16.67% (Giordano et al. 2011).

In another 2011 study, the Electric Power Research Institute (EPRI) produced a technical report 

titled Estimating the Costs and Benefits of the Smart Grid (EPRI 2011). In brief, EPRI updated 

an earlier report with this report, and they applied a revised, more advanced model of the Smart 

Grid to the U.S. power system. The EPRI report (EPRI 2011) estimates that the vision of a full 

Smart Grid will require an investment of USD 17 billion to USD 24 billion per year over the next 

20 years. But, this large investment is dwarfed by the benefits calculated by EPRI. The bottom 

line of the report is that the benefit-cost ratio, which is estimated to be 2.8–6.0, is multiples of the 

investment required. Table 16 summarizes EPRI’s estimate of the costs and benefits of this 

major investment.
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Table 16. EPRI-Estimated Cost and Benefits of the Smart Grid

20-Year Total

Net investment required USD 338 billion–USD 476 billion

Net benefit USD 1,294 billion–USD 2,028 billion

Benefit-cost ratio 2.8–6.0

(EPRI 2011)

The benefits are distributed among nine categories, as shown in Table 17.

Table 17. EPRI-Estimated Distribution of Smart Grid Benefits

Attribute

Net Present Worth (2010)

(billions of dollars)

Low High

Productivity 1 1

Safety 13 13

Environment 102 390

Capacity 299 393

Cost 330 475

Quality 42 86

Quality of Life 74 74

Security 152 152

Reliability 281 444

Total 1,294 2,208

(EPRI 2011)

In a third example, ESTA published Smart Grid Regulatory Framework for Mexico (ESTA 

2014) on behalf of CRE under a project funded by the U.S. Trade and Development Agency. 

For the report, ESTA was tasked with estimating the benefits to Mexico of the twin programs 

of Smart Grid and the expansion of renewable energy. Text Box 1 describes some of the key 

benefits of investing in smart grid technologies.
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7.1.2 Cost Benefit Analysis at the Measure or Program Level 

The criteria that should be considered when choosing smart grid measures include:

• Overall expectation on investment (cost-benefit analysis results)

• Impact on tariff rates (significant rate increases may not allow some technology 

deployment, while minimal rate impacts may be much more acceptable)

• Safety of utility line workers, meter readers, and the public as a result of the deployment 

of the technology

• Improvement in operational approaches for the distribution system dispatch and 

operations teams

Text Box 1. Cost Effectiveness of Smart Grid Investment

(from ESTA 2014)

The evaluation of the smart grid and renewable energy programs in 

Mexico suggest that significant value can be created.

In developing a dedicated renewable energy program, we see large 

potential benefits stemming from reductions in fuel cost expenditures. 

Beyond that, we also see significant benefits coming from deferral of 

distribution network requirements and reductions in requirements for 

synchronized reserves and frequency regulation.

On the smart grid initiative, the largest benefits stem from the 

opportunities associated with automation distribution operations. The 

single largest source of value stems from automating the meter reading 

process, moving from a manual read to an automated process with a 

digital architecture. Other significant benefits also are derived from 

developing feeder gateway temperature monitoring and voltage 

monitoring programs, with additional value coming from fault detection 

and phase and load balancing. The projected benefits for the 

transmission network are far smaller; nevertheless, there are viable 

opportunities in developing line temperature sensing capabilities and by 

deploying synchrophasors.

The total value proposition for both the smart grid program and the 

renewable energy initiative exceeds MXN 50 thousand million pesos 

relative to a “do nothing” strategy. Based on the high value proposition 

of these programs, we recommend further operational efforts to 

commence.
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• Voltage of distribution systems in service territory (i.e., how many different distribution 

voltage levels need to be served and how many versions of a smart grid technology need 

to be stocked)

• Number of customers in service territory, city, region (technologies may have greater 

appeal with larger segments of customers, and vice versa)

• Number of customers per mile on distribution system (having fewer customers per mile 

may favor some technologies over others)

• Expected lifetime of the technology (most utility equipment is expected to be in service 

for 30 years or more, but systems that are expected to fail sooner or be obsolete before 

this interval should be given greater scrutiny)

• Track record of the company selling the smart grid technology and their experience in 

supporting the utility in the past (Do other utilities have experience with the smart grid 

company that they are willing to share that might support the project?)

• Impact on load serving capability of the distribution feeder or the overall distribution 

system (Can the smart grid measures improve this capability, and will that delay other 

investments?)

• Impact (possible improvement) on the operational effectiveness of the substation and 

transmission system 

• Will the system extend the life expectancy of devices such as the substation transformer, 

LTCs, and circuit breakers?

• Expectations regarding improving the system (or Customer) Average Interruption 

Frequency Index (SAIFI/CAIFI) and the System (or Customer) Average Interruption 

Duration Index (SAIDI/CAIDI) reliability metrics by reducing duration or frequency of 

outages, or the number of customers impacted by an outage

• Other smart grid systems (and costs) needed to make the smart grid system practical.

CFE and CENACE should evaluate the cost and benefits of Smart Grid. Some elements might be 

analyzed quantitatively (e.g., the investment costs and the revenue streams), while some criteria 

might be assessed qualitatively (e.g., the possible health benefits of increased renewable energy 

penetration enabled by smart grid practices and technologies).

ISGAN Annex 3 (Ajou University 2014) focuses on cost-benefit analysis and Toolkits and has 

various resources that may be of use for Mexico in their assessments.

7.2 What Should be Considered Costs and Benefits

EPRI (2010) identifies 23 specific benefits of smart grid deployment that should be considered 

in a cost-benefit analysis:

1. Optimized generator operation

2. Deferred generation capacity investments

3. Reduced ancillary service cost

4. Reduced congestion cost

5. Deferred transmission capacity investments

6. Deferred distribution capacity investments
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7. Reduced equipment failures

8. Reduced distribution equipment maintenance cost

9. Reduced distribution operations cost

10. Reduced meter reading cost

11. Reduced electricity theft

12. Reduced electricity losses

13. Electricity cost savings 

14. Reduced electricity cost

15. Reduced sustained outages

16. Reduced major outages

17. Reduced restoration cost

18. Reduced momentary outages

19. Reduced sags and swells

20. Reduced carbon dioxide emissions

21. Reduced emission ofsulfur oxides, nitrogen oxides, and particulate matter that 

is micrometers or less in diameter

22. Reduced oil use by electric vehicles (not monetized)

23. Reduced widescale blackouts.

This appears to be a comprehensive list of the benefits that can be expected “upstream” from the 

customer meter and mostly “inside the utility’s fence.” Missing from this list are larger societal 

benefits that are not captured in the price of electricity. These include such benefits as increased 

national security and reduced defense costs as energy independence is increased. Also missing 

from the list are some of the consumer benefits of Smart Grid, including better customer service, 

energy knowledge and empowerment, smart customer devices, and improved comfort and indoor 

air quality. Additional benefits such as these may be difficult to measure. Regarding energy 

efficiency measures, the Rocky Mountain Institute notes that, “Though hard to quantify and 

monetize, these real benefits are often worth far more than the saved energy” (RMI 2016).
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8 Obstacles to Implementation of Smart Grid 

Programs and Investment in Them

8.1 International Experience and the Valuation of Flexibility

Institutionalizing market and regulatory models to enable valuation of flexibility is one of the 

key challenges being faced in many markets. A recent joint workshop organized by the IEA and 

ISGAN focused on this topic. According to IEA’s and ISGAN’s (2016) concept note for the 

workshop, flexibility is the ability of a power system to maintain reliability and continuous 

service in the face of rapid and large swings in supply or demand. Future energy systems will 

require much greater amounts of flexibility, which will necessitate a broad platform of smart grid 

and information and communications technologies spanning all areas of the electricity system:

• Flexible System Operation that Extracts Flexibility from Existing Systems: This 

includes decisions made closer to real time and, more frequently, improved use of wind 

and solar forecasting and better collaboration with neighboring networks. Without 

sufficient flexibility, system operators may need to frequently curtail wind and solar 

generation or shed loads causing limited or extended blackouts

• Flexible Generation: This includes power plants that can ramp up and down quickly and 

efficiently and run at low output levels

• Flexible Transmission and Distribution: This includes ensuring networks can access 

a broad range of balancing resources—including sharing between neighboring power 

systems—with smart network technologies that better optimize transmission and 

distribution usage 

• Flexible Demand-Side Resources: The incorporation of Smart Grids can enable 

customers to value their flexibility by responding to market signals or schemes, including 

direct load control

• Storage Solutions: These might also deliver increased flexibility, either as an integrated 

part of demand side flexibility or as stand-alone resources connected directly to the 

network.

Key takeaways from the workshop that may be relevant to Mexico include the following:

• Many players are already in the flexibility market, but clear rules are needed (e.g., 

regulatory reform and appropriate market incentives). But, another view is that the 

market will regulate itself and hardly needs any specific rules.

• Favorable legislation and other circumstances (e.g., susceptibility to natural disasters) can 

drive the market, as is the case in California.

• Economically feasible applications already exist without financial support, but many are 

hindered by legislative barriers.

• A coordinated process would be required so that distribution and transmission system 

operators, technology providers, and regulators create an appropriate market framework.

• Ancillary services should be procured by— rather than developed by—utilities, and they 

will be offered if the need is clearly defined.

• The most important question is, where does flexibility give the most value?
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• Technology providers and regulators need to reach out to technology providers to get 

feedback and comments on potential regulations.

• In Austria, regulators worked with the TSO to change rules of load frequency control,

and they now allow smaller storage entities to contribute to the market via pooling. This 

helped reduce costs by 30% in 2015 and was expected to reduce costs by 40% in 2016.

• The EU is developing new legislation on market design that includes flexibility.

• Operational strategies for having a 20%–30% share of wind power have been developed. 

Transmission grid build-out and the management of variability and uncertainty is a 

significant challenge, but flexible operational methods have been recognized as a key 

enabler. In Europe, increased wind generation has mostly been enabled by robust grids. 

Portugal is managing close to a 100% wind share, Norway is building transmission lines

to manage North Sea wind, and Ireland is reducing curtailed wind at close to a 40% 

share.

• The key message is, “let the market work.” Price signals are the basis for investments in 

flexible capacity. The market should work without distortions; barriers need to be 

removed and certain types of flexibility should not be promoted at the expense of other 

flexibility types. Specific regulations are not needed; market rules are only needed to 

ensure the market price is corrected during scarcity driven interventions.

• Both resilience and cybersecurity are ongoing challenges for which there is no simple 

solution. One possible solution is the agile fractal grid, under which all segments of the 

grid operate with the same information and control model. Another possible solution is 

restoration, whereby small islanded sections of the grid are formed to provide black-start 

capabilities.

• Thermally activated buildings (via heat pumps) represent a cost-efficient storage 

possibility for wind power. The large thermal mass of concrete building structures is used 

as a buffer or heat sink for changing cooling or heating loads. Almost no additional 

construction measures other than installed water pipes in the ceiling are needed, and 

operation is simply controlled. The customer benefits from lower power prices (low-load 

hours), and the load can be shifted to when the wind energy is available. Currently, 150 

thermally activated buildings are being constructed in Vienna, Austria.

8.2 Cybersecurity Concerns

8.2.1 Confidentiality, Integrity, and Availability 

One widely applicable model for guiding cybersecurity policies is the so-called CIA triad of

Confidentiality, Integrity, and Availability. Confidentiality manages and limits access to 

information. Integrity provides assurance that information is accurate. Availability delivers 

the information reliably.

Confidentiality—protecting personal privacy and proprietary information—is the least critical 

objective for power system reliability. Yet, it is becoming more important in smart grid systems 

involving interactions with customers, such as DR and AMI networks. From the perspective of 

power system reliability, availability and integrity are the most important security objectives 

in the Smart Grid. A disruption of access to or use of information may undermine the physical 

delivery of power. Consequently, a primary security goal of smart grid operations is availability.

The unauthorized modification or destruction of information can cause errors in power 
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management. As smart grid systems become more interdependent, integrity becomes 

increasingly important to security.

Malicious attacks fall into three types based on the CIA triad:

• Attacks targeting confidentiality that are intended to acquire unauthorized information 

from network resources in the Smart Grid

• Attacks targeting integrity that are aimed at deliberately and illegally modifying or 

disrupting data exchange in the Smart Grid

• Attacks targeting availability, also called denial-of-service (DoS) attacks, or attempts to 

delay, block, or corrupt the communication in the Smart Grid.

Confidentiality Attacks: Disclosure of Customer Information

Attackers targeting confidentiality have no intent to modify information transmitted over power 

networks but instead seek access to communication channels or data stores at the enterprise. 

Unlike attacks on availability and integrity, such attacks have negligible effects on the 

functionality of the Smart Grid. Yet, the social and reputational impacts can be significant,

as has been demonstrated by data breaches across various sectors.

Integrity Attacks: False Data Injection

Attacks targeting data integrity attempt to modify data in order to corrupt critical information 

exchange in the Smart Grid. The target can be either customer information or power system

measurements.

Availability Attacks: Denial of Service

Note that compared with the internet, the Smart Grid features a delay-constrained network 

because of time-critical parameters for delivery of information or control messages for the 

power systems (e.g., IEC 61850 messages). In the Smart Grid, a DoS attacker does not need to 

completely shut down network access using extreme means (e.g., all-time jamming) but instead 

may launch weaker versions of attacks to intentionally delay the transmission of a message 

to violate its timing requirement. A delay can be catastrophic for power infrastructures. For 

instance, an attacker can cause severe damage to power equipment if the attack successfully 

delays the transmission of a protection message in the case of trip protection in substations 

(Metke 2010). Therefore, the goals of DoS attacks on the Smart Grid include not only disrupting 

resource access but also violating the timing requirements of critical message exchange.

8.2.2 Guidelines for Smart Grid Cybersecurity 

In addition to these high-level objectives, the National Institute for Standards and Technology 

(NIST) recommends specific cyber- and physical-security requirements for the Smart Grid.

Their three-volume report, Guidelines for Smart Grid Cyber Security (NIST 2014), presents 

an analytical framework that organizations can use to develop effective cybersecurity strategies 

tailored to their particular combination of risks and vulnerabilities. 
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For our purposes, the NIST security requirements (NIST 2014) can be summarized as follows: 

• Attack Detection and Resilience Operations: The Smart Grid features a more open 

communication network over larger areas than legacy power systems. Accordingly, it is 

almost impossible to ensure every part or node in the Smart Grid is invulnerable to 

network attacks. Therefore, the communications network needs to consistently perform 

profiling, testing, and comparison to monitor network traffic status (e.g., to detect and 

identify abnormal incidents that are due to attacks). Moreover, the network must also 

have the self-healing ability to continue network operations during attacks. Because of 

the critical importance of power infrastructures, resilience operation in communications

networks is essential to sustaining network availability in the Smart Grid.

• Identification, Authentication, and Access Control: The smart grid network 

infrastructure incorporates millions of electronic devices and users. Identification and 

authentication are the essential processes of verifying the identity of a device or user as a 

prerequisite for granting access to resources in the smart grid information system. The 

focus of access control is to ensure resources are accessed by only appropriate and 

correctly identified personnel. Strict access control must be enforced to prevent 

unauthorized users from accessing sensitive information and controlling critical 

infrastructure. To meet these requirements, every node in the Smart Grid must have at 

least basic cryptographic functions, such as symmetric and asymmetric cryptographic 

primitives, to perform data encryption and authentication.

• Secure and Efficient Communications Protocols: Unlike in conventional networks, 

message delivery in the Smart Grid requires both time-criticality and security, in 

particular in distribution and transmission systems. However, the two objectives usually 

contradict each other. As networks (or subnetworks) in the Smart Grid cannot always use 

secure, physically protected, and high-bandwidth communications channels, optimal 

tradeoffs are required to balance communication efficiency and information security in 

the design of communications protocols and architectures for the Smart Grid.

8.2.3 Architectural Considerations

NREL’s cyber-physical security practice recommends a systemic view of cybersecurity. Such a 

view may be considered a “profile” of different security technologies and procedures, woven 

together to meet the security requirements of a particular implementation of policy, procedural, 

and communications standards designed to provide specific services.

It is helpful, from a systemic view, to recognize that smart grid communication standards are 

designed to meet many different requirements at many different “layers.” Two commonly used 

reference models are used to describe these layers: the International Organization for 

Standardization (ISO)/Open Systems Interconnection (OSI)27 7-layer reference model and the 

GridWise Architecture Council (GWAC) stack.

28 With respect to the objectives of various smart 

grid standards, some standards address the use of wireless media, fiber optic cables, or power 

 

27 See “ISO 7498-1:1994, Information Technology: Open Systems Interconnection: Basic Reference Model: The 

Basic Model,” https://www.iso.org/standard/20269.html. 28 The GWAC Stack is available at “GridWise Architecture Council,” http://www.gridwiseac.org, in the GridWise 

Interoperability Context-Setting Framework.
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line carrier. Others address the “transport” layers for getting messages from one location to 

another. Still others cover the “application” layers, the semantic structures of the information 

as it is transmitted between software applications.

Cybersecurity is a crosscutting issue, and it should be reflected in requirements at all levels. 

When taking a systems approach, the problem must be considered in its entirety and in context. 

Thoroughly investigating the security objectives of the reference models (OSI or GWAC) 

represents the first step toward smart grid security. Cybersecurity should address all layers, endto-end, from the source of the data to the ultimate destination of the data. Yet, smart grid 

communications standards do not address the importance of specific data or how it might be 

used in systems. Understanding context is important to the systemic approach; requirements 

should reflect the implementation environment rather than simply the standard itself.

8.2.4 Regulatory Framework

Practical experience has shown that investments in security are often linked to regulatory 

requirements. Return on investment in security is often difficult to establish. The complexity 

and lack of clarity with the risks involved can further complicate executive board approval. Yet, 

a host of regulatory mandates have motivated various security implementations, including 

multifactor authentication, application security testing, as well as many other implementations. 

Examples are not limited to the North American Electric Reliability Corporation’s (NERC) 

critical infrastructure protection requirements, but they include the Sarbanes–Oxley Act of 2002

and the Payment Card Industry Data Security Standards, both in the United States, as well as 

international financial mandates by various central banks, including the Reserve Bank of India 

and the Monetary Authority of Singapore (Kumar, Pandey, and Punia 2014). 

8.3 Consumer Receptivity

Development of the Smart Grid will both motivate and enable improvements in the precision and 

sophistication of rate structures faced by consumers. Within the residential sector, smart meters 

will allow CFE to record demand and energy use in real time, in contrast to the situation where 

a meter reader records only energy use and then only monthly. Given the variance in system 

costs within a day and across the seasons, the Smart Grid will permit CFE to offer (or require) 

the use of a tariff with time-differentiated rates. Charging prices that reflect varying costs over 

time will present consumers with the true costs of the energy at the time it is used.

The 20% of residential consumers with the highest electricity use (the “top 20%”) will, in 

aggregate, consume a disproportionate fraction of electricity used by the entire residential 

consumer class. The distribution of residential consumers by usage is skewed, and we predict the 

top 20% of consumers will use at least 40% of the total kilowatt-hours in the residential class. 

Time-sensitive rates will be most relevant to the largest users of electricity in the residential 

class, as these are generally (but not exclusively) the consumers with the largest houses and the 

financial means to employ energy conservation and load-shifting techniques. For that reason, 

CFE is likely to find that the combination of AMI devices and “smart prices” targeted to this 

group of larger users will be highly cost-effective from the system perspective.
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Although the Smart Grid will enable the use of very sophisticated tariff structures, we suggest 

the initial dynamic pricing tariffs should be relatively simple and easy for the consumer to 

understand. For example, a tariff with fixed peak, shoulder, and off-peak prices during fixed time 

periods would be a reasonable first step for a dynamic pricing tariff. Over time and after public 

understanding and acceptance of time-of-use rates have been achieved, more sophisticated rate 

structures could be considered.

The “top 20%” approach will be an effective way to lay the foundation on dynamic pricing. 

Some research suggests most consumers prefer time-of-use rates after they have experience 

with them. Following the introduction of the rates for the largest consumers, awareness and 

acceptance of a dynamic pricing structure is likely to spread, and voluntary subscription by 

smaller consumers will likely increase.
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9 Summary

Mexico, following its energy reform, is working and proactively planning for a system-level 

transformation with clean energies. This power system transformation occurring in Mexico 

includes clear national drivers or priorities for the implementation of smart grid—Redes

Eléctricas Inteligentes—technologies. According to SENER, smart grids in Mexico must 

improve the operation of the National Electric System by increasing its efficiency, resilience, 

flexibility, quality, reliability, continuity, safety, and sustainability, and they must also serve to 

integrate large and distributed renewable energies and storage devices into the network. 

To date, under the leadership of SENER and following clear responsibilities delineated in 

Mexico’s energy reform, Mexico has performed analysis of the status of smart grid technologies 

with costs and benefits associated and is formulating a pathway for implementing the 

deployment of the next generation of smart grid technologies and the appropriate policies and 

regulations necessary to meet its objectives. Under the new planning criteria for the National 

Electric System in Mexico, SENER must work closely with CENACE, CFE Transmission, and 

the distribution and retail utilities to incorporate smart grid technologies. As the system operator, 

CENACE must present various investment options to SENER.

This report was written for SENER to comply with new law requirements. It links different 

available technologies to the individual drivers or priorities for Mexico’s transformation, which 

will help SENER continue its smart grid implementation plan. This report will also serve as a 

guide to SENER in the assessment of future technology and grid investments included in the 

integrated resource plan (PRODESEN) and will aid to enact future policies and regulations. 

Finally, this report will help keep track of the progress made and direct appropriate actions when 

necessary.
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Appendix A. Summary of the ESTA International Report

The content in this appendix is excerpted with permission from the executive summary of ESTA 

International’s Smart Grid Regulatory Framework for Mexico report (ESTA 2014). 

Priority Recommendations

In creating the Regulatory Roadmap, ESTA International provided 42 recommendations, 

addressing seven focus areas: (1) CRE and CFE, (2) third-party providers, (3) renewable 

resources, (4) end users, (5) smart grid costs and benefits, (6) customer privacy, and 

(7) legislative recommendations. Here, we present our top five recommendations.

Priority Recommendation 1: CRE should support the creation and execution of a multi-party 

planning process for Smart Grid planning and implementation.

Successful deployment of Smart Grid technologies and services will require the coordinated 

efforts of many parties, both inside and outside government. For this reason, our top 

recommendation is that Mexico establishes a government and industry-wide voluntary group to 

advise the government on the implementation of Smart Grid – The Smart Grid Task Force. The 

governance structure of a Smart Grid Task Force should follow and mimic the existing overall 

governance arrangements for the energy industry and the power sector. 

Based in part on this recommendation in the draft version of this Report, a formal smart grid 

working group was established in Mexico in April 2014. This group was created to coordinate all 

efforts on Smart Grid in Mexico and to ensure an integrated planning process (encompassing 

policy, regulation and technology deployment) is considered to develop the Smart Grid. The 

charter members of the Task Force are SENER, CFE and CRE. We hope and expect that the 

Task Force will be expanded to include participation by industry vendors and research and 

academic resources. 

Priority Recommendation 2: CRE should require CFE to make “no regrets” Smart Grid 

investments that emphasize detection of outages, poor power quality, distribution transformer 

conditions before failure, etc.

The Smart Grid investments that attract less media attention are those we have termed 

“wholesale” investments, made on the utility’s side of the meter. These investments include 

installation of sensing devices to improve telemetry, giving the utility “visibility” into all 

operational aspects of the grid.

We recommend that CRE require 

CFE to develop a schedule and 

begin deploying all cost-effective 

wholesale smart grid investments in 

a way that leads to “no regrets” as 

the Smart Grid develops.
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Such investments can be made alone or in concert with Advanced Metering Infrastructure (AMI) 

devices. The principal benefits include Outage Detection, Voltage Management, Restoration, 

Power Quality Monitoring, Transformer Preventative Maintenance, Precision and time-stamped 

meter reading, Precision and time-stamped consumption information, and Real-time operational 

and locational information. Because these investments can be made in a way that will be 

consistent with a variety of future courses that the retail Smart Grid might take, we call them “no 

regrets” investments. Importantly, the Smart Grid Task Force will be well-suited to assist CFE 

and CRE to identify and prioritize such investments.

Priority Recommendation 3: In concert with other Mexican consumer rights agencies, CRE 

should develop a Consumer Bill of Smart Grid Rights detailing privacy, access to information, 

and consumer control over the use of consumer energy data.

Privacy concerns loom large in many countries that are developing the Smart Grid. It is very 

important to address this issue at the beginning of Smart Grid development, before the “genie is 

out of the bottle.” A very good place to start is developing a Consumer Bill of Smart Grid Rights. 

CRE has the power, working with SENER and CFE to issue the needed directives, and could be 

supported by IFAI and the Ministry of Economy. This action should be coupled with a code of 

conduct for Smart Grid vendors that details how permission, protection and use of customer data 

will be implemented by players in the Smart Grid. 

Priority Recommendation 4: Define Competitive Renewable Energy Zones by technology (i.e.,

wind and solar) and make this information publicly available.

Development of a strong, competitive renewable energy industry in Mexico requires, among 

other things, the coordination of transmission build out and renewable development. Third party 

developers must know where transmission infrastructure will be built and on what schedule. 

Transmission owners must know where the wind and solar resources are and tailor their 

transmission planning to meet the need.

Competitive Renewable Energy Zones (CREZs) are a tool to proactively facilitate the 

development of renewable resources. In cooperation with CFE, such information should be 

developed and be available to resource developers, reflecting the priorities set by CRE for the 

type of technology and appropriate locations to expand such resources in the most economical 

way. Correctly implemented, CREZ will be a successful case of “build in and they will come.” 

Priority Recommendation 5: Budgetary steps should be taken to ensure CRE has adequate 

financial resources to obtain the expertise and skills required to address the complexity of Smart 

Grid initiatives.

CRE will have responsibility for regulatory aspects of electric power sector in Mexico that 

generates approximately USD 15 billion of revenue annually. The implementation of smart 

initiatives has the potential resulting in an investment of USD 1.0 billion to USD 4.0 billion in 

the next 13 years. The regulatory oversight of such a major undertaking and fast technological 

advances in Smart Grid requires adequate financial resource as well as experienced and skilled 

personnel to effectively perform their responsibilities. 
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Opportunities for Private Investment and Implementation Financing

ESTA provided 36 recommendations concerning incentives for Renewable Energy, Distributed 

Generation, and Non-Utility companies. They include Regulatory Strategies 1) Regarding 

Market Segments; 2) To Encourage the Development and Integration of Small-scale Distributed 

Renewable Generation Projects; 3) To Encourage the Development and Integration and End-user 

Scale Projects; 4) To Encourage the Development and Integration of Non-Utility Small Scale 

Projects; 5) To Encourage the Development and Integration of Utility Scale Projects; 6) To 

Encourage the Development of Energy Management and Demand Response Activities by Third 

Parties; and 7) To Encourage the Development of Energy Management and Demand Response 

Activities for Consumers.

ESTA also assessed the potential role of financial institutions in providing debt and equity 

financing or loan guarantees for smart grid projects in Mexico. These financial institutions 

include the Inter-American Development Bank, the World Bank (including the International 

Bank for Reconstruction and Development for public sector projects and the International 

Finance Corporation for private sector projects), and the Export-Import Bank of the United 

States.

Preliminary Environmental and Development Assessment 

ESTA conducted preliminary environmental and development assessment of Smart Grid 

deployment and increased use of renewable energy in the Mexican power portfolio as required 

by the U.S. Trade and Development Agency grant that funded the effort. 

The analysis was carried out on two levels: 1) the micro-level of a single renewable energy 

project; and 2) at the macro-level of Mexican society. At the micro level, we consider the 

environmental concerns that may arise in the development of wind, solar and projects and outline 

preventative or reparative measures that can be taken to offset environmental concerns. At the 

macro societal level, we consider the link between Smart Grid and deeper penetration of 

renewable energy and assess how the growth in renewable energy will help Mexico meet its 

environmental goals. 

Simply put, a few million 

dollars spent prudently at 

a regulatory agency with 

a mission to review and 

guide Smart Grid 

investments could avoid 

costly mistakes in 

deploying Smart Grid. 
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Economic Analysis and Implementation Plan 

One aspect of this study is to assess the financial impact in Mexico of implementing the Smart 

Grid and significantly increasing the amount of renewable energy used in the country. Bottom 

line, evaluation of the Smart Grid and renewable energy programs in Mexico suggests significant 

value can be created. 

In developing a dedicated renewable energy program, we see large potential benefits stemming 

from reductions in fuel cost expenditures. Beyond that, we see significant benefits coming from 

deferral of distribution network requirements and reductions in requirements for synchronized 

reserves and frequency regulation.

For the Smart Grid initiative, the largest benefits stem from the opportunities associated with 

automation of distribution operations. The single largest source of value stems from automating 

the meter reading process, moving from a manual read to an automated process with a digital 

architecture. We did not quantify the customer benefits of Smart Grid. From other countries, we 

know those benefits will also be large.

We close by reiterating that implementing the Smart Grid will bring substantial economic, social 

and environmental benefits to Mexico. The recently enacted Energy Reform and the Electric 

Industry Act has strengthened Mexico’s ability to implement the Smart Grid by giving clear 

authority to the CRE.

The value to society of 

these resources, 

manifested in their capacity 

for stimulating economic 

development and their 

impact on the emissions of 

greenhouse gas and other 

pollutants, far overshadows 

any environmental risks 

and costs measured at the 

local level.

The total value for the smart 

grid program and the 

renewable energy initiative 

together exceeds MXN 50 

thousand million pesos 

relative to a “do nothing” 

strategy. Based on the high 

value proposition of these 

programs, we recommend 

further operational efforts to 

commence.
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Appendix B. Summary of Mexico’s Smart Grid Program 

The content in this appendix is excerpted with permission from SENER’s Programa de Redes 

Eléctricas Inteligentes report (SENER 2016d). 

Legal Framework

The Energy Transition Law (LTE) indicates that a Smart Grid program must identify, evaluate, 

design, and establish the strategies, instruments, actions and projects related to electricity 

networks, which could include the following items in terms of the transmission and distribution 

networks:

• The use of digital information and control technologies to improve the reliability, 

stability, safety and efficiency;

• Dynamic optimization of the operation;

• Development and integration of distributed generation projects;

• Development and incorporation of controllable demand and the resources derived from 

Energy Efficiency

• Deployment of intelligent technologies for measurement and communication in Smart 

Grids

• Integration of smart equipment and appliances;

• Development of communication and interoperability standards for interconnected devices 

and equipment, including the infrastructure that services these networks;

• Information required by consumers and their options for the timely control of their 

resources;

• Development and integration of advanced energy storage technologies and other 

technologies useful for meeting peak demand;

• Identification and use of underutilized power generation capacity for the substitution of 

fossil fuels for electric power in transportation systems;

• Promotion of interconnection protocols to facilitate electricity providers’ access to the 

electricity stored in electricity vehicles

• Identification and reduction of barriers for the adoption of Smart Grid technologies, and 

the research on the viability of moving towards a scheme of electricity prices in real time 

or time of use.

The Energy Transition Law (LTE) also establishes that every three years, the National Center 

for Energy Control (CENACE), with the support of the Energy Regulatory Commission (CRE), 

the Electricity Transporters, Distributors and Suppliers, must prepare and propose to SENER a 

Smart Grid Program. This Smart Grid Program which will aim to support the modernization of 

the National Transmission Network and the General Distribution Networks, to maintain a 

reliable and secure infrastructure that satisfies the electricity demand in an economically efficient 

and sustainable manner, and that facilitates the incorporation of new technologies that promote 

the reduction of costs of the electricity sector. In addition, the Smart Grid program will enable 

the provision of additional services through their networks, the generation from Clean Energies 

including the incorporation of Distributed Clean Generation, and the allowing of a greater 

interaction between the consumers' devices and the National Electricity System.
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Smart Grid Drivers

The National Smart Grid program published by SENER has initially identified the following 

eight drivers (numbered) to determine the development of Smart Grids in Mexico. It is intended 

that within the new planning criteria, the incorporation of Smart Grid technologies must meet 

the following criteria (bulleted):

• Improve the operation of the National Electric System, increasing its efficiency, 

flexibility, resilience, quality, reliability, continuity, safety and sustainability

• Promote the generation of electricity from clean energy sources, on a large scale

• Allow dynamic optimization of the operation of the National Electric System

• Support the management of the Wholesale Electricity Market

• Incorporate Distributed Generation, including that of renewable energy sources

• Increase the interaction of consumers with the system

• Influence planning and operations to improve the quality of the service provided to the 

final user

• Facilitate the provision of additional services and the integration of electric vehicles and 

storage resources.

1. Quality, Reliability, Continuity, Security and Sustainability: The Energy Regulatory 

Commission (CRE) will issue the necessary provisions in this matter so that the 

electricity service is carried out considering economic aspects and observing the correct 

operation and integrity of the various equipment and devices in the networks, using 

acceptable parameters on: voltage, availability and capacity of the networks, interruptions 

of the electric service, harmonic components, energy losses and other necessary technical 

aspects. Regarding the operation of the wholesale electricity market, operating 

procedures must be foreseen to maintain the security of the electricity dispatch, 

reliability, quality, continuity and efficiency of the wholesale market.

2. Quality of the Electricity Service: Smart grid deployment will take on actions necessary 

to improve the quality of the service to the end user. 

3. Energy Efficiency: The third motivator for the National Smart Grid program is to 

include economically viable energy efficiency measures, while maintaining or improving 

the quality of the electricity service.

4. Energy Losses: The National electric system, especially in the distribution network, 

presents energy losses above average worldwide levels. The smart grid program 

establishes a key component to include efficient parameters within the national electricity 

system to reduce the energy losses. 

CRE will provide regulation related to 

quality, reliability, continuity, security, 

and sustainability of the electric 

service, and the procedures to 

maintain the security of dispatch, 

reliability, quality and efficiency of 

the wholesale power market 
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5. Efficient Operation of the National Electric System: To increase the operating 

efficiency, especially in all activities related to transmission and distribution of 

electricity, it is needed to ensure all system elements are operating in a manner that is 

adequate, and that the infrastructure is periodically modernized following cost benefit 

analysis to incorporate new technologies and to eliminate obsolete equipment.

6. Clean Energies: Smart grids must aid in meeting the clean energy and greenhouse 

gas reduction targets set in the law. The smart grid program during the planning, 

modernization and expansion of the electricity network, must take into consideration the 

open access to transmission and distribution networks and include analysis of high clean 

energy potential zones. The network expansion and technologies chosen must include 

conditions of economic sustainability according to best practices and to strengthen the 

reliability of the network.

7. Increased Participation of Electricity Users: The program will consider the gradual 

impact in tariffs to include attributes in the electricity system that permit increased 

interaction with the final consumers. In the determination and structuring of tariffs, 

elements of demand response and energy efficiency will be introduced to eventually 

administer a dynamic tariff system.

8. Additional Services: To maximize the investment in Smart Grids, it will be necessary 

to increase private sector participation in the planning of the national electricity system 

through their various chambers and associations.

Conclusion

The new planning criteria for the National Electric System and the incorporation of Smart Grid 

technologies shall contribute to improve the operation of the National Electrical System, by 

increasing its efficiency, resilience, flexibility, Quality, Reliability, Continuity, safety and 

sustainability. Smart grid technologies shall promote the integration of large and distributed 

renewable energies and storage devices in the network. New technologies shall allow dynamic 

optimization of the operation of the system, support management of the wholesale electricity 

market and allow an increasing interface with the consumer.

Table of Smart Grid Projects

The Smart Grid National Group, which is composed by SENER, CRE, CENACE, CFE, the 

National Institute of Electricity and Clean Energies (INEEL) and the National commission for 

the efficient use of energy, have identified in the following table, twenty-four Smart Grid initial 

projects that followed the eight drivers. The first three projects in the table are considered key 

projects for the system that everyone must apply, but that the system operator, CENACE, is 

responsible for. The other projects in the table are specific to CENACE, the transmission 

operator and the distribution operator. 
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