The digitalization of the power distribution system is seen as key part of the energy transition – yet in practice, it is making slow progress. In this interview, energy expert Bernhard Strohmayer from the German Association of Energy Market Innovators (bne) explains why the issue is not a lack of technical solutions, but a lack of implementation. He sheds light on the biggest structural challenges, identifies large untapped efficiency potential, and explains why neither grid operators nor consumers have really benefited from the smart meter rollout yet, providing a nuanced look at the current situation, existing deficits and the steps required for a high-performing energy system.
Mr. Strohmayer, there has been talk of smart grids and the digitalization of grids – especially the distribution system – for over ten years. What does this mean?
Digitalizing the distribution system primarily aims to improve the visibility and controllability of plants and grid components. This allows grid operators to better monitor and control plants, while market players benefit from a more accurate data for billing and new flexibility services – at least in theory. To make this happen, we need digital metering and communication systems that reliably gather and transfer data. But in practice, that rarely works – if ever.
It is important to distinguish between the digitalization of metering points (smart metering) and the digitalization of the grid itself (control rooms, transparency data etc.). Large plants have been digitally metered for several years. For small plants and households, the use of smart meters to collect and provide metering data cost-effectively is becoming increasingly common.
What are currently the biggest challenges of digitalizing the grid?
Digitalizing the grid concerns the grid infrastructure itself. It is about gathering information on the condition and utilization of power lines and operating equipment and processing that information with modern technology. In the past, this was usually unnecessary for distribution systems because the strain on the grid was almost entirely driven by consumption, which is relatively easy to predict. The rapid expansion of decentralized generation, energy storage, electromobility and heat pumps has made this rendered this approach outdated and no longer fit for purpose. Generation and flexibility have long existed at all grid levels, but distribution system operators’ control rooms and software systems seem overwhelmed by that. In addition, grid connection processes are still too manual and paper-based – this needs to change quickly.
According to energy expert Tim Meyer, digitalizing the power grid could save several billion euros. Where do these savings come from?
Most savings primarily come from the fact that digitalization and intelligent flexibilization allow the existing power distribution system to be used much more efficiently. The improved utilization of transformers, cables and switchgear reduces the investment required for physical grid expansion by up to 30 percent. Grid expansion will still be necessary, but without digitalization, we would have to build the grids with substantial reserve capacity, just as we did in the last century. Using existing and new grids more efficiently can save a lot of costs.
We need more transparency about the actual grid status, also for grid users. This could be achieved through variable grid charges or active flexibility procurement by grid operators, which would also reduce the need for grid expansion. Although the framework is provided by Section 14c of the Energy Industry Act (EnWG), no grid operators are currently doing this. We also need additional control options for grid operators, such as modern, functioning metering technology, intelligent switchgears and controllable secondary substation transformers, as well as the active involvement of producers and consumers.
Flexibility is enabled on the producer’s side through direct marketing and on the consumer’s side through flexible electricity tariffs. If grid operators achieved the same level of digitalization as the rest of the energy industry, variable grid charges could serve as price signals for grid utilization. This would allow existing grid capacity to be used more efficiently, reducing the need for grid expansion. Achieving this requires not only smart meters, but also improvements to grid operators’ processes. Hardly any grid operators are currently offering variable grid charges in accordance with Section 14a EnWG (Module 3), even though they are required to do so since April 2025.
Why do we only have a 5 percent smart meter uptake in Germany while many of our neighbors have 90–95 percent?
The low implementation rate is mainly due to the complex legal and technical structure. When the German Metering Point Operation Act (MsbG) came into force ten years ago, the goal was for the rollout to be largely completed by 2025. We have completely missed this target.
A key reason for this is the high complexity of Germany’s approach. Both the legal guidelines and the technical architecture, especially the smart meter gateway infrastructure, are very complicated. This has led to lengthy certification processes and, in some cases, to systems not being approved or getting shut down again later. Today’s advanced metering infrastructure also offers little real value to customers.
While the mandatory rollout has officially achieved its deployment targets, those targets covered only a small fraction of the relevant metering points and were not particularly ambitious. If we look internationally, other countries got started much earlier and adopted much simpler frameworks, enabling a faster rollout.
It boils down to a structural incentive problem. Legally responsible metering providers often focus on the installation rate – in other words, how many smart meters are being installed – while actual customer value and the practical use of the data receive little attention. Although smart meters are being installed, much of the value they could deliver for both customers and the energy system is still not being realized – from better tariffs and easier access to direct marketing to flexible control of heat pumps and EV chargers by grid operators and greater transparency across the grid. For competitive metering providers, delivering customer value is essential, making them a driving force behind many innovations.
What we need is not more pilot projects, but digital processes that work at scale. The smart meter rollout is often considered an infrastructure project rather than a platform for new energy-sector applications. But that is precisely the issue. If the focus is not on delivering value to customers, there is little incentive for broad adoption and active use.
he main benefit is the opportunity to earn money with flexibility and billing it efficiently. This includes dynamic electricity tariffs that vary depending on the current market situation, as well as the intelligent control of heat pumps and EV chargers.
Improved self-consumption of PV electricity also plays a big role. It requires direct marketing electricity tariffs – ideally with dynamic grid charges. The entire economy benefits when households can use and store energy at optimal times.
A very important one. The total battery capacity of electric vehicles has now reached 100 GWh. This effectively represents a large, decentralized energy storage system that could, in theory, provide significant flexibility to the grid.
However, this potential is not yet fully utilized due to a lack of intelligent control systems and, on the grid operator side, the necessary infrastructure. With intelligent charging and, in the future, bidirectional charging, electromobility could become an cornerstone of flexibility.
One clear and practical approach would be to set a simple, measurable target: By 2030, every grid-operator-owned transformer should be metered in a way that allows their operators to know the current capacity utilization. This would ensure broad visibility of the grid status, making it possible to see whether there is capacity for EV or photovoltaic feed-in or whether the grid is already fully utilized, which would in turn speed up and simplify implementation. What’s more, to fulfil their legal obligations, grid operators must be able to offer and bill variable grid charges. This does not require a five year plan, the German Federal Network Agency just needs to enforce its regulations.
For a successful smart meter rollout, it is important that smart meters are not only installed but also fully functional, so they can generate value in daily life – for example, through flexible tariffs, incentives for controllable loads or electricity tariffs for residential direct marketing. Once these benefits become visible, acceptance will increase and rollout will accelerate.
The fundamental problem is not technology. The solutions already exist. The problem is the complexity of the framework conditions and the resulting high costs and slow implementation. Grid operators have to catch up with the rest of the energy industry in terms of digitalization. They must quickly learn how to use variable grid charges to send signals on grid utilization.
If they succeed in putting both customer and system value at the center of the smart meter rollout, the digitalization of the grids could lead to a real step change within just a few years.