Unrelenting increases in electricity demand: Rising world population, the growing affluence of emerging nations, and escalating demand for goods and services that require ever more electricity, and the growing need for the unique properties of electricity in an increasingly digital world are all driving the demand for power to unprecedented levels. In India’s high-growth economy, for example, the demand for electricity is forecast to grow by an estimated 7.5 % per year until the existing supply demand gap is closed. As per world energy outlook 2014 factsheet, world electricity demand increases by almost 80% over the period 2012-2040.

Global Warming: It is well known to us that fossil fuel based electricity production and transportation is a major source of carbon emissions. This carbon emission causes global warming i.e., serious damage to the world’s ecology. Hence it is required to create sustainable, low carbon, high-growth environment. The smart grid has potential to conserve energy, both through reducing demand at peak times and by deploying renewable energy sources, thus lessening the industry’s contribution to climate change.

An upturn in unit costs of electricity: It is becoming more apparent that the long-term trend of rising unit costs of electricity began as long ago as the late 1960s, after nearly a half century of declining unit costs. Many factors will continue to put upward pressure on costs, including increased commodity prices, especially for oil and gas, plus “dispatchability” and thus lower plant load factors for renewable energy sources, among others. At the same time, a construction cycle of historic proportions is unfolding for utilities to replace and renew the aging transmission and distribution infrastructure.

Reliability : The electric utility industry is facing a decline in quality at the same time unit costs are rising. The United States, for example, has experienced 5 massive blackouts in the last 40 years (3 of them in the last 10 years) that have left a deep scar on the industry and, perhaps more so, society, as well as government and regulators. In the United States, these blackouts led to the codification of reliability standards and the imposition of regulations with stiff penalties to govern the reliability of bulk power supply networks. An important goal of the smart grid vision is a network that can improve outage management performance by responding faster to repair equipment before it fails unexpectedly.

Efficiency : The smart grid can improve load factors and reduce system losses. According to the US Department of Energy’s (DOE) estimates, if the US electricity system were just 5% more efficient, the energy savings would be equivalent to eliminating the fuel and greenhouse gas (water vapour, CO2, CH4, N20, O3, CFC) emissions produced by 53 million cars.

Cost Savings: With electricity prices set to continue rising sharply, the smart grid will offer consumers choices that could reduce their bills. It can offer time-of-use and possibly even real-time pricing, as opposed to the flat rate retail tariffs. When consumers respond to such tariffs through a smart grid, peak load would be reduced, which will improve asset utilization and in turn lower per-unit generating costs.

Grid Improvement: Electricity demand in most of the countries are growing much faster than the transmission system. Thus, transmission system is under tremendous strain and only marginally stable. This may lead to cascade failure i.e., blackout. To overcome such problem we need to will improve the grid’s resilience and robustness i.e., smart grid concept is required.

Technological Advances: As costs are headed up and reliability is slipping, it is required to install huge number of measuring devices throughout the grid for monitoring and controlling actions. The advances in computing and telecommunications have potential to improve system operations. Thus, it an ideal candidate for smart grid.

Improved Customer Satisfaction: If per unit cost of electricity cannot be driven down, the utility industry will need to improve the quality of power supply. Since the smart grid promises to give customers more control over their use of electricity, it could enable customers to minimize the total amount of their bills. So even though unit prices may not go down, the total size of a customer’s bill could be minimized if not absolutely reduced. The total amount of a bill has a much bigger impact on customer satisfaction than unit price.

Electric Vehicles: Smart grid has potential in reducing carbon emission by using plug-in electric vehicles (PEVs) and their hybrids. PEVs can be plugged into a standard household electrical outlet to recharge their batteries. The technology is still expensive due to the cost of batteries, but government is supporting the development of storage technology. An increase in production volumes would also help lower unit costs. An addition to the potential of PEVs, the collective storage capacity of PEVs could serve as reserve storage capacity for a microgrid to help balance an unanticipated outage or shortfall in supply.

Increase In Electricity Demand & Supply Shortfall: Demand, especially peak demand, continues to outpace India’s power supply. The increasing affordability of household appliances is adding to the burden on the grid. It's estimated that India’s demand shortfall are 12% for total energy and 16% for peak demand. Managing growth and ensuring supply is a major driver for all programs of the Indian power sector.

Loss reduction: India’s aggregate technical and commercial losses is about 32 % of installed generating capacity, but could be higher because substantial fraction of the population is not metered and the lack of transparency. Smart grid can make a substantial contribution in reducing these losses.

Managing the “human element” in system operations: Human errors and deliberate errors can be lowered by using smart instruments like smart meters. Automated meter reading would lower recording and other errors — including what are known as “shade tree” readings or deliberate errors, which are thought to be significant reasons for losses.

Peak load management: A smart grid would allow more “intelligent” load control, either through direct control or economic pricing incentives that are communicated to customers in a dynamic manner. Such measures would help mitigate the supply-demand gap.

Renewable energy: As fossil fuels are limited and India is largely dependent on imported fossil fuels (38% in 2012, 53% by 2030). So, it become essential to use power plants based on renewable energy resources rather than fossil fuel based power plants. Encouraged by environmental concerns and the desire to tap into all available sources of power, this move can also be a smart grid driver.

Technological leapfrogging: India has huge potential to “leapfrog” into a new future for electricity, as it did with telecommunications, with the help of ICT. Also, the “smart” in a smart grid is ICT — an area of unique capability in India.

Reliability: Smart grid can improve outage management performance by responding faster to repair equipment before it fails unexpectedly.

Efficiency: The smart grid can improve load factors and reduce system losses.

Grid improvement: Electricity demand in India is growing much faster than the transmission system, making the transmission system in tremendous strain. The smart grid will improve the grid’s resilience and robustness.