The transition to low-carbon energy systems is the pivotal political economy issue for the EU, as it stands in the nexus of energy, politics and markets. With power markets developing into dynamic energy system integrators, smart grids emerge as the all-powerful structures that can help achieve the EU’s three principal energy security goals, namely sustainability, security of supply and affordability. Smart grids integrate renewable sources at the upstream level, advance overall renewable generation, including self-generation, enable energy efficiency and conservation, and promise to achieve low carbon security and hedge against the volatility of international energy markets. On the other hand, smart grids call for high upfront investments and the establishment of functional markets that necessitate large-scale citizens’ engagement, incentivization and education, as well as bridging the voluminous gap between textbook economics and the economy’s actual workings. Moreover, while realizing the transition to constantly balanced power loads by means of demand response management is highly promising, it may also generate a handful of adverse results. This chapter aims to critically discuss the trade-offs involved in the roll-out of smart grids and the existent barriers. In doing so, it provides a clear overview of the current state of the art, and suggests future research pathways.