The Role of DSOs in the New Energy Market

03-Nov-2016 15:14:58

In this round table, we look at what to expect from distribution system operators in the “new energy market.” More specifically, we will discuss market redesign necessitated by rapidly proliferating renewables, changing energy policies, regulation, digitalization and their impact on the existing energy business and technological environment. At the outset, we acknowledge that there are obvious differences among European countries in the number, size and activity profile of DSOs, as well as in the technical characteristics of distribution systems and the challenges facing each network operator. This means that there is no hard and fast model for the role of the DSO and this conversation is intended to cover broad themes rather than the specifics of a particular market.

dso_article_1.jpgParticipants in the discussion 

  • João Torres, CEO of EDP Distribuição in Portugal and Chairman of EDSO, the European Distribution System Operators’ Association for Smart Grids.
  • Garrett Blaney, Chairperson of the Irish Commission for Energy Regulation, and Co-chair of the CEER Working Group on Distribution Systems.
  • John Harris, Head of Regulatory and Governmental Affairs at Landis+Gyr for the EMEA (Europe, Middle East and Africa) region

pathway: Let’s open by discussing what you consider the most significant changes currently taking place at the distribution level – and how these changes are contributing to the development of the new energy market or system?

John Harris: The whole energy supply framework – and the corresponding policy and regulation – is in a state of flux right now, and in the middle of all of this is the distribution network. Whether it is increasing the share of renewables in generation, enabling demand response or increasing consumer participation in the energy market, the role of the distribution system is key to the redesign of the power system and market.

João Torres: The world is now adding more renewable power capacity than new net capacity from all fossil fuels combined, and Europe wants to keep leading the way forward. This is just one of the major trends that is driving the changing DSO landscape.

Garrett Blaney: Two things are significantly driving change for distribution systems: Firstly, the wide scale deployment of distribution-connected renewable generators, and secondly the major changes in new technologies that impact on how energy is consumed. The challenge from a regulatory perspective is how to encourage distribution system operators, as neutral facilitators of the market, to embrace these changes to deliver positive consumer outcomes.

John Harris: All of these developments will significantly change the distribution system as we have known it in the past. As the majority of renewable capacity will be installed in the distribution grid, DSOs will have to make investments in intelligent technologies. The opportunities that these technologies open will then also be used to allow end consumers a more active role in the energy market. This, however, can only be achieved within a supportive policy and regulatory framework.

João Torres: Several other factors are worth mentioning as they too are shaping the future of the energy sector. Distributed energy resources (DER) and the different ways they can generate, manage and store energy on the consumer side are, by itself, a transformative force. Also extremely relevant is the digital evolution. Digital DSOs are moving towards a European digital single market (DSM), as well as exploiting synergies between the energy and the digital sector for the benefit of Europe’s citizens and economy. Digitalization will be the key to structuring ever more valuable interaction with smart cities and consumers.

pathway: What challenges, opportunities and benefits does the new market offer DSOs?

John Harris: The transformation of the energy supply system will present a number of challenges for the DSO, including how to keep the network stable in a world in which electricity flows are no longer mono-directional. In the past, electricity flowed from large power plants to end consumers. Now, we have a situation where electricity is being fed into the system at the end of the distribution network and flowing up. This is challenging.

João Torres: Depending on the dimension, location and availability of the emerging distributed energy resources, the power grid can be put under considerable stress, leading to poor quality of service and an increased risk of blackouts. The main players, including policy makers, regulators and consumers are not aware of this impact most of the time. Therefore, it’s a huge opportunity to engage consumers in an effective way. DSOs are key players in helping to raise awareness amongst consumers through better communication and secure data management, while delivering electricity safely and enabling market innovation and development.

John Harris: As regulated monopolies, the DSOs are much more restricted than other market actors in how they can respond to these challenges. Much will depend on how the discussions on market design, the “new deal for energy consumers,” a new renewables directive, etc. turn out in Brussels, and perhaps more importantly, how the new policy framework will be applied in the member states by the national regulatory authorities.

Garrett Blaney: There are about 2,400 DSOs across Europe and the size and scale of these organizations varies tremendously, so a “one size fits all” regulatory model is not appropriate. In the case of Ireland, for example, there is only one electricity DSO but in Germany there are over 800 of varying sizes. We develop best practice guidelines for European regulators to ensure that DSO changes align with positive consumer outcomes but how applicable these are varies on a case-by-case basis.

pathway: Could you discuss the role of DSOs in this new market? How does this affect the need for regulatory oversight, the relationship between DSO and TSO, the end consumers and other players? What economic and market conditions would prevail?

João Torres: DSOs are regulated entities and need to keep evolving their own roles as system operators and neutral market enablers and facilitators, which include data handling and provision, and the ability to make use of flexibility services through new distribution constraint market platforms, as well as by performing local balance activities. These are meant to provide the means for consumers to benefit from this emerging reality while ensuring system resilience through a cost-effective approach.

John Harris: The future role of the DSO is one of the most heavily discussed topics in Brussels right now. Will they be given a very restricted role i.e., safe and reliable electricity delivery between generator and consumer while keeping the network stable? Or will the DSO be able to commercially capitalize on the opportunities that new technologies and dynamic markets offer? Looking at the literature, I think the Commission and the regulators are considering a more restricted role for the DSO and to leave as much as possible to actors in the competitive environment, whereas the DSOs would like to see their role as “neutral market facilitators” remain as broad as possible. We shall see.

Garrett Blaney: In CEER we see DSOs as a neutral market facilitator that takes a more active role in grid management, forecasting and cooperating with stakeholders. We are working on guidelines to encourage efficient TSO/DSO interaction to benefit consumers and the market in general.

John Harris: With more generation connected at the DSO level and more active users, the interaction between DSO and TSO will intensify. Information exchange is required for real-time control and supervision, flexibility management, balancing, capacity management and planning.

João Torres: TSOs and DSOs remain responsible for the functioning of their respective grids and the legal tasks they are obliged to fulfill. Their cooperation, however, is already benefiting the future of energy in Europe. The recent publication of their common TSO/DSO data management report for instance, provides input to the European Commission for an appropriate framework.

Garrett Blaney: The need for good regulatory oversight has arguably increased, and CEER is working on a paper offering guidance on how regulatory incentives can adapt to the changing market. A Europe-wide energy market driven from the third package has benefited consumers across the union and CEER is keen that DSO regulation supports market development and avoids unnecessary distortions.

pathway: Could you discuss what key capabilities (business, operational, technical) the DSO needs to develop in order to take up its role in this new market space and, where relevant, what role your organization will play?

John Harris: In its current role, the DSO maintains and develops the network to provide non-discriminatory access to generators and consumers to secure, reliable and efficient delivery of electricity between access points. The DSO manages a number of processes such as handling connection requests, switching, and customers moving in and out. This role could be expanded to pre-qualification, activation, control and accounting of resources that participate to flexibility services. In addition, DSOs may aspire to take a role in storage, e-mobility and data management.

João Torres: If DSOs are to be allowed to move forward with the right approaches regarding the technical and market integration of distributed resources, including electric mobility and storage (grid-scale and in-home solutions), then there will be fewer opportunities for adverse events to occur, thus ensuring a more successful transition. Innovation needs to be incentivized, particularly through smart regulation that enables system operators to instance, in new ICT tools, grid digitization and smart grid solutions.

John Harris: Landis+Gyr provides solutions for digitization of the electrical grid. This includes communication networks, grid sensors and smart grid applications. These provide the foundations for building up key capabilities of the digital utility. We also collaborate with DSOs in exploring new business models, for instance, services based on our battery energy storage systems.

Garrett Blaney: In terms of key capabilities, the DSOs might usefully look at the changes and innovations that have transformed the telecoms sector over the last decade. This might, for example, give them useful indicators and insights for the future in terms of rate of change and how best to manage it. CEER provides numerous approaches – including incentives, best practices and training – to support DSOs and customers in the transition to the new energy market.

João Torres: EDSO for Smart Grids speaks on behalf of the electricity distribution business and is bringing smart grids from vision to reality. The association is the key interface between European DSOs and the EU institutions, promoting the development and large-scale testing of smart grid models and technologies in real-life situations, and new market designs.


João Torres
João Torres is CEO of EDP Distribuição in Portugal. Under his leadership, EDPD has deployed innovative grid solutions that demonstrate the technological, societal and economic value of smart grid implementation. He has been serving as the Chairman of the European electricity distributors’ association, EDSO for Smart Grids since 2013. The association is focused on guiding EU RD&D, policy and member state regulation to bring smart grids from vision to reality in Europe.

John Harris
John Harris is Vice President and Head of Regulatory and Governmental Affairs for EMEA at Landis+Gyr. He acts as the communication interface between Landis+Gyr and legislators and other stakeholders across Europe regarding the environmental and energy policy debate as it relates to smart metering and smart grid – the subjects gaining increasing attention in the minds of policymakers and energy utility executives.

Garrett Blaney
Garrett Blaney is Chairperson of the Irish Commission for Energy Regulation (CER), and Co-chair of the Council of European Energy Regulators (CEER) Working Group on Distribution Systems. His lead responsibilities within the CER relate to electricity and gas wholesale markets, networks and interconnection, as well as European regulatory affairs. Blaney is also responsible for security of supply, renewable and conventional generation, research and development at CER.

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