SMIGHT

What do we mean by this? DNO stands for Distribution Network Operator and represents the traditional work that Distribution Network Operators have carried out for many decades. However, the energy transition is shaking up the world of DNOs and driving the need for them to become DSOs – Distribution System Operators. Where a DNO was more concerned with the building and maintaining of network infrastructure, a DSO’s work will involve the management of a complex web of resources balancing their varying needs. The regulator in the UK, Ofgem, sees the role and nature of DNOs and DSOs as being so different that they have pushed for traditional DNOs to setup independent DSOs divisions within their organisations. What should/could other countries do to support DNOs in becoming DSOs?

This difference in naming comes from the UK where DNO means Distribution Network Operator, and DSO means Distribution System Operator. However, the term DSO is more commonly used internationally to refer to distribution network operators in their broadest sense. Whilst this differentiated naming is particular to the UK market, what lies behind it applies to all Distribution Network Operators. It is this differentiation that we are going to talk about here.

The key differentiation is in the nature of the work. In the past the work of a DNO was to plan, build, and maintain the network. This required expertise in electrical engineering, construction, asset management, and regulatory affairs. The distribution network of the future will be a far more complex system of multiple players and more complex flows of electricity. The DSO of the future will need to manage this system and for that it will need to take a more wholistic approach and develop skills in AI, data handling, and IT & Comms infrastructure.

So, what does it mean for a DNO to become a DSO? It means learning new skills, developing new competencies and embracing new modes of operation.

In the UK, the approach has been to create separate discrete operations within the network operator organisation in recognition that the skills and mind sets, and even incentives, are too far apart to integrate. In Germany we are seeing that the larger network operators are developing new teams to take on these challenges. However, the smaller operators are struggling more with this as they don’t have the necessary size.

The main driver for this differentiation and separation in the UK came from the regulator, Ofgem, and in turn this was driven by the recognition of the fact that the traditional DNO business model wasn’t setup to embrace the new and evolving landscape being created by the energy transmission. Essentially this comes down to the fact that a DNO is incentivised to prioritise grid stability over the connection of new Low Carbon Technologies and is incentivised to build new network capacity as opposed to finding innovative solutions using existing capacity. In a specific situation this is how this plays out: A company would like to roll out EV chargers in a certain area – A DNO might first slow this roll out down citing a lack of network capacity, and would then solve this by reinforcing the network. The result is a slower transition to low carbon capacity and an increased cost due to the greater amount of infrastructure. A DSO would look at this and seek to work out how can we make these connections right now through smart management of the loads, and only build out the network if we really have to.

The challenge around the world will be how to transform DNOs into DSOs. As we’ve seen, in the UK this can be effectively achieved by the regulator. The German regulator BnetzA hasn’t quite taken the same steps but is also heavily steering the DNOs – from 1st January 2024 the DNOs are no longer allowed to deny connection requests from domestic customers. So, taking the example I had above of many households wanting to install EV charges – the DNO used to be able to simply deny the requests, now they must accept them even if this load is greater than what the network has been designed to take. To counterbalance this, the DNOs have been given permission to dim (turn down) the loads if they need to. So, the UK approach was to force the DNOs to create DSO functions within their businesses and dictate that they should be doing, but then allow the DNOs to work out how to implement this. In Germany by contrast the regulator has increased the pressure on the DNOs by ‘opening the flood gates’ but at the same time defining what the ‘smart’ response needs to be. This means the DNOs don’t need to ‘think’ much about what to do, they simply need to get on with implementing the processes dictated by the regulation.

Both approaches help ensure that grids don’t become the bottleneck of the energy transition and help steer DNOs to become DSOs. There are certainly other approaches that regulators could take or even the DNOs themselves. At the end of the day, it is money that talks. How DNOs are compensated for their investments and expenditure will be the strongest influencing factor on whether and how they can make the transition from DNO to DSO.

SMIGHT helps DNOs become DSOs by enabling them to digitise their low voltage grids. Helping them to identify points of congestion, increase network utilisation, plan better for the future, and control resources out on the network.

Once a household installs a large solar array on their roof, a largish battery, and a home energy management system they can cover around 75% of their energy consumption. They still need the access the grid though to cover the remaining 25% of their energy needs. Currently, in many countries the fees for the grid are based on total consumption – if the tendency is towards more and more own-production of electricity then the contribution to grid fees will steadily decline – whilst at the same time the grid needs to maintain the same capacity (and potentially more) and level of stability. Will this make the grid operators go bankrupt?

This is a real concern in some countries where the network operators don’t have particularly high financial means and where the regulator may be reluctant to allow the grid operators to charge more per unit of consumption as this will disproportionately penalise the poorer households who can’t afford to invest in their own energy production and storage.

So, what can be done about this? One saving grace might be EVs as those households who can afford solar systems and domestic storage are more likely to invest in an EV. With the EV comes a much higher level of electricity consumption even if they have a solar system. This can then help balance out the contribution to grid fees. In some countries this may well be enough to solve this problem, but not necessarily in all countries. Another mechanism could be charge households for the feed-in of solar generated electricity – in reality this may be tricky as the value of the electricity on the wholesale market is considerably lower than the grid fees that the grid operator would normally charge for the consumption of electricity – this would lead to households opting to simply not feed into the grid their surplus electricity and simply turn off their panels. This can’t be a good solution from a wider energy transition perspective. Another alternative is to switch from a total consumption model either to one purely based on peak load or one based on peak load and total consumption. Indeed, in some countries this move has already been made.