The DNO-DSO journey part three – future responsibilities of DSOs
In my last blog, I opined that the future state for the UK power industry in the light of the DSO journey was one of “Managed Interdependence” This model consists of a coordinated power system, with a larger number of small DSOs managing small independent Distributed Energy Resources (DER) supplied areas, with the national TSO shifting focus from predominantly managing supply through large assets to managing interdependence between areas.
If we assume the Managed Interdependence model then the DSO of the future will be responsible for a number of core services, with others that it may take on for business benefit. These core services will include coordination and balancing of the system; and an organisation that creates the best platform for engaging all parties could dominate the new DSO market. This will entail balancing energy demands at a distribution level across the network through access to DER suppliers, heat networks, and the TSO. Interaction with the TSO will also support transmission-level balancing, as DSOs in different regions will have varying supply-demand balances depending upon geography, nature of built environment and demographics.
To achieve this position, the DSOs will be in charge of an increasingly smart distribution grid as well as acting as a facilitator for the suppliers, Prosumers and other generators that access the grid. As such they will need to adapt their interactions to most efficiently meet the commitment of their core services.
Beyond this there is the opportunity for the DSO to provide other services to enhance market share and profitability.
- Active local electricity market facilitation, or network platform, for DER. Network access for other third parties. This includes formally contracting with Prosumers, generators, storage, aggregators and electric vehicle charge points for services to deliver the response required by the distribution grid.
- Becoming an owner and/or operator of electric vehicle charging infrastructure. This could even extend to owning/operating an electric car rental business as a way of providing mobile energy management.
- Providing energy efficiency and environmental consultancy services, such as options appraisals and potentially investment and/or entering into joint ventures on energy efficiency projects.
- Becoming an owner and/or operator of power storage and CHP plant, which may become increasingly important when the supply of DER power starts to outstrip demand in certain regions (this would require regulatory change).
- Taking on the ownership and management of public lighting, as opposed to just supplying the power, as is the model for some European DSOs.
- Provision of energy and consumption data at grid and micro grid/local level. There is large commerciality around the resale of insights derived from this data especially if the ‘energy intensity’ data is matched with socio-demographic, climate, travel to work, spend and other market variance data. (This type of data analysis could be the platform for a Green Bank concept and allow for investment and carbon reduction evidenced through consumption, production and network losses to support sustainability and carbon reduction.)
Given the market model and the core/potential responsibilities, the shape of the DSOs’ contractual relationship with the overall system will have many touch points. These contractual relationships will involve the TSO, neighbouring DSOs, and a wide range of DER generators. Each of these represents a contractual/business relationship that will need to be set up and managed. One of the key aspects to note is that the TSO/DSO relationship is no longer a ‘centre-out’ one. It becomes highly two-way and may even be owned/driven more by the DSO than the TSO as the balance of power generation shifts from large central plants to regional DSO-controlled DER networks. DSOs thereby act as both market intermediary and market for distribution and associated network services. The model below illustrates the increased contractual complexity DSOs will need to manage.
Energy efficiency consultancy is an interesting opportunity for the DSO. They have the opportunity to develop platforms to facilitate more DER and demand-side management. This will allow them to work with consumers to identify how they most effectively interact with these platforms to regulate their demand in terms of volume and timing or consumption, and to choose where their energy is generated (and how much could be self-generated/stored). Given the visibility DSOs will have of both the demand and supply patterns of energy for all types of consumer they will be perfectly placed to provide this service.
DSOs could offer environmental services centred on green tariffs and the ability to identify and manage green energy use in a manner that supports carbon credits, largely in the industrial and commercial markets as an extension to what is in place today. The competition for DSOs in this space will come from the larger environmental consulting businesses.
Of course, for the DSO to take on many of the above service offerings and work within the contractual/relationship framework set out above, there would need to be a shift in the regulatory landscape. In addition, the DSO would need to review its value chain and business model. These points will be discussed in upcoming blogs.