The DSO model: The challenge of transformational change in the UK Energy market

Publish date:

The DSO will be one of the critical parties as the country undertakes its journey toward a highly decentralized and low-carbon industry model.

Coverage of this series of blogs

The purpose of this series of blogs is to follow on from my series last year, which covered the high-level DNO–DSO journey, and to cover the business model of the DSO under the inevitability of a need to separate the system operator (SO) from the asset owner (AO). This series will also cover the timing of such a split.

This first blog resets the scene for the DSO, covering how the nature of the UK power industry is changing around us; and what the place of the DSO will be in the next 5–10 years.

 

The changing nature of the industry

The mainland UK will be challenged to provide affordable, sustainable, and secure electricity supplies against a background of rapid change in the way that energy is produced, moved, and consumed. With these challenges, however, comes the opportunity for the industry to examine existing and assumed business models and develop an approach that delivers maximum value for consumers and society.

The push for distributed energy resources (DER) and renewable generation technologies, such as solar and wind, will continue to grow. These technologies are predominantly connected to the distribution network as opposed to being centrally connected (with the exception of offshore wind). This structure has fundamental implications for how the DSO must operate to make the system work for the benefit of all. Technologies that are growing in sophistication and prevalence, such as EVs and battery storage, will also form an essential part of the transition to a low-carbon energy system. The role of the DSO will be central to driving the pace of energy transition to enable greater economic and environmental good.

Some studies suggest that EVs will comprise the majority of new cars sold as early as 2027 and National Grid’s 2017 “Future Energy Scenarios” report indicated that 34–40% of electricity generation will come from decentralized sources by 2025. This suggests that the technological tipping point for the new market model will be 2027 at the latest.

 

The future role of the DSO

The DSO will be one of the critical parties as the country undertakes its journey toward a highly decentralized and low-carbon industry model. Its overarching purpose will be to operate the electricity distribution system to benefit all stakeholders, particularly the ultimate end user – the bill payer. This can be achieved primarily by identifying and deploying the most efficient and effective solutions for maintaining and modernizing the distribution network. In turn, this requires a step change in investment decision-making and the need to incorporate a broader spectrum of solutions from both a technological and commercial perspective.

DSOs will find themselves at the pivot point of industry frameworks that are undergoing fundamental change, particularly methods of network charging and overall market access. As a result, they will have many more contractual relationships and interactions than the current DNO. These will involve the Great Britain System Operator, National Grid (GBSO), neighboring DSOs, and a wide range of DER generation and storage customers. Each of the arrows in the model below indicates the need for the creation and management of a new business relationship, showing how complex this new structure will become. Indeed, this complexity will be further exacerbated by suppliers owning smart charging points with generation (e.g., Ecotricity). Ownership at both ends of the supply chain will be challenged more and more.

Figure 1: The increased contractual complexity DSOs will need to manage (taken from “The Distribution System Operator (DSO) Journey: Challenges and Opportunity in the UK Energy Industry” by D. Butcher, page 7)

DSOs are evolving in an electricity industry with many new actors and stakeholders, all of which require a level playing field to be able to access the market and system. This can be likened to the mobile telephony market moving from calls to data. The change here will be a move toward providing platforms to allow services to be delivered such as keeping your house warm or managing the EV you drive. However, this will not happen until the new DSO companies have a platform of trust upon which they can build their brand. They have little brand equity today as the public generally knows their supplier better than their DNO. The DSO must understand and develop competitive models to engage with this new and emerging market

In its role of supporting the drive for efficiency across the entire electricity system and facilitating market access, the DSO is almost unrecognizable from the DNO model it will replace. The DSO must adopt new approaches, collaborating with a wider range of partners and engaging with the public prosumer (a household which both produces and consumes electricity).

 

In the next blog in the series, published next month, I will cover the emerging problems for the DSO role under the current DNO structure, and how this can be resolved.

Related Posts

DSO

The DSO model: The objectives of a separated system operator

David Butcher
Date icon December 4, 2018

We take our discussion of a separated SO a little deeper into its objectives and define what...

DSO

The DSO model: How will separated SOs benefit the UK’s power industry?

David Butcher
Date icon October 24, 2018

Learn how the electricity market actors will look within the next 10 years and why a...

DSO

The DSO model: The emerging challenges with the DSO role

David Butcher
Date icon September 10, 2018

DSO will be required to balance demand and supply in real time while connecting new and...

cookies.

By continuing to navigate on this website, you accept the use of cookies.

For more information and to change the setting of cookies on your computer, please read our Privacy Policy.

Close

Close cookie information