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The DNO-DSO journey part two – the future state of the industry

Category : Digital Strategies

 The DNO-DSO journey part two – the future state of the industry

As discussed in my first blog, the nature of energy generation and distribution is changing from a one-way process, with supply going from producer to the consumer, to a more distributed network where individuals and businesses are no longer simply consumers: they have the means to produce and supply power to the grid themselves. This has significant implications for the UK’s power generation and distribution industry as Distributed Energy Resources (DER), such as solar and wind power, change the way the grid operates. The system of the future will be less about transmitting power from a central source and more about the local management and balancing of generation, supply, demand and storage.

 

The future state options towards the end of RIIO2

Faced with this fundamental change, today’s DNOs must begin the transformation to a DSO over the next two years, developing the functionality and culture required to exploit the opportunity to grow and increase margin. However, there remains a question about how the wider industry will structure itself to accommodate the change. Broadly, there are four possible future states for the industry when we approach the end of RIIO2:

  1. New Game, Same Players

A ‘status quo’ model where the national TSO and DSOs remain the size and shape that they are, large assets provide the bulk of power needs and DER holds a complementary role. Key characteristics of this future state would be:

  • National Grid maintains its role in coordinating generation and transmission UK wide
  • DSOs retain distribution role, but increase role into capacity and security
  • Microgrids play some part in power generation, supply contracts with DSOs
  • Large power generation & transport assets continue to provide a large % of UK needs

 

  1. Thin TSO, Broad DSO

A fragmented power system, with a small number of large DSOs coordinating wide areas, and a reduced role for the national TSO. Key characteristics of this future state would be:

  • National Grid’s role reduces as UK-wide supply and coordination reduces, a reduced number of large generation/transport assets remain in operation
  • DSOs increase in size and scope, encouraging local generation and increased role in capacity/security
  • Microgrids play a part in regional power generation/transport, Microgrids contract with DSOs

 

  1. Ecosystem

A fragmented power system, with a larger number of small DSOs managing small independent areas and a reduced role for the national TSO. Key characteristics of this future state would be:

  • National Grid’s role reduces as UK-wide supply and coordination reduces, new large power generation/transport assets are rare
  • DSOs increase in number, but reduce in size as more players enter the market. Capacity and security becomes highly regionalized
  • Microgrids play a large part in regional power generation/transport. MicroGrids group together or contract with DSOs

 

  1. Managed Interdependence

A coordinated power system, with a larger number of small DSOs managing small independent DER-supplied areas. The national TSO shifts focus from predominantly managing supply through large assets to managing interdependence between areas. Key characteristics of this future state would be:

  • National Grid maintains its role in coordinating generation and transmission UK wide
  • Independent (or subsidiary) smaller DSOs collaborating/contracting with NG to coordinate on a national and area basis
  • MicroGrids play a large part in regional power generation/transport. MicroGrids contract with DSOs. New large power generation/transport assets are rare.

 

Where are we likely to end up?

Managed Interdependence seems the most likely future UK model for a number of reasons:

  • There is still a clear need to coordinate the UK power system at a macro-level, regardless of where power is generated, due to the fact that access to power is a public need and some large generation will endure due to its inherent efficiency. Therefore there will need to be an overseeing TSO role.
  • The increasing proliferation of DER will require more localized management which would lend itself well to smaller, focused System Operation business units that may be subsidiaries of parents which were the original DNOs we see today.
  • Given the potential to separate Transmission Owner and System Operator roles, the opportunity exists for DSOs to own numerous smaller System Operation business units to enable them to be more nimble contractually in a very open market.

Therefore DNOs must act quickly to align themselves to the Managed Interdependence model. If the existing DNOs wish to be among those providing the future DSO services the pace of change needs to be high as other organizations will be ready to enter the DSO market and provide competition. Current DNOs must act quickly to prepare themselves to operate in the above model.

About the author

David Butcher
David Butcher

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