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By Jan Roschek, SVP Business Development & Strategic Partners
Europe’s changing energy landscape has turned Distribution System Operators (DSOs) into ‘losers’ within the energy sector. What can be done to save these operators from their current rut? A digital business model will be key.
You’ve no doubt heard of the concept of a ‘lose-lose’ situation. These are also called ‘no-win’ situations because they entail conditions in which those involved cannot be considered winners by any stretch of the imagination. Europe’s DSOs are trapped in a much worse context, one marked by a set of lose-lose-lose circumstances resulting from varied adverse conditions. See for yourself:
Ever since the 1990s, the DSOs of Europe have been trapped in the middle of a hierarchy that places generation, transmission, and supply above these operators’ main focus: energy distribution. Although distributing energy is an essential part of the energy supply, DSOs tend to be the most disliked component of the chain.
DSOs are not particularly popular with the public because the population’s taxes are usually used to cover the costs associated with expenditures. Moreover, since maintaining grid infrastructure is becoming increasingly expensive (and since grid stability is generally felt to be getting worse), DSOs have developed a contemptuous relationship with most members of the energy field (not least of which: the consumers).
To claim that Europe’s DSOs and TSOs have had a problematic relationship would be an understatement. The two entities, which should ostensibly rely on one another to ensure electricity is both transmitted (TSOs) and distributed (DSOs) appropriately, have been marked by a distinct one-way relationship. Actions are governed by TSOs while DSOs are essentially forced to follow the former’s orders.
What’s more, communication between the two has become stunted. This is problematic for several reasons, the most important of which is the increasing prevalence of renewable energy generation. Having renewable energy sources (RES) feed- into grids necessitates that energy systems be capable enough to avoid congestion. TSOs’ communication with DSOs is simply not strong enough to ensure that RES become appropriately integrated within the supply chain.
Unbundling requirements introduced in 2009 throughout the EU ensured that energy retailers would have access to energy consumers, but these have left DSOs unable to create connections with the latter. This is especially problematic for consumers who have adopted the moniker of ‘prosumer.’ In essence, DSOs are tasked with enabling the transaction of energy without being able to directly communicate with segments of the population responsible for creating said energy from home.
These conditions are not conducive to prosumer-focused business strategies. In fact, a 2018 report published by the European Commission found that “nowadays the number of DSOs handling prosumers and active consumers is still very limited.” No surprise considering prosumers and DSOs are essentially strangers.
The lose-lose-lose situation in which European DSOs now find themselves is not sustainable, both literally and figuratively. In a literal sense, operators are simply unable to ensure that the green energy being produced by prosumers and issued by RES are is optimally integrated within Europe’s energy pipeline. Figuratively, DSOs’ no-win context cannot be tolerated for much longer. The EU’s ‘Clean Energy for All Europeans’ package aims to create a carbon-neutral economy. It will be unable to do so unless DSOs grow out of their rut.
What’s needed is a new and improved business model able to transform DSOs’ ‘no-win’ context into an ‘all-win’ one. The first step is to improve the relationship between DSOs and TSOs. Improving these two entities’ partnerships would enable networks to be better managed and, consequently, permit prosumers and varying RES to enter the energy chain without issue. As a result, DSOs would no longer stand as disliked middlemen, but as a valued component of the generation-transmission-distribution-supply process. But how to ensure DSOs and TSOs’ increased cooperation going forward?
As in many other industries, digitisation appears to be the principal solution. DSOs DSO Digitisation would not only mean converting non-digital services to digital ones. It would mean completely redesigning their business model so as to make data central to their practices. Doing so would allow distributors to better manage their relationship with transmitters by dissolving the former’s reliance on the latter. It’s true: if, thanks to DSO digitisation, DSOs would no longer need to rely so heavily on TSOs for grid data, they would be more able to build a data strategy based on their own particular needs.
This would also ease processes of infrastructural maintenance since information regarding loads and grid behaviour would become directly available to DSOs and their employees. Not to mention, relying on their own data could also permit DSOs to create new ancillary services which they could sell to other members of the energy chain so as to become more cost-effective.
Digitised solutions are becoming increasingly popular because they give industries greater access to consumers, their wants, and their needs. In the case of DSO digitisation, it would unlock relationships with prosumers as well. Data-based practices make grids smart – so smart in fact that they become better able to integrate different power sources in order to distribute them in different directions.
This is a state of affairs that naturally benefits prosumers since it means the energy they produce at home can be shared (most likely for a profit). Consumers more broadly could also benefit from a data-based DSO scheme since smart grids are cheaper to maintain. In fact, some specialists have posited that
“Every 1 euro spent on digitized services saves 10 euros which would have alternatively been spent for copper in the ground.”
Since the general public is responsible for absorbing the costs associated with maintaining DSOs, populations at large could certainly benefit from a new and improved digital business model.
A report published by the Energy Post EU in May of this year claimed that switching to a digital business model would create a “data-rich value stream” for DSOs. It would also create circumstances rife for a new and improved ‘win-win-win’ context. Such a change would:
This last point is one that should be taken to heart by readers. DSOs may be one of the energy sector’s biggest losers currently, but the public too loses under distributors’ current circumstances. It is the populace that must pay to maintain distribution systems, even if these are ineffective and prevent the proper implementation of sustainable solutions. How long until Europeans see their money be put to better use?
Want to discuss how GreenCom can help DSOs with integrating decentralised energy resources? Get in contact.