What does DSO really mean?

Distribution network operators are starting their transition to distribution system operators, but the industry lacks consensus on what the role really entails.

What does DSO really mean?

The government’s long-awaited smart systems consultation is heralded as the vehicle through which the barriers that are obstructing the move towards a smarter energy system will finally be addressed.

One of those barriers is the lack of a clear definition of storage – which currently holds a double identity as both generation and demand. But there is still little clarity and consensus on another definition that will arguably be the lynchpin of a future smart system – what exactly is a distribution system operator (DSO) in a UK context?

In the rest of Europe, the DSO is the generic term for a company that performs a role equivalent to that of a DNO in the UK, but it does not necessarily mean they are “smart”. In the UK this is integral to its meaning. DSOs will have greater visibility and control of assets on their distribution systems, enabling them to get the most from their existing electrical infrastructure by contracting services from distributed energy resources. In this way, they can avoid costly network reinforcement and move away from the traditional redundancy-based model of energy systems.

The case for the market role of the DSO is well known. Rapidly increasing numbers of connection requests from renewables developers and other low carbon generation technologies with variable outputs are creating technical challenges for DNOs.

There is also expected to be an increase in demand as a result of the electrification of a portion of the UK’s heat needs; increased multi-vector interaction between the energy, transport and waste sectors; and a need to allow incentives to emerge to enable customers to save money through active participation. This means DNOs can no longer remain passive when it comes to managing the energy flows on their systems.

But opinion is divided over who is best placed to control the system. Should a central independent SO have ultimate control over the entire system? Or would DSOs with enhanced vision over the continually increasing amount of distributed generation attached to their distribution assets be in a better position to balance the system and utilise services such as demand-side response (DSR) and storage?

It cannot be both. Flexible methods of connection are being introduced by all UK DNOs, but it is possible that these active network management schemes will contradict actions undertaken by system operators through bilateral agreements.

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In the absence of guidance from either Ofgem or the government, SP Energy Networks (SPEN) has laid out its intended role in the future market. In its DSO vision, published last month, SPEN weighs up four possible DSO models before opting for the option of most control: total DSO.


• SPEN envisions transitioning towards becoming a full DSO to facilitate an open and inclusive balancing services market at the transmission/distribution interface, while also carrying out local system balancing to efficiently utilise the distribution network.

• The DSO model will be capable of enacting system balancing actions from the SO within timescales that best meet the needs of the SO and the capabilities of the DERs connected to our network areas.

• SPEN’s transition to a DSO will be both modular and proportionate.

• It will work with key stakeholders to develop and implement a fair and cost effective remuneration mechanism for all DSO services and DER providers.

• SPEN will undertake trials in two areas – Dumfries and Galloway and Mid and North Wales will be undertaken to test the DSO model and inform its future form.

• Key policy changes will be necessary to allow the remuneration process for DSOs and enable them to procure services for subsequent re-sale. A decision on whether or not DSOs will be able to own and operate storage DER resources is also needed.

• Local control would be best placed to meet local customer service requirements

Through an internal DSO steering group, the network operator has concluded that this model would be the most appropriate one for the UK. Its benefits include meeting local customer service requirements to the fullest, scalable architecture and aligned responsibilities along the asset ownership boundary.

The Total DSO model involves the DNOs extending their role to manage all distributed energy resources (DERs) below the transmission/distribution boundary. The DSO would then respond to instructions from the SO and manage the DERs to best meet these instructions. The DSO would also have to facilitate an ancillary services market for DERs.

This approach would not be without its challenges. Regulation will be required to standardise the approach among all the DSOs to ensure a fair market, and the necessary changes to existing commercial and regulatory frameworks would be the most extensive of all the options.

SPEN says that by pragmatically developing new relationships with customers connected to the distribution network to optimise the efficiency of network operation across the full supply chain, the DSO will have a greater positive impact than if a single stakeholder were to attempt to implement changes unilaterally.

Other options to this model being considered by industry include “deep TSO” and “independent SO”. SPEN dismisses one idea – a single National System Operator (NSO) that can be clearly identified and held accountable across both transmission and distribution – as “impractical” and “uneconomic” and says it will “result in extra reinforcement of the distribution and transmission networks.” Alongside this, the complexity and scale of the communications, control systems, data handling and processing requirements would make the development of a single, integrated monitoring and control system “highly challenging to deliver”.

SPEN adds that the continued operation of the SO in an environment where it has limited visibility and rising uncertainty, coupled with insufficient resources to deliver the required ancillary and balancing services, will increase the cost of balancing the system.

Much better, it says, would be to allow DSOs with their unique understanding of the local networks and access to distributed customers to move from “merely an asset management organisation” to “a neutral market facilitator”.

Benefits of Total DSO model

• Scalable architecture
• Responsibilities of DSO align with asset ownership boundary
• DNO carrying out DSO role would be best placed to manage new requirements alongside existing customer and stakeholder priorities
• No resource contention
• Can compare relative DSO performance and reward appropriately
• No ambiguity of control
• Could drive different approaches and innovation across DSOs
• Can be locally responsive with locally specific solutions
• Potential for innovative localised customer propositions from local suppliers
• Can be piloted in an area or a community


• Regulation will be required to standardise approach across DSOs, so that national customers and retailers can operate fairly across the UK
• Most significant commercial and regulatory change required of the DSO models discussed
• DNOs would need to adapt their roles to market facilitators on a real time basis

Not everybody is a fan of this approach. Back in June the Italian transmission system operator shot down suggestions of increasing control for DNOs as “dangerous”, saying if the system is not properly co-ordinated “it is dangerous and could lead to an excess of power”.

It acknowledged that several models could work to balance distributed generation, but they all still need overall co-ordination from a central position. The UK government, while actively exploring how an increasingly independent SO might work, has also said that overall control does not necessarily have to be awarded to one body, and a more collaborative approach could be employed.

The industry would do well to come to a resolution quickly as there have already been warnings about the ongoing tensions holding back the ancillary services market. But the solution must not be a dictatorship, Flexitricity spoke up at the LCNI market to warn delegates that the wish of the DSR market to be allowed to have a continuing relationship with the transmission market should not be ignored.

SPEN’s DSO vision

SPEN wants to transition towards becoming a full DSO that will facilitate an open and inclusive balancing services market at the transmission/distribution interface. The DSO will also carry out local system balancing efficiently using the distribution network. DERs will be aggregated into virtual power plant (VPP) or virtual balancing mechanism units (VBMUs), which will interface with the SO to act on balancing instructions. DSOs will have to facilitate a market for this aggregation, which will demand the development of a mechanism for remuneration for DERs for the services they provide.

SPEN says this approach “will be critical to ensure that the market is prepared for the emergence of new participants”.

The DSO will also balance the local distribution network, making effective use of the existing distribution network and, where it is practical to do so, matching local generation with local demand. The increased information on system use will also act as an investment driver, identifying where further network reinforcement is necessary.

The model will be capable of enacting system balancing actions from the SO within timescales that best meet the needs of the SO and the capabilities of the DERs connected throughout its network areas. If SPEN is to realise its DSO vision, it is critically important that there is a communications infrastructure that provides a seamless interface between the TSO, its control facilities and the aggregated DER resources.

SPEN intends to transition to a DSO in stages, identifying those network areas in most urgent need of real time monitoring. But the evolution will not be absolute. Not all network and geographic areas will require the full range of integration and DSO services. Instead, suitable monitoring technology will have to be installed. By taking this approach, SPEN will undertake “no regret” actions because these are already required for the transition towards smart grids, while the modular aspect will allow testing of the model in a controlled manner.

Active network management (ANM)

ANM will be the cornerstone of the transition to DSO and the technology is largely proven – although two key areas still require development.

First, the standardisation of solutions and the interface with communication networks to enable innovation. This will also have the effect of reducing the implementation cost for these solutions, driving further efficiency.

Second, more advanced optimisation tools, software and data management methods will be required to provide a number of axes of optimisation.


SPEN is planning trials in two DSO-enabled network areas within the current price control period.

• Dumfries and Galloway This network area is rich in natural resources but demand is relatively low. There is 340MW of distributed generation connected and just 190MW of demand, making the area a net exporter of energy. A solution to connect a further 660MW of contracted generation on both the transmission and distribution systems is required, but the SO determined that SPEN’s original solution is not the most cost-effective option. It will therefore seek to develop the area into a DSO-enabled network to facilitate the connections.

• North and Mid Wales This area includes a range of urban and rural environments with a significant penetration of distributed generation. There is currently 800MW of demand with 800MW DG connected and a further 700MW contracted to connect to the network. To facilitate this future generation, SPEN intends to use solutions including ANM, enhanced thermal ratings, battery storage and direct current cables. The heavily meshed nature of the network will allow SPEN to demonstrate ANM solutions on this type of network architecture. 


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