A new world order

Many of the distribution network operators (DNOs) have made bold statements about what they think the next steps are for the upcoming transition to distribution system operator (DSO). SPEN published its DSO vision in October 2016, and ENW, WPD, UKPN and SSEN have all made similar statements in the press or in association with innovation projects – CLASS, NTVV, NINES and ARC, to name but a few.

Time for transition

Ofgem has made it clear that it expects DNOs to begin making this transition towards a DSO before the start of the next regulatory period. In order to be able to roll out DSO business models in RIIO-ED2, innovation trials and demonstrations proving these models need to be taking place in the short term to lay the foundations for the transition. This urgency was reflected in the recent calls for third party NIC ideas, with both SPEN and SSEN highlighting the DSO transition as an area of focus for innovation projects this year. A quick look at the initial screen submissions shows that the message has been received and that DNOs are now responding to Ofgem’s call for action. The list of proposed projects ranges from those looking at DSO transition in particular, to others focusing on system flexibility and market potential.

The first real-world demonstration of Active Network Management (ANM) technology in the UK began in 2008, and now managed connections are becoming a commonplace connection choice offered by the DNOs. Wider stakeholders understand that there has been a significant shift in the DNO business model to accommodate managed connections as part of business-as-usual operations. However, the slow transition could be attributed to the relatively small incentive in place for DNOs to deploy managed connections.

Who benefits?

The key beneficiary in this case is not the DNO but the developer, who as a result enjoys a cheaper and faster connection to the network.

With the current setup in mind, the transition to a DSO could potentially unlock more benefits for the DNO, in addition to benefits to users of the system. By democratising the energy market, and opening up both new and existing markets to additional participants, it introduces more competition, therefore potentially driving down the cost of system balancing at both distribution and transmission level. The benefit to the DSO is that there would be new incentives to be accessed, and profits to be made, from running an efficient market system in a way we would assume to be similar to the current TSO incentives.

Step in the right direction 

Regardless of where the benefit lies, the DSO transition can be seen as a step in the right direction in terms of improving visibility and flexibility of the whole system. As is often the case, the technical enablers needed to implement the DSO model are already available and ready to be deployed. The focus now should be on understanding the commercial and regulatory requirements associated with the DSO transition.

 

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