Time for an EU entity for distribution system operators?

European Distribution System Operators for Smart Grids wants to play a key role in Europe’s energy transformation.

European Distribution System Operators (EDSO) for Smart Grids, an organisation that represents large European distribution system operators, is proposing that it drives the establishment of an ‘EU-DSO entity’. The proposal has been submitted to the European Commission.

This is in response to the Commission’s call last year for an organisation to establish an European Union-wide entity that will play a key role in the transformation of the electricity market. EDSO for Smart Grids say they can play this role.

The changing role of DSOs

The European energy market faces a major transition from a centralised system built on large oil, gas and nuclear plants to one that is characterised by distributed renewable generation, smart grids and electric cars.

For this reason, the changing role of distribution system operators (DSOs) is becoming increasingly complex. DSOs are now expected to connect this new decentralised generation and enable new market models that empower individual consumers and communities.

For the EU, the European Commission’s Clean Energy Package, is a turning point in the energy transition process. In this proposal, the Commission initiates a complete electricity market redesign as well as proposing new renewables and energy efficiency targets for the EU for 2030.

The Clean Energy Package certainly challenges the sector to question the roles that will be relevant in the new energy future, DSOs not excluded. Like the Transmission System Operators (TSOs), which operate the high-voltage networks, the DSOs are regulated entities, not market parties, explains Roberto Zangrandi, Secretary General of EDSO in a statement. DSOs are market facilitators, he adds.

There are many grey areas between the market and the regulated sector. There are many questions that beg answers. For instance, should electricity storage be a market or a regulated activity and should DSOs offer an electric vehicle charging service or should this be left to market parties?

The EU-DSO entity proposal

An additional complication is that unlike the TSOs, who have a single organisation (ENTSO-E), DSOs are represented in four different trade associations that are active in Brussels: Eurelectric, GEODE, CEDEC and EDSO for Smart Grids. But now, the Commission, in its Clean Energy Package, asks DSOs to establish a single “European Entity for Distribution System Operators”.

On 17 May, in the framework of the 32nd Florence Forum for Electricity regulation (a key multi-stakeholder platform set up by the European Commission to advance the internal electricity market), EDSO sent an “operative proposal” to the European Commission in which it outlines how such an EU DSO entity could be organised. EDSO’s cover letter stated it is ‘ready to be the vehicle supporting the legislative process’ by which the EU DSO entity would be set up, and offers to “actively organize and run all preliminary activities”.

EDSO strictly unbundled

In the Clean Energy Package, the Commission stresses that the DSOs that are to form part of the DSO entity should be “unbundled”. It asks “distribution system operators which are not part of a vertically integrated undertaking or which are unbundled according to the [rules of the Third Energy Package]” to set up the DSO entity

The unbundling requirement is important for the Commission, according to EDSO for Smart Grids. For the DSOs to play their neutral role as market facilitators, they must not have any commercial interests. According to EDSO this is a key reason why it should be instrumental in setting up the EU DSO entity: it says it differs from the other organisations because its members are network operators only, with no energy supply activities.

“We are all unbundled DSOs and that’s the biggest difference to other associations. Our members are strictly, legally unbundled – we have nothing to do with vertically integrated companies,” Zangrandi says.

The members of EDSO are the large distribution system operators in Europe, companies like Innogy in Germany, Enedis in France and Vattenfall in Sweden. By contrast CEDEC and GEODE represent the smaller local and regional energy distributors, such as the many Stadtwerke in Germany. Eurelectric also represents the large power generators and retailers. Most of these are not unbundled, says Zangrandi.

While most EDSO members remain majority-owned by producers and utilities, they are fully legally unbundled, says Zangrandi. EU law does not require full ownership unbundling for DSOs (unlike for TSOs; only the Netherlands requires it for DSOs too).

“Our companies have all completely made the switch to being independent distribution system operators. It’s a new mindset. Don’t forget we are heavily regulated. We could never not act as neutral party.”

Involving all unbundled DSOs

EDSO’s second argument involves the size of its members. According to the Clean Energy Package, the aim of the EU-DSO entity is to “promote the completion and functioning of the internal market in electricity, and to promote optimal management and a coordinated operation of distribution and transmission systems.”

Its tasks will include integration of renewable energy resources and distributed generation sources (including storage), development of demand response, digitalisation of distribution networks including deployment of smart grids and intelligent metering systems, data management, cyber security and data protection and participation in the elaboration of network codes.

To adequately fulfill these tasks will require substantial financial and human resources which is what the members of EDSO can provide, says Zangrandi. He stresses that this does not mean smaller DSOs will be excluded. “That’s not at all what we want. The larger DSOs actually already provide many services to the smaller ones, so it’s a natural development. We would like to see all the unbundled DSOs to be part of this.”