Optimal regulation for European DSOs to 2025 and beyond

The European Union is committed to a target of net zero emissions by 2050, for which the energy tranistion will be crucial. As the EU Clean Energy for All Europeans Package (CEP) comes into force, this CERRE Energy & Climate report seeks to shed light on the nature of optimal regulation of the electricity distribution system operator (DSO) over the period to 2025 and beyond.

DSOs are rising in importance against the backdrop of the energy transition; recognised by the EU in the CEP. They play a key role managing the connection of increasingly distributed generation and flexibility resources, which means changing from their traditional role as a passive one-way network to an active two-way network.

The recommendations in this report are drawn from two parallel surveys of DSOs and their national regulatory authorities (NRAs), as well as a detailed comparison of six European countries. The nature of this study allowed the authors to directly compare responses, revealing a divergence of views between companies and regulators, and to look into other examples in practice (besides the European Commission’s vision) of supporting the transition to a more active DSO.

“The new EU DSO Entity should promote learning from individual DSO innovation projects across Europe. There are a lot out there, but it’s not clear at the moment who is learning from these projects or whether the collective learning is being adequately shared.” – Co-author of the report, Professor Michael Pollitt

With this more active role for DSOs in mind, the authors, Professor Michael Pollitt, Professor Monica Giulietti and Dr. Karim Anaya, suggest a major role for the new EU DSO Entity in evaluating, sharing and being open to useful lessons from DSO-related projects elsewhere. They also recommend further regulatory clarification, particularly within the CEP, which could map out the best way forward and address the disagreement in expectations (revealed by the surveys) for the future and optimal regulation of DSOs.

“Reforming decentralised energy markets is work in progress and there is a lot of learning to be done.” – Co-author of the report, Professor Monica Giulietti.

The authors conclude that moving towards a more active role for the DSO remains a work in progress for both DSOs and NRAs and they provide clear recommendations for the way forward, facilitating a period of learning for both the Commission and NRAs, and greater clarity when it comes to the interpretation and implementation of the CEP.

The report was presented and debated amongst speakers from industry, regulatory authorities, the European institutions and academia during a CERRE online event, “How fit is DSO regulation for a decarbonised Europe? Empirical assessment and regulatory pathways”, on 30 April 2021.