System integration between electricity, gas and transport will be essential if deep decarbonisation and energy security objectives based on clean electricity and gas are to be achieved. The joint decarbonisation of electricity, heat and transport demand means DSOs have to collaborate with a multiplicity of local actors, in an environment constrained by resource availability where the use of existing assets – and solutions that make better use of them – must be maximised.
This report investigates the future role of active electricity and gas distribution system operators (DSOs) in the energy transition and system integration at a local and regional level. We define the active (or responsive) DSO as being one which has moved from being a passive operator of a low/medium voltage network or a low/medium pressure gas network to a DSO which engages in active grid management and facilitation in the face of rising amounts of distributed energy resources and demands.
The active role envisaged for DSOs is a work in progress. We set out to expand on five areas identified in our 2021 report where DSOs may take a more active role:
- Co-ordinating public EV charging points and renewable gas refuelling stations.
- Decarbonising electricity, gas, and heating supply in their area.
- Optimising local energy storage assets and coping with flexibility requirements.
- Indicative energy planning.
- Promoting bottom-up innovation in system integration.
The report defines the different phases of “activation” of the DSO, as well as potential indicators that can help to assess the degree to which a DSO is active, for electricity and gas, respectively. The extent to which any given DSO is active depends on both the opportunity to be active and the incentives it faces. The opportunity partly is a function of external factors such as energy demand, the potential for renewable electricity and gas and the nature of local system constraints caused by the history of network development, and partly one of enabling investments in such things as local distributed generation and smart meters. Once opportunities and the potential to realise them technically are there, direct incentives for the DSOs are required to encourage them to become active.
DSOs face considerable challenges to decarbonise their networks arising from the need to integrate new sources of renewable production and incorporate additional sources of demand, particularly arising from transportation, with networks that were not built to address the challenges and targets they now face. Therefore, the encouragement of joint working across electricity and gas DSOs to achieve deep decarbonisation is important. The ‘active’ DSO remains in its early stages in most countries. While progress is being made in the removal of regulatory barriers toward the active DSO, it remains slow for most DSOs and significant regulatory barriers remain in place for gas DSOs and must be addressed. Some existing EU policy and legislative proposals aim at (partly) addressing these barriers. Furthermore, regulators need to be alert to the possibility that small DSOs will struggle to support deep electricity and gas decarbonisation policies. This may yet require flexibility with respect to unbundling requirements and the possibility of derogations.
Our report provides survey responses from 18 DSOs, covering 14 European countries, over the period between March and July 2022, covering around one-quarter of European gas customers and 40% of electricity customers. Overall, the contributions from our survey respondents provide a picture of an active environment with very high levels of engagement in areas relating to transport/mobility and heating solutions. In general, DSOs indicate that engagement levels could be higher across the board and that there remain significant regulatory and financial barriers to deeper engagement in decarbonisation.
The report also looks at non-European case studies, with highlights including dual-energy in Quebec, renewable natural gas (RNG) and hydrogen in California, non-wire solutions in New York and battery storage in Australia. All these projects illustrate the need for partnership between various actors but also the crucial relevance of regulators and lawmakers in encouraging innovation and adaptation to the realities of the energy transition. It also looks at seven promising case studies from Europe. Each addresses an important set of issues in the joint decarbonisation of the current energy demand for electricity, gas and transport.
Our report suggests that data collection and sharing are central to the emergence of the active DSO. DSOs need to be incentivised to collect and share real-time data that can be used to facilitate their own active management of the network and the interaction of third parties providing services to and across the network.
We also find that biomethane is a key driver for gas decarbonisation in some countries. In line with the ambitions and targets set by the Gas Package, REPowerEU Plan and the Biomethane Action Plan, regulation needs to be adapted for the promotion of biomethane at scale in existing gas networks and combined with significant subsidies if this scale is to be achieved. Certain countries, such as France, show that scaling up is possible. There remain however apparent inconsistencies and gaps in the treatment of network planning and requirements to cooperate between the current Electricity Directive (2019/944) and the proposals in the Gas Package. If Europe is serious about ‘sector coupling’ at the DSO level, further requirements to promote indicative joint planning, electricity and gas collaboration and the active gas DSO are required.
The report indicates that regulators need to insist on better financial analysis of innovation projects on the distribution network. This information should be made available as part of the final reporting of the projects so that it can be clear what the economic issues are behind scaling up such projects. Once long-term feasibility can be established, the incentives to scale up are an essential part of moving a project to business as usual. If governments want to promote a more active DSO there needs to be adequate financial incentives in place.
Finally, the current EU DSO Entity only represents electricity DSOs. However, the proposed inclusion of gas DSOs in the new draft Gas Regulation should give ‘balanced representation’ to both gas and electricity distribution system operators. An alternative proposal to ensure such representation is to create a separate EU Gas DSO Entity. This might better ensure a clear voice for gas DSOs and reduce the proposed scale of the combined EU DSO Entity. We would strongly encourage the DSO Entity(ies) to emphasise and promote learning on DSO participation in the energy transition and system integration among its members. Strategic thinking by the EU DSO Entity(ies) is also required on how scale can be achieved in many of the areas we have highlighted, and how successful projects undertaken in one country can be replicated in another.
Make sure to click here to watch our launch event featuring a short presentation of the main findings with authors Michael Pollitt, Monica Giulietti, Andrei Covatariu and Daniel Duma, followed by a moderated discussion with representatives from regulatory bodies, industry, civil society and policymakers.
