Citizens' Q&A


 The Future Role of the DSO - A CEER Conclusions Paper

What are DSOs and why are we focusing on their "future role"?  

The distribution network carries electricity and natural gas through wires and pipelines and delivers the energy into homes and local buildings. This grid is managed by a neutral operator (the distribution system operator, DSO), who is responsible for the technical safety and operation of the energy system locally, in its geographic area. These networks are natural monopolies and as such they are subject to regulation to ensure that all energy retailers ('supply' companies) can sell energy to consumers. 

With the arrival of renewable energy and new technologies, we are seeing changes in the way energy is managed and used. This means that the distribution networks will also need to adapt, for example to support consumers with solar panels on their roofs or to manage the extra amounts of electricity needed to charge electric cars.

What does the report propose for the future role of the DSO?

In an increasingly complex environment with intermittent renewable energy and other new technologies, European regulators wanted to have a look at who can do what in an interactive energy system. As a natural monopoly, the DSO has a set of core activities and a responsibility to provide access to its network. At CEER we have done some thinking about how the future shape of our energy markets could change the way the distribution network is used and what that means for the DSO. In doing this, we have reflected on the necessary changes to the rules being applied to DSOs; the relationship between DSOs and other network operators (such as transmission system operators, TSOs, who manage high voltage power lines and high pressure pipelines carrying large amounts of electricity and gas from the area where it is generated to the area where it is distributed by the DSO); the incentives required to ensure that DSOs are able to adapt to the system challenges; and, the possible DSOs' contractual relations with other market actors.

How does it work?

The current situation in different Member States varies a lot in terms of DSO sizes and other characteristics of distribution systems. For this reason, rather than proposing a single European solution for the future role of the DSO, we have identified four overriding principles which should apply to all DSOs: (1) DSOs must run their businesses in a way which reflects the reasonable expectations of network users and other stakeholders, including new entrants and new business models; (2) DSOs must act as neutral market facilitators in undertaking core functions; (3) DSOs must act in the public interest, taking account of the costs and benefits of different activities; and (4) Consumers own their data and this should be safeguarded by DSOs when handling data.

As concerns the relation between different network operators, CEER considers that there should be a general principle of subsidiarity, with decisions taken at the right time by the most appropriate entity (be it the DSO or the TSO). Adequate communication and information exchange between TSOs and DSOs as well as more co-ordinated planning would bring benefits to the system as a whole.

Innovation is also an important concern for regulators. DSOs need to be more and more innovative and explore smart solutions when managing networks. We will continue working on this issue to identify ways of encouraging innovation by DSOs.

Finally, we look at network tariffs (the money DSOs collect for managing the network) and contractual agreements (the relationships DSOs have with different actors). CEER is concerned about DSOs engaging with consumers directly given their monopoly power. It is vital that as new markets services develop and consumers understand more about their energy needs and become more active, energy regulators oversee arrangements to ensure there is a level playing field, that consumers are protected, and that new entrants can participate in the market.

Why is this important for energy customers? What is the impact on energy customers?  

Efficient network operation is essential for well-functioning energy markets. DSOs have an important role to play in ensuring system operation is secure and as a neutral market facilitator (e.g. they ensure that all energy retailers can sell energy to consumers, without discrimination). In the coming years, there will be new opportunities for DSOs to deliver benefits to energy consumers and the energy sector in general. New technology allowing the consumer to interact with the market, among others, means that the role and culture of DSOs might change.


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Citizens' Q&A

  CEER Status Review on the Transposition of Unbundling Requirements
for DSOs and Closed Distribution System Operators

What is a DSO?  

A DSO, or distribution system operator, is a key actor in the energy supply chain. Distribution is the transport of electricity and gas on low and medium voltage (electricity) and medium pressure (gas) networks. These networks run locally, i.e. taking energy from the supplier to the customer with the help of a system operator.

A DSO is the company/organisation responsible for operating, ensuring the maintenance of and, if necessary, developing the electricity or gas network in a given area and, where applicable, its interconnections with other systems to ensure the long-term ability of the system to meet reasonable demand for the distribution of electricity or gas.

What is a Closed Distribution System operator?

The Under EU legsilation, a Closed Distribution System operator is understood as system which distributes electricity or gas within a geographically confined industrial, commercial or shared services site and does not supply household customers.

EU Member States show large differences between the number and functioning of Closed Distribution System operators, therefore, they are included in this report in order to present the facts and assess how the legislation is implemented in each country.

What does the Status Review present?

DSOs are an important and visible actor in energy markets and so under EU legislation, these companies are being given new requirements as to how they can operate. This CEER report analyses the extent to which some of these legal requirements are being fulfilled, or not, and aims to provide clear figures on the status of DSO unbundling across European countries. It is important to note that not all of our member countries must comply with EU legislation but may choose to apply the same or similar rules.

How does it work?

Under the Third Energy Package, European energy networks are subject to "unbundling" requirements which oblige Member States to ensure that the different stages of the supply chain are separated; i.e. resulting in separation of the various stages of the energy supply. Links between a DSO and market participants (where the DSO may share a significant common shareholding with generators, producers, shippers, suppliers or even large consumers) could raise concerns that the DSO may act in favour of its own affiliated interests. There are 4 key elements to this unbundling process and the areas which the CEER Status Review focuses on:

  • Branding - ensuring that there is clear communication with regards the separation of identity/rebranding between DSOs and other energy actors;
  • Resources - ensurng that the necessary human, technical, physical and financial resources are available to meet the unbundling requirements so that a DSO can fulfil its role effectively;
  • Compliance officers - independent observation and monitoring of DSOs to ensure no discrimintatory conduct occurs;

In addition the report analyses the status of the implementation of another possible aspect of DSOs:

  • Closed Distribution Systems - the classification of systems which distribute energy in a confined industrial or commercial setting and not to household customers.

Why is this important for energy customers? What is the impact on energy customers?

In short, the aim of unbundling the energy supply chain is to promote and maintain competition in energy markets, ensuring greater choice for consumers and thus applying pressure on energy companies to offer the best possible value and services.

DSOs are encouraged to act as neutral bodies, facilitating fair competition between suppliers. Therefore, it is essential for DSOs to be independent from the commercial supply chain in order to avoid conflicts of interest and to act fairly with customers' interests in mind.

The unbundling process seeks to ensure the well-functioning of the European Internal Energy Market and guarantee security of supply for consumers at a fair price.


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