|Distribution System Operators (DSOs)|
|European Union Electricity Market Glossary|
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Distribution System Operators (DSOs) in the European Union Internal Electricity Market are responsible for providing and operating low, medium and high voltage networks for regional distribution of electricity as well as for supply of lower-level distribution systems and directly connected customers (Articles 2 and 25 of Directive 2009/72/EC of the European Parliament and of the Council of 13 July 2009 concerning common rules for the internal market in electricity and repealing Directive 2003/54/EC).
European Energy Regulators’ White Paper # 2, The Role of the DSO, Relevant to European Commission’s Clean Energy Proposals of 15 May 2017 observes DSOs operate local electricity networks, traditionally distributing electricity from the higher-voltage transmission network and from small generators into homes and businesses, similar to regional/local roads on the road network.
The aforementioned White Paper of 15 May 2017 stresses that DSOs are typically natural monopolies, overseen by energy regulators to ensure that they deliver value for money to consumers.
According to Article 2(6) of the said Directive 2009/72/EC, 'Distribution System Operator' is 'a natural or legal person responsible for operating, ensuring the maintenance of and, if necessary, developing the distribution system in a given area and, where applicable, its interconnections with other systems and for ensuring the long-term ability of the system to meet reasonable demands for the distribution of electricity.'
This definition is left unchanged by the so-called 'Winter Energy Package' proposed by the European Commission in December 2016.
Besides the regional distribution and supply task it is also the DSOs' responsibility to ensure the security of their networks with a high level of reliability and quality.
The thresholds, which determine whether a system is a transmission system or a distribution system, are established at the national level (Recital 9 of the Network Code on Demand Connection (DCC)).
The DSO's category is characterised by an extensive heterogeneity across the EU Member States - in some Member States there are hundreds of DSOs, in other countries there might be only one or two.
A sub-set of the DSOs' generic category are Closed Distribution System Operators (CDSOs).
DSO separation - unbundling rules
There are different levels of DSO separation, the main types of unbundling being: accounting, functional, legal and ownership separation.
- Full ownership unbundling (ownership separation) is where the DSO is a separate company to any interests in generation or supply;
- Legal unbundling is where the DSO is a legally separate entity with its own independent decision making board, but remains within the umbrella of a Vertically-Integrated Undertaking (VIU).
- Functional or management unbundling is where the operational, management and accounting activities of a DSO are separated from other activities in the VIU; and
- Accounting unbundling is where the DSO business unit must keep separate accounts for its activities to prevent cross subsidisation, from the rest of the VIU.
While full ownership unbundling is considered to be the strongest model for the independence of the DSO, the other models can also ensure transparent and independent decision making and equal treatment of all DSO stakeholders, as long as sufficient ringfencing and regulatory monitoring and oversight are in place.
Status Review on the Implementation of Distribution System Operators' Unbundling Provisions of the 3rd Energy Package, CEER Status Review, Ref: C15-LTF-43-03, 1 April 2016 observes there are in practice different unbundling regimes implemented in the Member States, some DSOs have a separate ownership to suppliers/producers, whereas others are part of a VIU.
Apart from the Netherlands, where full ownership unbundling is required by law, all the other participating Member States require at least a legal and functional unbundling for both gas and electricity DSOs (as far as non-exempted).
In most Member States, national provisions foresee that the DSO branding/communication (i.e. corporate identity) must not create confusion with production and supply activities of the VIU.
The degree of separation (the most effective being the ownership unbundling) from VIUs will influence whether the DSO is allowed to undertake activities that are listed in the „grey‟ area of the framework under certain conditions. The more DSOs engage in flexibility and DSR, the more robust separation is needed, especially if the DSOs also have a role in data management (see: The Future Role of DSOs, A CEER Public Consultation Paper, Ref: C14-DSO-09-03 16 December 2014).
The more responsibility the DSO has, the greater the potential need for further separation of its system operation activities from other competitive activities carried out by other companies of the same VIU (like supply and generation).
More generally, if the DSO takes on new roles, sufficient controls are needed to ensure that DSOs do not use access to data to gain commercial advantage or create market distortions.
It is also useful to add that the unbundling provisions of the 3rd Package constitute a minimum set of rules and the Member States may consider adopting further measures to ensure the effectiveness of unbundling.
Smaller DSOs serving less than 100 000 connected customers can be exempted from the requirements of both legal and functional unbundling.
This is based on Article 26(5) of the Directive 2009/72/EC, which stipulates Member States may decide not to apply paragraphs 1, 2 and 3 [of Article 26] to integrated electricity undertakings serving less than 100 000 connected customers, or serving small isolated systems, similar provision exists in the Gas Directive for gas DSO.
Almost half of the EU Member States have adopted this exemption at national level (the aforementioned CEER Status Review of 1 April 2016, p. 6).
The number of DSOs with fewer than 100,000 connected consumers varies across Europe.
The above-cited CEER Public Consultation Paper of 16 December 2014 expressed the view that all European customers, whether they are connected to a bundled or unbundled DSO, should be able to benefit from the 3rd Package without discrimination.
If a DSO is carrying out activities identified as „grey areas‟, it should be subject to strict unbundling requirements regardless of whether or not it is subject to the de-minimis rule.
Furthermore, as the role of some DSOs develops into an active grid manager, it may be worthwhile to reconsider the application of the (current) de-minimis rule and if it is still appropriate.
Such review could entail either the adaptation or the decrease of said threshold.
Regulatory bodies consider, with the increasing penetration of distributed (including RES-based) generation, DSOs will be called to play a more active role in the overall management of the electricity system (Joint ACER-CEER response to European Commission's Consultation on a new Energy Market Design of 7 October 2015, p. 28). It is underlined, however, DSOs in Europe are represented by several "associations", not always speaking with one voice.
Therefore, consideration should be given to whether DSOs should be encouraged, or mandated, to establish a single body through which they can more efficiently participate in this process.
Such a single EU DSO body would also facilitate the communication and cooperation with ENTSO-E, whose effectiveness should be improved given the need of a closer relationship between Transmission System Operators (TSOs) and DSOs.
In the same vein goes the Winter Energy Package establishing the EU DSO entity.
DSOs are becoming more important in the electricity sector because many new services and developments are happening at local distribution level.
They include more active customers with varying electricity demand, self-generation, small-scale renewable generation, energy storage, power-to-heat and electric vehicles.
Council of European Energy Regulators (CEER) and ACER advocate that DSOs must act as neutral market facilitators performing regulated core activities and not activities that can efficiently and practicably be left to a competitive market.
Moreover, the above European energy regulators underline transparency of medium-term forecast of network needs/service requirements is essential to enable market-based solutions to be developed.
|Last Updated on Saturday, 10 June 2017 00:52|