Large European Distribution System Operators Make Pitch For An EU-Wide Organization

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Originally published on Energy Post.
By Karel Beckman

EDSO for Smart Grids, an organisation representing most of the large European distribution system operators (DSOs), has submitted to the European Commission a proposal to become the “vehicle” for the establishment of an “EU-DSO Entity”. In the Clean Energy Package presented last year, the Commission asked the sector to set up such an EU-wide organisation which would play a key role in the intended transformation of the electricity market. EDSO for Smart Grids believe they are best suited to play that role. Energy Post spoke with several of their representatives.

As the European energy market is undergoing a transition from a centralised system based on large oil, gas and nuclear plants to one characterised by distributed renewable generation, smart grids and electric cars, the role of the distribution system operators (DSOs) is becoming increasingly important.

“All the interesting things are happening in the distribution system,” says Joachim Schneider, Senior Vice-President of Innogy, the DSO that spun out of RWE. “PV panels on the roof, batteries in the cellar, a heat pump out back and an electric vehice out front.” DSOs have to connect up all this decentralised generation, Schneider explains, but that’s not all: they can also enable new market models that empower individual consumers and communities.

For the EU, the European Commission’s so-called Clean Energy Package, presented on 30 November last year, is a turning point in the energy transition process. In this grand proposal, the Commission initiates a complete electricity market redesign as well as proposing new renewables and energy efficiency targets for the EU for 2030.

“We are all unbundled DSOs, that’s the biggest difference to other associations. Our members are strictly, legally unbundled”

One of the key questions thrown up by the Clean Energy Package is what roles the various actors will be able to play in the new scheme of things. For the DSOs it is crucial what tasks they will be asked to fulfill. Like the Transmission System Operators (TSOs), which operate the high-voltage networks, the DSOs are regulated entities, not market parties. “We are market facilitators”, says Roberto Zangrandi, Secretary General of EDSO.

But there are many grey areas between the market and the regulated sector. For example, should electricity storage be a market or a regulated activity? Should DSOs be allowed to offer charging for electric vehicles, or should that be done by market parties? And so on.

Operative proposal

An additional complication is that unlike the TSOs, who have a single organisation (ENTSO-E), the DSOs are represented in four different trade associations that are active in Brussels: Eurelectric, GEODE, CEDEC and EDSO for Smart Grids. In the Clean Energy Package (to be precise: in articles 49-53 of the Proposal for a regulation on the internal market for electricity, which is part of the package), the Commission asks the DSOs to set up 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 organized. In a cover letter EDSO notes that 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 has several arguments why it feels it should have the leading in setting up the EU DSO Entity. In the Clean Energy Package, the Commission stresses that the DSOs that are to form part of the DSO entity should be “unbundled”. It specifically 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.

“DSOs must have the ability to shift EV charging or curtail it”

The unbundling requirement is important for the Commission, for obvious reasons: 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, 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.

True, most EDSO members are still majority-owned by producers and utilities, but they are fully legally unbundled, Zangrandi says. 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”, Zangrandi notes. “It’s a new mindset. Don’t forget we are heavily regulated. We could never not act as neutral party.”

And EDSO has a second argument, which is 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 all these tasks will require substantial financial and human resources, says Zangrandi. “This is what our members can bring.” 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.”

Zangrandi points out that the most recent Florence Forum after stating “the need for strong independence requirements of the EU-DSO Entity”, called for a wide and efficient representation of DSOs that encompasses all Member States and includes also small DSOs under the new EU DSO entity.­­

EV charging

The proposals of the Clean Energy Package are now being debated by the other EU institutions. The way this debate will turn out, is crucial to the future of the DSOs.

One important issue is who will be able to provide “flexibility” to the system. The integration of local generation has raised network tariffs, while taxes and levies to finance grid extensions and renewables investments have also gone up. The market redesign proposals are an opportunity to do something about this. The Commission recognises that letting DSOs manage some of the challenges associated with variable generation more locally – for example by managing local flexibility resources – could “significantly” reduce network costs.

DSOs couldn’t agree more. “What is really crucial is that flexibility is not only available to the markets but also for the DSOs,” says Franz Strempfl, Managing Director of Energienetze Steiermark in Austria. “You can also invest more and more in [new] copper [lines], but this would be very expensive.” EDSO wants DSOs to have multiple options to buy in flexibility, including contracting local flexibility directly from customers as well as buying it from market players.

“It’s about giving customers opportunities to earn money”

EV charging is another hot item. What happens for example, when people all want to charge their electric cars at the same time? “That multiplies the load on the system by a factor of ten. A normal household is designed for 2-3kWh. A single electric vehicle needs 20-40 kWh – and that’s not even fast charging,” says Schneider. “DSOs must have the ability to shift charging or curtail it.”

In countries like the Netherlands and Germany, DSOs are testing out how to incentivize people to charge their electric vehicles at a specific time and place “because it is more efficient at this hour and this place than another time and place”. Contrary to the Commission and regulators, EDSO believes that DSOs should be able to own and operate charging stations for electric vehicles under certain circumstances, for example if local authorities ask for it.

Consumer first

More active consumers are a good source of flexibility. “Previously ‘interaction’ was a meter reading once a year,” says Christian Buchel, Chief Digital and International Officer at Enedis. “Today, Enedis is rolling out 20,000 smart meters a day in France. Smart meters are necessary for smart grids. But it’s also, perhaps even more importantly, to empower the consumer.” EDSO does not want the Commission to mandate the compliance of all the smart meters already out there with a set of minimum functionalities in its new proposals – it urges this decision to be left to national authorities, after a cost-benefit assessment.

On the one hand, smart meters are about creating awareness around individual consumption; on the other, giving individuals – and their communities – the chance to become active players in the energy system. “It’s about giving customers opportunities to earn money,” says Strempfl. This means remunerating customers for their willingness to shift consumption through demand response, for example. “If we provide more tools, we can expect customers to behave in a more rational manner,” Strempfl believes. “Everybody would be interested in optimising the system on a voluntary basis, which would be beneficial for all.”

In their search for flexibility, DSOs also want to own and operate their own grid-scale storage facilities, as well as buy in storage from the market. “Storage is a market element, globally speaking, but it is also important that we can operate our own storages to handle technical issues like voltage control and congestion management,” explains Buchel.

“We are neutral. For us data is a regulated activity, just like storage”

EDSO would like to see this explicitly allowed in the Commission’s market redesign proposals. In a recent position paper, ACER, the European organisation for energy regulators, spoke out against it, arguing that if DSOs get involved in “competitive” activities like storage (or electric vehicle charging stations for that matter) there is a risk they would favour their own service over potentially cheaper alternatives such as demand response. Moreover they could directly favour different types of consumers.

EDSO is adamant that DSOs are not making a play for the market itself. “We don’t want to be market players,” insists Richard Vidlicka, the CEO of CEZ Distribuce in the Czech Republic. “The free market is behind a wall and we don’t want to enter it. We are not service providers. We want to do it for technical purposes, to solve local problems. It’s one of the tools in our toolbox to make the energy transition happen.”

Data first

Another big topic still under discussion is data management, access and privacy. As trusted, neutral and regulated parties, DSOs see themselves as ideally positioned to take full responsibility for all data collection, processing and delivery in the new energy system. They have long been major providers of grid and metering data and indeed, need access to this data to fulfil their job of keeping the energy system stable. They also want access to it, in order to promote market facilitation.

“We are neutral. For us data is a regulated activity, just like storage,” says Buchel. DSOs are looking to carve out their space as data gatekeepers, all the more so as digitalisation brings new players to the market keen to access that data.

“Our aim is to reach a point where we do not replicate the disorder seen in the telecoms sector,” says Zangrandi. DSOs are happy to see DG Energy talking to DG Connect (the Commission’s telecoms department) and energy regulators talking to their ICT counterparts. “Most of the data debate is around the opportunity that data offers, but from our point of view it needs a constructive rather than purely ideological approach,” Zangrandi says.

Reprinted with permission.

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