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THE DSO OF THE IMMEDIATE FUTURE

image credit: © Papp Zsolt | Dreamstime.com

This item is part of the Predictions & Trends - Special Issue - 01/2020, click here for more

The so-called Energy Transition involves the transformation of the electricity grids, and their digitalization goes beyond their equipment.  It is a new paradigm based on radical changes in the traditional vertical way of exploiting the grids towards a horizontal management. This is driven by the penetration of renewable generation, batteries and e-mobility due to the integration of ICT and the management of systems through distributed intelligence.

DSOs have to keep managing the tension (voltage level) in the grids as always, but with increasingly more complex variables, conditions and elements to be taken into account. Ensuring security of supply and an adequate maintenance of the power grid is and always will be the DSO’s “raison d’être”. But now, it is time to innovate!

In the coming years, more customers will have smart meters installed, and the use of electronic invoicing is increasing rapidly. Countries with smart meters deployment will be able to improve the relationship between utilities and customers. A big shift can already be seen to more technical issues in the questions and needs the customers have (how to connect to the grid, how to install EV-charging and solar panels… They also ask about capacity requirements or how to react to capacity signals). The DSO has to facilitate the connection of the customer’s new technology to the grid.

However, in a time when the role of the DSO becomes increasingly important in a more complex and decentralised energy system, the DSO still remains as the unseen actor. This has to change.

The current grid is the result of 100 years of history during which the grid has been fundamentally exploited the same way as the first day. The grids were designed to send energy in one way (from the generation point to the consumption one) and for a connected consumer that only consumed (prosumers and active consumers have only now started to be regulated). Now, whether the prosumer feeds excess electricity or demands it from the grid, in both cases the DSO has to provide an uninterrupted, reliable connection. The DSO grid was also built to be managed in a non-interconnected way. This does not facilitate an efficient integration of distributed generation, which in turn implies more intermittent, unpredictable and bidirectional energy flows.

Thus, on one hand, we have more interconnections planned, storage, e-mobility, sector integration, demand-side response, smart grids, and other emerging flexibility solutions. These are key for the energy transition. On the other hand, we have outdated DSOs whose main focus for a hundred years has been ensuring there are no power outages and restoring power as quickly as possible, which in turn has required relatively little innovation and strategic thinking (compared to other businesses facing much more competition).

From now on, the DSO will have to cooperate with other grid operators and new participants and exchange data. Digitalization is a conditio sine qua non, but digitalization alone does not guarantee DSOs’ survival in an everchanging market. They need to start adding value with new services in the energy domain, since the global energy value chain is finding itself on the cusp of being structurally disrupted.

DSOs are risking a death spiral of lost revenue from less connected consumers. One only has to imagine horizontal property buildings organized as local energy community with just one connected consumption point, instead of having as many points as apartments. In addition, DSOs are facing new costs on grid modernization and resilience, among others. Eventually, costs could overwhelm revenues and many DSO could perish under the weight of their intransigence and antiquated structure.

But DSOs are not dinosaurs, unaware of any signs of their incoming fatal extinction. DSOs know their killers and they can potentially befriend and/or embody them. DSOs must react now to be ready to play in the market and team up with other market participants. If they do, we will see the rise of digital multi-utilities.

I believe that, eventually, consumers will no longer pay for energy, but rather for the services and products that allow them to interact with the grid without losing comfort or improvement of their experience with energy. Just as we stopped paying for the amount of minutes we were talking on the phone, we will stop paying for how many KWh we have contracted.

This major shift could indeed have some analogies to the telecommunications sector revolution at the end of the 20th century. The telecom sector, traditionally rooted in a natural monopoly, got exposed to cross-country competition; political pressure was pushing for the unbundling, and there was consumer pressure for having deregulated access to the infrastructure.

Utilities could be in the next decade(s) what the CLECs were in the 90s, taking advantage of regulation openings that allow new operators to offer new services that customers could potentially pay more for, whilst also guaranteeing them access to the incumbent operator’s network for a modest fee. The telecom bill has steadily increased for the average consumer, not because of raising rates to pay for intangible benefits like network resiliency, but because customers see the value in new services, such as being able to attend a real-time yoga class in the Himalayas through their mobile phone in Wall Street. For many, these services are worth the extra expense.

Up until now, myself, as a consumer, I have only cared about low energy prices and reliability (and lately about the renewable origin of my energy supply as well). So, what could utilities offer me so that I would be happy to keep using them and even pay them more money? For instance, could somebody take care of the active engagement that is expected from the up-until-now passive consumers? Because honestly, something that requires more effort than paying bills and turning on and off light switches is not very appealing for the average person.

Self-consumption, storage, e-mobility, micro-grids, energy communities and off-grid trends are bringing new opportunities and alternatives for the customer. But they also bring challenges, as the customers do not always know how to proceed. DSOs enable all these new developments from a technical standpoint, and they should partner up with customers to facilitate their increasingly active role in the energy market as a trustworthy and reliable partner. The DSO will have to be an enabler allowing customers to enjoy the services offered by energy suppliers. The DSO can guide the customers to find the best solutions for them and for the grid, while always providing the consistent connection to the grid.

The aforementioned new developments could threaten the security of supply by carrying certain risks regarding the new way to manage the grid without the suitable advanced tools. DSOs should help and facilitate the flexibility that is expected from customers, ensuring the safety of the system as a whole. Market organization is key and DSOs, as neutral players, are perfect for efficiently bringing the necessary coordination and cooperation to all the participants. 

Moreover, strategic communication is crucial. The traditional DSO passive approach towards customer communication has come to an end. The DSO has to forecast the information customers need and approach them with tailor-made technical data. Simply put, DSOs have to build trust and become customers’ 24/7 reliable partner. Their aim should be to reduce complexity, providing them with anticipated and quick grid response times and high security standards in the world of big data.

In conclusion, in a scenario with prosumers, decentralized energy systems and new generation and consumption patterns, DSOs have to actively create higher value for the connected consumer and explain the unknown benefits of staying connected to the grid so that the parties involved can benefit from all the advantages of the distribution grid that has begun to transform.

DSOs have to strategically communicate how good they are at what they have always done: keep the lights on. This has widely been taken for granted, probably because we are all used to grids functioning extremely well. DSOs have the opportunity to position themselves for the future at this moment in time. As we begin this new decade, it is time for them to adapt.

CARLA RUBÍ CAELLAS's picture

Thank CARLA for the Post!

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Discussions

Matt Chester's picture
Matt Chester on Jan 29, 2020 2:13 pm GMT

This major shift could indeed have some analogies to the telecommunications sector revolution at the end of the 20th century. The telecom sector, traditionally rooted in a natural monopoly, got exposed to cross-country competition; political pressure was pushing for the unbundling, and there was consumer pressure for having deregulated access to the infrastructure.

Given the analogy, do you think there are any critical lessons that should be learned with what happened to the telecoms, both by the utilities themselves and by customers?

CARLA RUBÍ CAELLAS's picture
CARLA RUBÍ CAELLAS on Jan 29, 2020 3:32 pm GMT

Thank you Matt for your comment.

For utilities: do not resist the change. Do not try to block the regulatory process to pospone the inevitable. Rather, put your energy into innovation and strategic communication. Competition is good, specially for those companies who are not used to it. It makes them improve and be more creative. I would say that the entrance of new participants is a friendly reminder of companies' "raison d'être" (do not forget your purpose)

For consumers: take responsability for your consumption choices.

Richard Brooks's picture
Richard Brooks on Jan 29, 2020 4:54 pm GMT

I agree Carla, but having worked with the Energy industry since 1990 I have only seen 2 innovators - most people are risk averse, steady as she goes thinkers, from the bottom to the top. This philosphy is warranted when your job is to keep the lights on. The problem is, steady as she goes will likely have an unpleasant outcome, for anyone that likes receiving paychecks, because the water keeping that boat afloat is running low and something must be done to survive. Adapt of Die!

Matt Chester's picture
Matt Chester on Jan 29, 2020 5:18 pm GMT

Great points, Dick-- but I admit you captured my curiosity here: 

I have only seen 2 innovators

Any chance you can give us a clue to what these innovators at least looked to implement?

Bob Meinetz's picture
Bob Meinetz on Jan 29, 2020 5:26 pm GMT

Carla, I often see the "energy transition," or the introduction of competition in power electricity, compared to the deregulation of telephone service in the 1980s. But the comparison ignores a fundamental difference in the two technologies, which can be stated in simplified form - unlike cellphone signals, transmitting power electricity through air doesn't work - and the implications are huge. It means whoever owns the wires bringing electricity to your home has a monopoly on your electrical service - you can't choose another provider. And when consumers have no choice, free-market competition does not, and cannot, exist.

Various efforts to create the illusion of competition, by allowing various "providers" to use your utility as a "distributor" of the electricity they are providing, do not help, because it's impossible for consumers to distinguish their product from that of their utility. Without any way to judge the relative value of two or more products, free-market competition does not, and cannot, exist.

"For utilities: do not resist the change. Do not try to block the regulatory process to pospone the inevitable."

Without any evidence DSOs or a decentralized energy system offers value to consumers, I suppose utilities might ask for some evidence their adoption is inevitable before allowing you to become their authoritarian leader. But they probably wouldn't allow that anyway, and that's a good thing. Most of us just want a reliable supply of electricity, and our utility does a reallly good job at providing that now. Local efforts at mounting an energy transition (to where?) have only succeeded in raising the price of electricity. What do consumers get in return?

CARLA RUBÍ CAELLAS's picture
CARLA RUBÍ CAELLAS on Jan 30, 2020 6:04 pm GMT

Thank you Bob for your very interesting comments.

DSO will always be a monopoly as you point out because it is the most efficient, it wouldn’t make any sense to have 2 grids in the same area when only one is necessary. What I mean is that, on one hand, the regulated remuneration DSO receive in Spain, for example, is decreasing. It could happen that the SMEs DSO get absorbed by the bigger guys. So, in this sense, competition could decrease. However, I believe the transition will happen on a local level. Thus, this could be a good time for local DSO to gain relevance by innovating and offering new services.

On the other hand, we have the Clean Energy Package stablishing the entrance of new market participants that can behave like a DSO, such as the citizen energy communities.  Article 16 of the Electricity Directive states that Member States may provide in the enabling regulatory framework that citizen energy communities are entitled to own, establish, purchase or lease distribution networks and to autonomously manage them. This is a big thing, since in many countries the DSO grids have historically been owned by the same company for so long.

When I say utilities should not block legislation I mean in these two cases: fighting against the decrease of their regulated income – up until now, in Spain, any investments the DSO did were remunerated, now the remunerated investments are limited and more controlled - and fighting against the entrance of new actors. In the former case, DSO could innovate as I mentioned, and in the later, they could partner-up with the new actors.

Regarding your comment “Local efforts at mounting an energy transition (to where?) have only succeeded in raising the price of electricity. What do consumers get in return?”:

- Answering your parenthesis: to a cleaner, greener and more democratic future.

- Regarding the electricity prices: maybe the best solution would be having One System, One Operator, One Market, One Regulator…? What do you think?

Charlie Clissitt's picture
Charlie Clissitt on Jan 29, 2020 4:41 pm GMT

"I believe that, eventually, consumers will no longer pay for energy, but rather for the services and products that allow them to interact with the grid without losing comfort or improvement of their experience with energy. Just as we stopped paying for the amount of minutes we were talking on the phone, we will stop paying for how many KWh we have contracted."

This is a really exciting prediction. Very interesting read, thanks Carla. 

 

Bob Meinetz's picture
Bob Meinetz on Feb 1, 2020 1:04 am GMT

"The current grid is the result of 100 years of history during which the grid has been fundamentally exploited the same way as the first day."

Carla, that might be the case in Spain, but it's certainly not the case in the U.S.

You may be surprised to learn that the U.S. grid of the 1880s-1890s was very much the same as the DERs (Distributed Energy Resources) envisioned by renewables activists today. No, there weren't photovoltaic solar panels, or wind turbines that generated electricity. But there were distributed microgrids, using coal to generate electricity, on virtually every block in New York City and Philadelphia. Standards and regulation were minimal, and there was plenty of free market competition.

And it was horrible. Fires, outages, and electrocutions were common. There were virtually no standards for appliances; nothing was grounded. The plug on your toaster might fit the electrical socket in your new home; it might not. One electricity company would cut the other's lines; your neighbor would siphon from yours. And wires, wires everywhere.

You take a lot of the progress we've made for granted, if you really believe "the grid has been fundamentally exploited the same way as the first day." First of all, there was no grid the first day - it took decades for what could properly called an electricity grid to be established, and it's been a work in progress ever since.

There are good reasons why the grid became a regulated monopoly, and why electricity is mostly generated at large, centrally-located plants:

  1. It's far more energy-efficient to generate electricity en masse, due to economies of scale.
  2. It's far more effective to reduce emissions en masse - to make it cleaner for millions in one step, instead of hundreds.
  3. It's far more efficient to distribute electricity in high-voltage AC wires, laid out in radial topology (spreading like the branches of a tree).
  4. From a social-equality perspective - allowing everyone access to cheap electricity permits society to make dramatic improvements in standard of living for very little cost. That translates to a healthy populace and a healthy economy.
  5. Standardization made it possible to maintain grids economically, and keep the cost of electricity down.

Now, some want to make clean electricity the property of those living in gated communities with solar panels and backup diesel generators; to make electricity a luxury. They feel they're helping to fight climate change by making it more expensive for those who can least afford it, that their solar panels have earned them the right to blame climate change on China and India (or "Chindia," as they're dismissively labeled).

Honestly, I can't see how that's a step forward, Carla. Here in the U.S., it will only serve to increase disparity of wealth, to stifle opportunity of those less fortunate. Clean, abundant, cheap, reliable electricity should be available to everyone, and it can be. But it will never be that way if we limit ourselves to expensive solar and wind when they're available, and gas, coal, and diesel fuel when they're not.

 

CARLA RUBÍ CAELLAS's picture
CARLA RUBÍ CAELLAS on Feb 3, 2020 3:10 pm GMT

I see. I was speaking on an European level in my article, included when I say “the grid has been fundamentally exploited the same way as the first day”. We have been talking about different systems. I was not at all referring to the American system, nor the Asian, nor the African, etc.

I am not very familiarized with the US energy system. So last summer 2019, I went on a study trip to the US on behalf of GEODE. I had the opportunity to meet with the NYSERDA, NARUC, Smart Electric Power Alliance (SEPA), LO3 Energy, NY PCS, UN and Rappahannock Electric Cooperative, among others. The following points are based on those meetings:

  • I don’t think we can compare the US grid of the 1880s-1890s to the one envisioned today by the renewable activists.  First of all, as you point out, that system was based on coal. What do you think about Brooklyn Microgrid Project? Their product is local clean energy with localized pricing. Their medium is a blockchain-enabled platform that allows peer-to-peer energy trading so that citizens can buy and sell locally produced PV power from one another. The key is customer engagement, which I don’t think it can compare to the one at the XIX century.
  • I agree with all of your 5 points. I learnt about the Green New Deal Framework, which envisions 100% clean carbon-free electricity by 2040 (which I don't think it can happen without the nuclear), and the REV strategy (Revising the Energy Vision) and its Distribution System Platform (DSP) provider: a customer oriented regulatory reform vision for the regulated utility in order to integrate DERs. DSP is based on standardized processes for market participation and fundamental functionalities. I believe most of the electricity will still be distributed in high voltage wires, my point is that distributed generation will increase and it can be standardized. Standardization does not imply power centralization.  
  • National Grid told us that utilities in the US are financially rewarded for integrating distributed generation into the grid. How do you feel about that? I like it. Distributed generation, demand response and storage are good flexibility providers, and these DERs make consumers be more aware about their consumption patterns. As SEPA put it, clean energy must be easily integrated to the grid and result in maintained or improved levels of affordability, safety, security, reliability, resiliency and customer satisfaction. Of course in an ideal world, the best, in my opinion, would be to generate en masse clean energies and distribute them using the existing infrastructure. But for many reasons that’s still not viable… So I think policy makers are shifting their approach from a topdown to a bottom-up one. Maybe they lost hope on companies being the ones to tackle climate change when they caused it in first place. Only if consumers ask them to do so they will. Only conscious consumers will make aware those who have a big capacity to invest, such as Blackrock and the Government Pension Fund of Norway, and make them adopt corporate social responsibility.

Regarding who is to be blamed for for climate change… https://www.theguardian.com/sustainable-business/2017/jul/10/100-fossil-fuel-companies-investors-responsible-71-global-emissions-cdp-study-climate-change. It is not fair to blame China or India. If blame is based upon countries, then I would point the US. But I don’t think we should spend our energy now blaming X and Y. A great coalition of leaders, investors, companies and all those involved in climate change is needed. We cannot exclude anyone. The solution is not to find guilty but to work together. Although it is highly unfair that not only are those who created this environmental crisis not paying for their damages but making profit out of it… Horrendous, consequence of this global economy without soul.

Answering “some want to make clean electricity the property of those living in gated communities with solar panels and backup diesel generators; to make electricity a luxury”: you don’t have to generate yourself clean energy in order to increase the clean electricity share in the mix. This I don’t know if it is the case in the US, but in Spain by purchasing clean energy in the pool what you do is increase the clean % share.  Of course, the electrons, despite their origin, get mixed in the grid and you cannot distinguish if the electrons that eventually get to your home come from a clean source. But that does not matter. What matters is making the clean generation increase. The problem is that if governments allow self-consumption and energy communities to avoid system costs in order to promote this kind of clean consumption, the same costs will be borne by less consumers, probably by those who can least afford it. It will then indeed increase disparity of wealth. I’m worried about this…We shall see how it is managed in the regulatory realm.

Bob Meinetz's picture
Bob Meinetz on Feb 6, 2020 6:02 pm GMT

Thanks for your thoughtful reply, Carla. If more Americans were as energy-aware we'd have a much smaller problem to solve.

On the other hand, for most here electricity isn't something to which a lot of thought is given. People have more important things to think about, and in general they trust the people generating electricity and providing transmission/distribution to do it cleanly and safely.

It wasn't always that way. In the early days, utility monopolies would sign customers up for electricity plans, then raise rates to whatever they thought each customer would pay. Transmission was unreliable and often caused fires. Utility executives would take company assets and place them in risky, high-stakes investments - what did they have to lose? Customers had to keep paying them to keep their lights on.

Eventually, the  U.S. government recognized utilities had to be regulated, and instead of trying to regulate thousands of little companies they created service areas where big companies had a monopoly, then watched over them with an eagle eye. The U.S. regulated utility model became spectacularly successful, and for seventy years served as a model for the world.

In 2005 U.S. electricity was de-regulated, and now many expect a time will come when cooperatives and distributed energy resources will give customers a choice of providers. But do you really know from where your electricity comes when you sign up for a "100%-renewable" plan? Is it being generated by solar and wind farms, or that coal plant 16km down the highway?

You don't know, of course. And in the U.S. we already have Community Choice Aggregators (CCAs) promising plans to customers and delivering something else entirely. They do it because there's no longer anyone to watch over them - because they can get away with it.

So despite modern connectivity, social media, and grid technology, people are still the same. They'll take your money for a 100%-renewable plan, then burn coal if they can make more money and not go to jail. Because there's no possible way to adequately monitor thousands of independent generators, the US will gradually return to utility monopolies under strict government control. It's better that way - society working together to solve a societal problem - and it's really the only choice. Trusting self-interest to solve any problem facing the general public is a mistake - a lesson we've already learned many, many times.

 

CARLA RUBÍ CAELLAS's picture
CARLA RUBÍ CAELLAS on Feb 8, 2020 4:12 pm GMT

Very interesting talking to you Bob. Thanks again for your insightful comments!

Regarding the renewable origin of the promised energy supplied, in Spain we have a mechanism called Guarantees of Origin that allows us to know that the supplier we are purchasing from is “buying” from a renewable generator. 

It is physically impossible to separate the electrons in the grid, distinguishing the dirty from the clean ones. So when you as a consumer sign up for a 100% renewable supply the electricity that you end up consuming will not be the one you bought, unless you have a direct connection to the power generator. But that does not matter because the important thing is to increase the renewable share in the mix. Those suppliers promising renewable energy are actually promising that X amount of renewable will be generated, according to their customers demand. Of course, it is almost impossible to directly deliver those same electrons purchased to the consumption point, but that is not that relevant. 

The objective of the Guarantees of Origin is to provide detailed information to the consumer on the source of the energy he “receives” (“he is promoting to be produced”) and the environmental impact of its production, so that it can make its electricity purchase decisions in a responsible manner. Thus, the Guarantees of Origin are an instrument that certifies a certain amount of electricity has been produced through renewable. It works like this:

  • Those producers of renewable energy that request it, will receive a certification by the Regulator certifying the kWh they generate with renewables. These certificates can be sold to the trading companies so that they can justify the "green" nature of the electricity they supply to their customers.

However, it is important to know that not everything that is marketed as "green electricity" is the same, so you should inform yourself on how it is produced and specially on how it is being purchased.

In short, Guarantees of Origin are a necessary instrument, but they are still insufficient. Consumers should be able to access more detailed information regarding the production of the energy we use and know 100% where it comes from and if other criteria or aspects of sustainability are taken into account in the generation process.

Bob Meinetz's picture
Bob Meinetz on Feb 10, 2020 5:46 pm GMT

Carla, "Renewable Energy Certificates" (RECs) form the basis of nearly every Renewable Portfolio Standard in the 26 U.S. states which have adopted them. Unfortunately (in the U.S., at least) using them to sell "100% renewable" electricity plans is a fraud. Allow me to explain why.

Solar farms are granted one REC as certification they have generated one megawatthour (MWh) of clean electricity. Utilities can then buy them to "offset" one MWh of dirty generation - coal, natural gas, or oil. But the solar farm doesn't accept responsibility for the carbon emissions of the dirty source which emitted them - it still sells the MWh of electricity it generated as 100% renewable. Thus, we have 2 MWh of electricity being credited as clean energy, when only 1 MWh actually is.

Because the clean energy contribution of the solar farm is being double-counted, "100% renewable" plans are actually "50% renewable" plans. Some argue it's a semantic difference, it all goes to help add renewable energy to the grid, but that's not good enough. It means we reach our clean energy targets twice as fast by lying about how they were achieved. And though it's easy to fool politicians about how much carbon we're emitting, nature is never, ever fooled. The Earth continues to get warmer.

 

CARLA RUBÍ CAELLAS's picture
CARLA RUBÍ CAELLAS on Feb 13, 2020 2:48 pm GMT

Fortunately, this problem you explain has solutions, like Brooklyn Microgrid project: https://www.brooklyn.energy/

For this kind of issues blockchain technology can be very useful!

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