The Industrial Evolution: What should DNOs expect during the DSO transition? - Neos Networks

The Industrial Evolution: What should DNOs expect during the DSO transition?

As demand rises and climate change awareness reaches an all-time peak, both businesses and consumers are wising up to the way they use energy. People want to move away from traditional energy consumption, while simultaneously improving affordability and reliability – and some exciting industry changes are emerging to accommodate this, with smart meters rising in popularity.

Unfortunately, broader change isn’t as simple as installing meters. Energy providers more widely need to shift from their role as Distribution Network Operators (DNOs) to become Distribution System Operators (DSOs), taking a more hands-on role in the way they manage local electricity supply and generation, while giving customers greater control and choice over their energy usage. So, how should operators go about facilitating this process successfully?

We surveyed over 300 businesses and prosumers who generate their own electricity from renewable sources in the UK to build a more detailed picture of what the next move should be for DNOs.

The new landscape

This transition will have a significant impact on the energy market. To gain the best results as a new landscape is carved out, DNOs need to adapt to accommodate these changes. Here are some tips to kickstart the process:

  • Collaboration is key. Working with other companies – and even competitors – can ease the strain of the transition. An area where you fall short may just be the same field in which they can provide support, and vice versa.
  • Invest in the right IT. As with any major change, planned fluctuations in production are to be expected. Implementing a solid procurement platform and developing relationships with qualified suppliers in advance could mitigate any unwanted ramifications, and prepare you for the need to embrace energy balancing.
  • Don’t neglect your prosumers – they might just hold the key to the next generation of smart energy production or monitoring. For example, did you know that over a third of prosumers cite the creation of additional income as a driver for investing in renewables? DNOs should work alongside them to shape strategy and create systems that support their needs and address concerns.

The new eco-system

The entire network eco-system is going to change and DNOs must maintain the ability to provide the same standard of service despite the disruption. The system must be flexible across the board, not just in the areas where issues commonly arise. DNOs also need to adopt a model of holistic thinking. This is not the time to compartmentalise, and businesses should focus on a strategy that encompasses distribution, generation and usage.

It’s important to remember that there won’t be a clear winner with smart energy. All parties involved will be fully engaged with squeezing the best from this transition, so be sure to focus on your unique strengths to succeed. Ultimately, cross-industry collaborations are the best bet to deliver the maximum value. Different companies can offer different benefits, filling in weaknesses and boosting strengths to complete the jigsaw puzzle.

The new legal framework

With such a rapidly changing landscape, there will be a need for new legal and regulatory frameworks. Existing frameworks don’t support enhanced deployment and utilisation of energy storage options, so something has to change if the transition is to be a success. And, while nobody knows exactly quite what to expect from this arena, DNOs should be mindful that the lack of clarity around rules regarding storage, unbundling and pricing could lead to fewer investments in DSO strategy.

In the meantime, it’s crucial that DNOs have their involvement in storage ownership and operation covered before beginning the transition, as legal, functional and accounting are likely to be unbundled. The upside: operational independence of the distribution side of the business. The downside: blocked involvement in storage ownership and operation.

The future of energy

As with all major industry changes, it’s hard to know exactly what to expect. What is clear is that DNOs will make it through the transition successfully by remaining adaptable, maintaining a positive attitude and recognising the rich opportunities for progress and development at the end of the tunnel. With a little help from outside sources, what DNOs do today will determine how successful the transition to DSO will be – and what the coming decades of energy usage and production will look like for the UK.

Making the transition to a DSO operating model is a complex prospect. Discover more about the energy sector’s sentiments towards this challenge in our DNO to DSO research report.

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