Global power systems are changing. At the local level, distribution networks need to accommodate increasing connections of renewable generation, low-carbon technologies, and other distributed energy resources (DERs). The role of the distribution network has therefore changed – and system operation has had a key part to play in the UK’s energy transition.
What is a distribution network operator (DNO)?
Distribution network operators (DNOs) – sometimes known as distribution utilities – own and operate the electricity distribution network, running between the transmission network to the point of delivery to customers.
They are responsible for building and maintaining the physical infrastructure of the network – the wires, pylons, transformers, and substations – and managing connections.
What is a distribution system operator (DSO)?
System operation focuses on maintaining grid stability and optimising energy flows, as well as coordinating the integration of distributed energy resources (DERs).
In the UK, some grid operators have adopted the term distribution system operator (DSO) to demonstrate that they incorporate DNO and system operation functions.
DNO vs. DSO: The key differences
Governance and main roles
- Traditional DNOs (Distribution Network Operators): Established as regulated entities, DNOs have been responsible for owning and maintaining the local electricity distribution networks. Their focus has been to ensure a safe and reliable flow of power to millions of homes and businesses.
- Today’s DSOs (Distribution System Operators): As energy systems become more decentralised, the DNO role is broadening. DSOs take on additional responsibilities – not only maintaining assets but also actively managing distributed energy resources (such as solar, batteries and EVs) to support a smarter grid.
Operational approach
- DNOs: Traditionally relied on long-term planning and reinforcement to ensure networks could meet demand at peak times. This approach has delivered decades of reliability.
- DSOs: Build on this by using digital tools and real-time management to balance supply and demand more efficiently, reducing the need for constant physical reinforcement.
Relationship with customers
- DNOs: Historically, customers were seen mainly as end-users who consumed electricity. Interaction was largely limited to outages or connections.
- DSOs: Enable customers to take an active role by providing flexibility services, exporting surplus power, or shifting their demand. This creates new opportunities for households and businesses to participate in the energy transition.
Technology and data
- DNOs: Have focused on outage management and network maintenance.
- DSOs: Extend this with advanced data, sensors, smart meters, and digital platforms, enabling more dynamic management of local networks.
Investment model
- DNOs: Invested primarily in physical infrastructure, funded through regulated charges.
- DSOs: Still invest in networks where needed, but also prioritise smart solutions and market mechanisms, helping to keep overall system costs lower.
Why is system operation needed?
The flow of electricity used to be unilateral. It only flowed one way, from dispatchable, large power generation at transmission level to consumers.
Now, the role of the distribution network is changing. More low carbon technologies and DERs are connecting to the distribution network than ever before.
These include:
- Onshore windfarms
- Solar parks and farms
- Grid-scale battery storage
- The electrification of cars
- The deployment of, for example, rooftop solar PV – and so on
This represents a big opportunity – and a change in perspective around the importance of operational investments alongside capital investments.
This is the driver for the creation of DSOs in the UK. Their focus is on managing the power flows alongside maintaining the physical infrastructure to ensure energy security.
DSOs rely on data and support from DNOs. DNOs depend on DSO capabilities to fulfil obligations to customers and regulators.
How are UK DSOs incentivised?
The UK’s energy system operates within a set of price controls – ROII. These price controls are based on a total expenditure (TOTEX) price model, which gives similar importance to capital and operational investments.
That incentivises the more efficient running of the electricity network and encouraged network operators to develop system operation capabilities.
The current UK RIIO-ED2 model also explicitly encourages DSOs to procure local flexibility products and services – such as demand response – with a market-based approach to help make networks more efficient. DSOs effectively buy capacity on the network by incentivising flexible DERs – also known as “flexibility service providers” (FSPs) – to shift or shape their load or generation by time and location.
How do flexibility markets help DSOs fulfil their obligations?
The DSO, using flexibility, ensures efficient and optimal use of the distribution network with sufficient network capacity at the lowest cost.
Those services can be procured via individual programs or through flexibility markets. In the UK, local flexibility market trading tends to take place on a neutral market platform like ElectronConnect.
This increases DER and low-carbon technology participation. Local flexibility markets help DERs earn more revenue and create new ways for them to offer their flexible capacity into the grid – while ensuring more visibility across the board.
