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.
If you’re a US grid operator, this may sound familiar. Through demand response programs, non-wires alternatives, and DER integration, you’re already doing much of what the DSO model covers. What the UK experience shows is what happens when those functions are coordinated and scaled.
What is a distribution network operator (DNO)?
DNO stands for “Distribution Network Operator”. A DNO owns and operates 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
The DNO and DSO roles differ in the role they play in a grid with growing numbers of distributed energy resources.
- Owns and maintains the local electricity distribution network
- Ensures safe, reliable power delivery to homes and businesses
- Manages connections and physical infrastructure
- All DNO responsibilities, plus active system management
- Manages distributed energy resources such as solar, batteries, and EVs
- Operates as a platform for a smarter, more flexible grid
- Plans network capacity for forecast peak demand
- Responds to constraints by building new infrastructure
- Decades of reliability built on this model
- Uses real-time data to balance supply and demand
- Reduces the need for constant physical reinforcement
- Procures flexibility from DERs as an alternative to building
- Customers consume electricity; they do not participate in the network
- Interaction mostly limited to outages and new connections
- Customers can export power, shift demand, and sell flexibility services
- Households and businesses play an active role in the energy transition
- New revenue opportunities for prosumers
- Focused on fault detection and network maintenance
- Limited real-time visibility of the network edge
- Smart meters, sensors, and digital platforms enable dynamic network management
- Real-time data informs operational decisions and flexibility procurement
- Capital investment in wires, substations, and transformers
- Costs recovered through regulated network charges
- Balances capital investment with operational alternatives
- Market mechanisms and flexibility procurement help keep system costs lower
- Many DERs are unknown or untracked
- Knows what is connected, not necessarily how assets are behaving
- Detects and characterises DERs across the network
- Includes assets not enrolled in any programme
- Understands where flexibility exists and how reliably it can be used
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 is not a uniquely UK challenge. US utilities are experiencing the same pressure (more solar, more batteries, more EVs connecting at the distribution level) and the same fundamental question of how to maintain visibility and control over a grid that was never designed for it.
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 – RIIOII. 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.
In the US, the same principle applies. FERC Order 2222 creates a regulatory basis for DER aggregators to participate in wholesale markets, but the coordination layer that makes that participation workable is the same, whether you call it a “DSO” or not.
What does DSO mean for US utilities?
Most US utilities are therefore already doing much of what the DSO model describes. Demand response programs, non-wires alternatives, DER engagement – these all aim to enable a flexible grid, similar to the role of flexibility markets.
The goal isn’t merely to replicate the UK structure. US utilities don’t need a separate DSO entity or a new regulatory framework to start getting value from DERs. The opportunity is, happily, much simpler: building visibility of what’s on the network, understanding where DERs can reliably help, and using that to make smarter decisions about where and when to invest in the grid.
