The energy transition could be derailed if the speed of innovation outpaces the response of distribution system operators.
This article is part of the New DSO business models series.
Europe is committed to ambitious decarbonization and climate change targets. Though distribution system operators (DSOs) have the destination in sight, they are trying to figure out how on earth they will get there. Currently, if the speed of innovation outpaces DSOs’ response, the energy transition may be compromised and those ambitious objectives might be missed.
Over the past 15 years, Europe’s utilities have ramped up renewable generation on the back of attractive incentives. In 2017, electricity generated from renewable sources topped 30%. A growing appetite for renewables has, in turn, contributed to a collapse in wholesale energy prices. With demand further weakened by the financial crisis, revenues from conventional generation were dealt a blow, prompting asset impairments to the tune of €143 billion between 2010 and 2016. Even though market capitalizations have halved at some of Europe’s biggest utilities, the lights have stayed on.
And that, in no insignificant way, is down to the network companies that have delivered on investment projects to fortify infrastructure. DSOs have connected renewable generation to the grid, enabled decentralized energy resources (DERs) and coped with rising post-recession demand from economic, industrial and population growth. Europe’s networks are now regarded as some of the most reliable in the world. For now, “connect and reinforce,” the conventional way of bolting on extra network capacity, is managing.
Yet, DSOs are under pressure, having to tackle the relentless march of innovation, electrification and increasing volumes of DER and electric vehicles (EVs) that will accompany decarbonization. Their job is about to get much bigger:
- Electrification of transport, buildings and industry will add approximately 2.1% new load every year.
- The share of offshore wind, onshore wind and solar photovoltaic (PV) capacity in the EU generation mix will rise from 23% in 2015 to 55% by 2030, and to 73% by 2045.
- EVs will reach price and performance footing with combustion engines in Europe by the mid-2020s, accelerating uptake from 500,000 EVs in 2015 to 10 million by 2023, and 30 million by 2030.
It’s clear that fundamental changes to DSOs’ roles and core responsibilities are needed within the next five years for today’s challenges to not become tomorrow’s insurmountable problems.