Primer – DSPs and valuing DER

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Primer – DSPs and valuing DER

IGov Primer – Distribution Service Providers and valuing Distributed Energy Resources

Distribution Service Providers (DSPs)

The traditional three roles of utilities of planning, operations and market administration are being challenged by developments in technology, public policy goals, user preferences and business models. This raises questions over the future of the role of traditional distribution utility model. Is it still valid that the distribution entity should still have responsibility for the three roles; are there new functions (for example, local market coordination and balancing) which the distribution entity needs to take on; are there functions it should lose? There is a central question within this about how current Distribution Network Operators (DNOs) evolve, and whether they should (or should not) be transformed from current ‘passive’ distribution utilities into ‘active’ market facilitators, market balancers at the local grid supply point (GSP) area level and system coordinators/managers.

Some sort of coordinating distribution entity will be vital as electricity systems continue to become more decentralised and flexible, and as the electricity, heat and mobility sectors become more inter-related. DNOs could become DSPs which are regulated and incentivised to facilitate a service and customer led approach to the supply and demand of energy, storage, system requirements and any other resource transactions customers may wish. This is essentially the current 3DNO role + additional ones.

Alternatively, the ‘wires’ company could be separated from the system operation role of the distribution entity. In this situation, the SO becomes the DSP which also becomes the active market facilitator and area market coordinator and balancer.

We are uncertain which model is best, because of the practical ability of the DNOs to transform into DSPs – even with new and appropriate incentives. If we could be certain that the DNO could transform rapidly into a DSP under appropriate incentives, our theoretical preference is to keep the wires and SO roles together because it seems to us a DSP is better placed to run an efficient distribution entity if they can bring energy and system values together. This would also exclude the wires arm from doing (or owning) any non-wires activities. This is discussed in detail in the Form and Function blog.

However, we also understand that this move of DNOs into active distribution entities may be wishful thinking, and the easiest option may be to separate the wires out from the SO.

Much of the IGov discussion about DSPs takes place in blogs / presentations about the New York Reforming the Energy Revolution (NY REV), which has a primer all of its own.

We also see an expanded distribution function as a central part of a fit-for-purpose energy governance framework, and that also has a primer of its own. We think that the distribution entities require a new performance based regulatory mechanism and that is discussed both within the NY REV primer and within the RIIO primer.

Valuing Distributed Energy Resources

This primer also covers Distributed Energy Resources (DER). We think that the valuing of a DER resource within an area – for example under the GSP points – is a central building block for an energy efficient and affordable energy system. Such an assessment is best undertaken via an area based co-ordinated approach. We think DSPs are the best institution to value DERs and to coordinate local areas, hence the decision to bring both these two inter-linked issues together in this primer. For a good overview of the importance of valuing DER and how to go about doing that, see the blog on DER assessment processes and a methodologies.

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Download the primer here: Primer – DSPs and Valuing DER

Last Updated: December 2019

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