European Distribution System Operators challenged by dramatic changes in power sector

The European DSO landscape in 2020

A recent survey by the Vlerick Energy Centre in close collaboration with KPMG on the future of Distribution System Operators (DSOs) shows that top executives from Distribution System Operators across Europe expect significant changes in their role and business environment. Vlerick Energy Centre Chairman, Daniel Dobbeni, explains: “Decentralised and renewable electricity generation as well as customers becoming rapidly both consumers and self-suppliers will change the power sector like never before. To keep the lights on, the industry actors must quickly acquire new knowledge and confront their experiences.”

This research launched the new Vlerick-KPMG Chair on energy and was actively supported by the European sector organisations CEDEC, EDSO, Eurelectric and GEODE. Professor Leonardo Meeus and Professor Koen Tackx asked 108 executives from 24 countries about the changes they foresee in the energy sector by 2020. In total they represent up to 70% of all European distribution customers.

Jorn De Neve, Partner KPMG: “The results of this collaboration can lead to a better understanding of the operational models and the regulatory challenges in the DSO landscape in Europe. Our final aim is to provide companies in the energy sector with an even better service thanks to these valuable insights.”

Decentralisation and self-supply will affect supply-demand equilibrium

Nearly all respondents (98%) think that the trend towards more decentralised electricity generation will continue. In addition to large power plants (hydro, nuclear, coal and gas), there are millions of smaller renewable energy units − like biomass stations, wind mills and photovoltaic panels – in operations as well as cogeneration plants delivering heat and electricity. These units, generally owned by municipalities, households and businesses, generate electricity for local consumption.

As a result, matching supply with demand is increasingly challenging. 70% of the respondents predict that demand response will become mainstream by 2020. This will require an accelerated modernisation of the network infrastructure, including the way we contract, measure and bill consumption or remunerate generation and demand response. 72% believe that the EU’s 80% rollout target for smart meters can be reached by 2020. The majority of DSOs expect that these changes will have a major impact on their regulation, business model and, potentially, ownership structures.

37% believe that it will become common for customers to self-supply their demand and go off-grid by 2020. The rapid development of batteries and electric vehicles are identified as important drivers for change in the DSO business.

Not surprisingly, the respondents expect a fast-moving industry, with important changes in regulation (94%), innovation (86%), asset management (75%) and investment programmes (85%).

Towards multi-utility operators

Nearly half of the operators (45%) do not limit themselves to electricity, but they also manage natural gas networks (39%), telecommunication networks (21%), or water networks (15 %). 65% of the respondents believe that multi-utility is the future of the DSO business.

77% of the respondents expect the investment level in the electricity DSO business to increase substantially by 2020. This explains why 94% see (physical) asset management as a core activity for generating sustainable value from their asset portfolio.

72% of the respondents think that DSOs will become more service-focused than asset-oriented. They expect that their role will include: functioning as a data hub to facilitate market access (89%), actively controlling distributed generation (82%), supporting demand response and being responsible for balancing at the local level (82%).

More mutual collaboration

Public authorities at the local, regional, and national levels have often strategically invested in DSOs. Nearly half of the DSOs in the survey (49%) are entirely publicly owned.

• 81% of the respondents work for a DSO that has a public owner
• 31% of the respondents have financial players as shareholders
• 19% have other industry players as shareholders (these DSOs are part of a holding that is also active in energy production and supply activities)
• 24% of the DSOs are listed on the stock market

76% of the respondents expect that investment needs will require substantial amounts of new equity by 2020. 69% also believe that more structural collaboration among DSOs is required, being alliances, joint-ventures, or M&A. 54% think that M&A is the most beneficial way to collaborate.

Adequate regulation, a must

Nearly all respondents (94%) expect important changes on a regulatory level, but only a mere 50% think that regulatory commissions have a good understanding of the complexity and challenges the industry is facing.

Download the full report: 'Outlook on the European DSO landscape 2020 - the trends that will change the name of your game'

About the Vlerick Energy Centre
The Vlerick Energy Centre is a platform for discussing the future of energy, focusing on the roles of Distribution System Operators (DSOs) and Transmission System Operators (TSOs). Its flagship international executive education programme − The Future Grid Managers Programme − is a joint initiative with the Florence School of Regulation, which tackles the management challenges and opportunities specific to DSOs and TSOs in the energy industry in Europe.

About KMPG
KPMG is a worldwide network of professional companies that deliver services in the fields of audit, tax, legal advice and advisory. We are active in 155 countries with more than 155,000 professional staff members in KPMG companies throughout the world. The network of independent member firms is affiliated with KPMG International Cooperative (“KPMG International“), a Swiss entity. Each KPMG member firm is a separate legal entity with its own incorporation and acts as such externally. KPMG International provides no professional services to clients and generates no income from it.

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