Distribution grid operators issue call for better national regulation

Network regulation must be revised to incentivise investments in European electricity distribution networks, ensuring a secure, sustainable and reliable electricity supply for Europe's citizens. This is the key ask of a joint declaration of European electricity distribution system operators (DSOs), launched in Brussels today.

The common statement by EURELECTRIC and DSO associations CEDEC, EDSO for Smart Grids, and GEODE outlines the pivotal role of DSOs in the energy transition and the conditions that are needed for them to fulfil this role. In particular, it highlights the need for significant long-term investments in distribution networks if Europe is to meet its energy and climate objectives.

"The EU's policies have encouraged the development of decentralised electricity generation, electric vehicles, energy storage and flexible demand. This change has given DSOs the opportunity to rethink traditional system operations and reflect on how to best develop and operate Europe's distribution networks with a view to the future,"the document reads.

Indeed, the need to integrate renewable energy sources into the electricity system, plus the replacement of assets and the development of smart grids and smart metering is creating demanding investment requirements for DSOs. However, a EURELECTRIC report, also published today, shows that regulation is not allowing the necessary investment to take place. In fact, DSOs today are facing lower investment incentives than in 2010.

As regulated companies, DSO remuneration is determined by national regulation. The EURELECTRIC analysis of national regulatory systems and DSO accounting statements shows that the achievability and the adequacy of the regulated rate of return have decreased, as has planning reliability. In addition, regulation often treats R&D and pilot projects like any other cost, without recognising the risks involved in testing new processes and technologies. As a result much needed investment is not taking place.

In addition to fostering investment, regulation should also ensure that distribution users pay fair and cost-reflective network tariffs. To achieve this - and to enable DSOs to better cope with the changing operational challenges - more capacity-based network tariffs should be introduced.

Meanwhile, a EURELECTRIC analysis of household power prices published yesterday shows that taxes and levies artificially inflated the network component reported for some countries in a European Commission report on energy prices published in January.