Why Europe's DSOs should start flexibility now

As the new EU network code on demand response is still in process through the European Commission and the national terms and conditions are yet to be designed, DSOs can in the meantime start implementing local services and markets and take advantage of regulatory sandboxes or national practices to build the necessary knowledge, skills, tools and processes, the DSO Entity recommends in a new analysis.

Alongside, they should define and publish a roadmap to implement local markets, engaging stakeholders from the outset and promoting opportunities for customers to become flexible.

The new network code on demand response, the drafting of which has been in process since early 2024, is aimed at establishing an EU-level framework to facilitate demand side flexibility integration into related transmission and distribution system services.

For DSOs, the network code directly shapes their role as market facilitators at the distribution level, with many elements, particularly the national terms and conditions and the practical organisation of local services markets to be implemented at national level.

These national terms and conditions, for which the principles and rules are set out in the code and on which the effective implementation of the network code is largely dependent, must support scalable implementation paths with common shared services, standardised interoperable interfaces and phased obligations.

With Europe’s electricity distribution networks evolving rapidly due to growing renewable generation, electrification of industry, and new flexible loads such as heat pumps and EV charging, distributed flexibility and markets for local services are becoming increasingly important.

The DSO Entity review draws on current practices in the use of distributed flexibility from DSOs in Austria, France, Germany, Italy, the Netherlands, Norway, Portugal, Spain, Sweden and the UK, with all those contributing using local flexibility markets to procure active power services. 

Most flexibility use cases focus on managing congestion related to consumption or generation when operational limits are reached or exceeded. 

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Flexibility is also a key enabler for accelerating new customer connections, as grid reinforcements often lag behind electrification-driven demand. In countries with harsh winters, such as Sweden and Norway, cold weather is a major driver of peak demand flexibility needs. 

Across the board, the DSOs combine markets for local services with tariff signals, flexible connection agreements and rules-based mechanisms, demonstrating that ‘one tool’ is insufficient, the DSO Entity report says.

Other recommendations for DSOs include securing the flexibility value from end-to-end with cost-efficient solutions with minimal entry costs for participants, developing tailored local flexibility products, establishing a flexibility information system and developing the ICT and (near) real-time communication requirements.

They also need to ensure physical delivery of flexibility to the grid and that there are efficient DSO-TSO and DSO-DSO coordination mechanisms.

Regulatory actions

Critical regulatory recommendations accompanying these are:

• Regulate requirements for technical aggregation and strengthen cybersecurity requirements.
• Enable the registration of all resources beyond the service validation point as a single controllable unit, in addition to the possibility of registering technical resources one by one.
• Improve the concept of compensation effect under the network code framework to ensure efficient activation and delivery of services.
• Ensure the reliability and safety of the grid and foster the development of distributed flexible resources in a non-discriminative manner while acknowledging these goals pertain to two different paradigms, thus independent processes.
• Define provisions for data exchange standardisation within NC DR framework.

Taken together, these recommendations provide “a practical and pragmatic DSO-driven roadmap to implement and support market development that translates the network code into workable national terms and conditions that reflect distribution grid realities and needs,” states the analysis report.

Timely and coordinated action by DSOs is essential to ensure that local flexibility becomes a reliable, scalable system operation tool, improving the efficiency of the development and operation of DSO grids.