A Growing Turf War Between TSOs and DSOs Misses the Point
We need a grid architecture that puts customers (and their assets) at the center
By Sam Hartnett and Walter Kok
Imagine working for a telecommunications company circa 2007, just as traditional mobile phones were on the brink of morphing into the pocket-sized, supercomputing, market-dominating smartphones they’ve become today. If you were responsible for setting your company’s strategy, you might have started with a simple thought experiment centered on two complementary questions:
- In five years’ time, can you imagine a world without smartphones?
- What about a world without landlines?
Obviously, telco business models and architectures had to radically change to accommodate the transition from a network designed for relatively passive, often-analog endpoints (i.e., landlines) to one optimized for complex, mobile, intelligent, fully-digital devices.
This should sound familiar to anyone working in the energy sector today. At this point we know that the asset base that comprises the grid is going to be vastly different in the future than it is now, and customers of all shapes and sizes — from households to multi-building campuses to multinational corporate buyers — have unprecedented agency over their energy supply. Renewables and distributed energy resources (DERs) are getting ever cheaper, more powerful, and easier to manage via digital technologies. Meanwhile, learning curves for fossil-fuel generation plateaued decades ago, and coal, gas, and oil assets are only getting comparatively more expensive and less prevalent.
With that context, a parallel thought experiment might phrase its questions like this:
- Can you envision a future grid without customer-owned, distributed energy resources?
- What about a future grid without any large-scale, fossil-fuel generation?
While opinions differ about the speed of the transition, there is near universal acknowledgement that the physical, financial, and political systems used to deliver electricity — collectively, our grid architecture — must evolve to reflect the novel characteristics of a grid where phenomena traditionally bound within the bulk power system — generation, balancing, markets — occur among customers at the distribution level at scale.
This fast-moving energy transition has resulted in some peculiar side effects: namely, transmission system operators (TSOs) that are starting to look and act like distribution system operators (DSOs), and vice versa. It is a growing ‘turf war’ of sorts in which TSOs want to reach down into distribution grid assets and customer relationships (conversely, DERs want to reach up into wholesale markets), and where retail market DSOs want to shepherd some of the functions and processes normally reserved for wholesale markets and transmission grids.
Yet debates about the appropriate scope for re-envisioned TSOs and DSOs focuses debate on the wrong question. Instead, we should be focused on grid architecture design decisions that put customers (increasingly, prosumers) and their DERs at the center.
An identity crisis for the 21st century grid
Even if you aren’t familiar with grid architecture as a holistic discipline, more than likely you’ve been exposed to some of its discrete elements, such as the discord over electricity market reforms, rate design, and utility business models. In many ways, these are arguments about the appropriate roles and responsibilities for TSOs, DSOs, retailers, aggregators, and “prosumers” themselves.
Should TSOs extend their current responsibilities down to the level of individual assets on the distribution grid? Should DSOs expand their role to become distribution market operators? Should customer-owned assets participate in wholesale and/or local markets directly, or only via aggregated pools?
There is no universally “correct” answer to these questions. However as brilliantly summarized by David Roberts of Vox, most answers can be categorized somewhere along this spectrum:
- Top-down extension: A top-down approach in which TSOs extend their current responsibilities to operate markets and balance the grid all the way to devices at the distribution level (either directly or via aggregators).
- Bottom-up growth: A bottom-up approach featuring a recursive set of balancing responsibilities and/or markets nested below the transmission-distribution interface; in this approach balancing starts at the individual building (or microgrid) level via devices behind the meter, then buildings form the unit of measure for distribution-level balancing performed by the DSO, and the TSO is focused exclusively on the bulk power system.
The top-down approach more or less continues the pre-existing top-down architecture of our legacy grids, but dramatically expands the scope of the TSO’s duties. The bottom-up model implies a more proactive role for distribution utilities (and other local-level stakeholders), requiring them to not only build and maintain the distribution grid but also perform many of the functions traditionally reserved for TSOs, including operating markets (or procuring services) for things like capacity, energy, and balancing.
There are valid arguments for both paths. TSOs have the tools and expertise required to administer markets and maintain system balance, so it seems natural to extend their purview to the distribution system. On the other hand, DSOs already operate the infrastructure (perhaps most significantly, metering) at the distribution level and in most cases have well-established systems for managing customer relationships, DER interconnection processes, and planning processes. Expanding their role can help both the DSO and TSO focus on what they each do best.
Thinking in terms of “maximal” or “minimal” TSO/DSO somewhat misses the point. In reality there are going to be many stakeholders beyond TSOs and DSOs who want to access DERs (not to mention electric vehicles and charging infrastructure) for various purposes, including aggregators, retailers, OEMs, and prosumers themselves.
A better way to frame the grid architecture debate is: What is the most secure, efficient way to perform key market processes (from asset qualification, to registration, to activation, to settlement) for vast numbers of assets at the grid edge?
An open digital infrastructure is a prerequisite for success
Regardless of which path takes hold in any given market, providing customers a stable supply of electricity as well as access to markets and services calls for the cooperation and coordination of TSOs and DSOs. In Europe, this need has been already identified by the vast majority of TSOs and DSOs and prioritized by the European Commission as well as the Council of European Energy Regulators. In Australia and in Texas, TSOs have articulated an urgent need to “increase the visibility and controllability” of DER via improved coordination with DSOs. Even vertically integrated utilities must better integrate transmission and distribution system planning.
Putting the customer at the center of the grid architecture requires an entirely new set of capabilities for all market participants, no matter which entity acts as the “authority.” In either case, there needs to be a secure, scalable way to identify customers and their devices, verify attributes about them (including operational capabilities and financial relationships), and manage permissions (e.g., the ability to participate in a given market) based on those attributes.
There’s no way to perform these tasks centrally. It’s not about more performant algorithms, more “transactions per second,” or any computational performance issue. We already have super-performant technologies, but in many markets DERs remain underutilized (at best) or invisible. A customer- and DER-centric grid architecture requires collaborative governance, particularly distributing and delegating responsibilities traditionally reserved for TSOs or DSOs to a web of individual actors.
That’s why we built EW-DOS, a universal digital protocol for establishing identity, permissions, and relationships across the energy value chain, ranging from customers and their assets to market participants and regulators. Based on detailed technical and business requirements from our community of members, EW-DOS is inherently open to all, hardware-agnostic, and compatible with a wide variety of information and operational technology systems. At the core of EW-DOS are decentralized identifiers (DIDs), which make it possible for multiple market participants to request information about specific customers or assets while empowering customers with greater agency over how their data is managed and used. As it happens, EW-DOS can create value in both approaches.
In a fully bottom-up model with multiple system operators, EW-DOS provides a shared state for DER and customer attributes via plus operational behavior (past, present, and future) of the assets in the system to the various stakeholders; this enables participation at multiple levels within the grid from local energy communities to existing wholesale markets. In a top-down model where the TSO becomes solely responsible for every level within the grid hierarchy, EW-DOS streamlines the process for DER identity and access management, reduces costs associated with DER registration and settlement, and can help protect personally identifiable information of customers.
As in most things in life, the best path forward lies somewhere in the middle of two extremes; not “either/or”, but rather “and”. In our experience, real progress happens when TSOs and DSOs actively collaborate to align on common standards. For example, in Austria APG (a TSO) has built on their successes of horizontal market integration (with TSOs in neighboring regions) to develop tools that will support vertical market integration with all participants, including DSOs.
Based on our work with dozens of TSOs and DSOs to date, we’ve developed open-source software designed to help each fulfill their particular roles by making it simpler for customers to perform market processes once reserved exclusively for centralized power stations. So no matter how their roles evolve, by embracing and participating in an open digital architecture that puts customers and their DER at the center, they will be positioned to succeed for many years to come.
Sam Hartnett is Research & Market Development Manager at Energy Web. He has nearly a decade of energy-sector experience, including with Rocky Mountain Institute and EnerNOC. Walter Kok is the CEO of Energy Web. He has led major digital transformations in banking (ING), telecoms (Vodafone, NEC Corporation), and energy—with the common thread of putting the customer at the center of business strategy.
