Skip to main content

Distribution system operators (DSO)

How can network management be transformed into a smarter model?

Electrical network AI

The energy sector is undergoing a full transition towards a smarter and more sustainable model. Driven by innovation and digitalisation, this process has as its main aim the protection of both the planet and people. Implementing the distribution system operator (DSO) model makes it possible to maximise the integration of renewable energy, as well as accelerating economic decarbonisation while creating value for customers.

  The DSO model will revolutionise the distribution of energy through digitalisation.
The DSO model will revolutionise the distribution of energy through digitalisation.

Traditionally, electricity networks have been operated under a one-way distribution model, where energy flows from high-voltage transmission networks to end-consumption points. In this set-up, distribution companies act as DNOs (distribution network operators). However, with the rise of distributed generation, the growth of renewables, the electrification of certain activities, energy storage systems and microgrids, this conventional model is evolving into an increasingly smart and digitalised network.

The changes brought about by the energy transition mean that in addition to operating the grid, distributors must be able to manage all resources connected to it – from generators and consumers to those who play both roles (prosumers). In this way, they become system operators, or DSOs, driving the development of a digital, smart and flexible network.

What are DSO (Distribution System Operators)

Distribution system operators are the companies responsible for distributing and managing electricity through distribution networks to the final consumers who use it.  Digitalisation is essential for enabling the DSO model, requiring investment in automation, real-time systems, big data and data analytics.

The DSO model uses real-time information exchange solutions to actively manage the resources connected to the distribution grid. Smart meters form part of this solution, enabling two-way measurement of energy flows and real-time communication. This allows outages to be detected and supply to be restored automatically, while also giving customers access to daily consumption tracking through digital platforms.

Flexibility options for DSOs 

The role of the DSO breaks with the traditional vision of network use, enabling a more efficient and sustainable utilisation of existing infrastructure. Flexibility may come from the DSO itself through its own assets, or from generators and consumers who adapt to network needs and make their flexibility available to the operator. 

Flexibility options in distribution networks can be used to address two types of requirements: those of the network itself, and those of third parties. 

Network needs

Grid flexibility 

DSOs can use their own infrastructure to provide flexibility and manage capacity dynamically. Examples include: 

  • Storage systems (batteries), which not only improve supply quality but also enable more efficient demand management, facilitate the integration of intermittent renewables and provide fast response capacity in case of network events. 

  • Flexible power links (FPL), which help regulate electrical parameters in network connections. 

  • Phase-shifting transformers (PST), which optimise power flows between lines. 

  • On-load tap changers (OLTC), crucial for maintaining voltage in low-voltage networks with growing penetration of electric vehicles and self-consumption

Third-party flexibility service providers

These services allow consumers, generators or owners of distributed energy resources such as heat pumps, batteries or electric vehicles to collaborate with the DSO to meet network needs in exchange for financial compensation. This can be arranged through bilateral agreements, where the DSO pays for the use of an external asset, or through flexibility markets, where providers compete to offer the best price. These markets can be short or long term.

Third-party energy needs

  • Non-firm connections 

These allow generation or demand to be connected in constrained network areas where new connections would otherwise be limited, by dynamically adjusting allocated capacity depending on availability. This accelerates grid connections. Their management, in real time or on a scheduled basis, requires advanced systems such as Active Network Management (ANM) to monitor and act according to real-time conditions.

  • Peer-to-peer market

This enables prosumers to balance local consumption and generation in areas with renewable oversupply, avoiding curtailments. Although agreements are directly between participants, the DSO must facilitate, supervise and balance the local node in real time, assuming new operational and monitoring responsibilities.

The expansion of the DSO model within the Iberdrola Group

Iberdrola Group’s network business has launched the following initiatives, among others:

In Spain

Iberdrola’s Spanish distributor i-DE is coordinating a regulatory innovation project, proposed as a sandbox, called S2F (Flexibility Solutions in Distribution Networks), in which most distribution companies in the country are represented.

In addition, i-DE is coordinating the BeFlexible project, which follows on from European initiatives such as CoordiNet and OneNet. It promotes and tests the use of flexibility from connected resources through markets, coordinated with the transmission system operator (in Spain, Red Eléctrica) and the market operator (in Spain, OMIE). The aim is to unlock flexibility from demand and prioritise customer needs.

In the United Kingdom

During the 2024-2025 fiscal year, ScottishPower Energy Networks’ DSO activities generated an estimated net profit of £10 million, with long-term cumulative profits projected at more than £563 million. In the same year, 36 customers with a total capacity of 512 MW accepted flexible connections, enabling their grid connection to be brought forward by up to 10 years. 

Flexibility markets have also proved essential for managing critical events such as Storm Darragh in December 2024. On that occasion, dispatching Statkraft’s 20 MW hydroelectric plant (a SPEN flexibility provider) cut the expected restoration time by 40 hours, speeding up the return of power to 15,000 customers. 

In the United States

Avangrid has started the large-scale rollout of smart meters across its distribution companies in New York State, NYSEG and RG&E, together with ongoing substation automation. A flagship case is the Java NWA project, led by NYSEG, where a microgrid with a 60 MWh battery energy storage system (BESS) was installed to provide a reliable solution in the event of transformer failure. Another example is the Flexible Interconnect Capacity System, developed by the company, which enabled a solar plant to increase its connection capacity from 2.6 MW firm to 15 MW non-firm. 

In Brazil

Our subsidiary Neoenergia has selected the municipalities of Atibaia, Bom Jesus dos Perdões and Nazaré Paulista, in the east of São Paulo state, to invest in improvements that bring the service closer to that of a DSO. The investment covers smart meters, automation and telecommunications. 
 
Also, in Corumbau and Cumuruxatiba, where traditional grids are difficult to build due to environmental, social and cost constraints, an expensive 39-kilometre line was ruled out in favour of battery storage systems (BESS), reducing costs by 45%. In Xique-Xique, an isolated microgrid was created to supply more than 100 households in a remote community, showing how microgrids can be a viable alternative where conventional grids are not feasible.