Price Efficiency, Green Transition and Channels for Regulating Natural Monopolies: The Case of the Distribution System Operators (DSOs)

The subject of this chapter is the governance system of the distribution system operators (DSOs), i.e. the companies that own, operate and develop regional and local electricity networks. These companies are natural monopolies, and subsequently need strong regulation by public authorities and/or by consumers.

The role of the DSOs has been changing fundamentally in recent years, together with the rest of the electricity system, due to the transition from stored fossil fuel-based electricity to electricity based on fluctuating renewable energy sources. The paper analyses the changing circumstances for the DSOs in the development of integrated smart energy systems, based on an innovative theoretical framework with a strong focus on ownership in the understanding of governance of natural monopolies. After a comparative analysis of shareholder versus consumer ownership, based on two cases, the paper sets up several conclusive recommendations about ownership, governance and the new role of the DSOs in the developing smart energy system.

Frede Hvelplund, Finn Arler and Henrik Lund