With the professionalisation of the energy market, the model of small distribution system operators, known as OSDn for short, is gaining popularity. There is much talk about the benefits: greater control over electricity management, more competitive supply conditions for commercial space users, and greater flexibility in the use of renewable sources.
From a regulatory point of view, the issue does not seem particularly complicated – in a limited geographical area, most often in office buildings, shopping centres or industrial parks, the electrical installation is separated as a distribution network, thanks to which external sellers can offer electricity supply on competitive terms. The building owner earns money by providing distribution services or leasing the network to a specialised entity. However, this is where the idealistic vision ends, because launching and then running an operating business is a complex process that requires thorough preparation.
Pros and cons, or how to plan your operating activities well
Performing the function of an OSDn can bring real benefits. However, it requires appropriate, long-term preparation.
Undoubtedly, the benefits for the distribution network owner include the possibility of generating income from the provision of electricity distribution services or from leasing the network to a professional entity. Depending on the possibilities, it is worth analysing at an early stage whether the commercial conditions in the facility (number of tenants, volume of electricity supplied, technical condition of the network) will allow for an attractive return on investment. There is no doubt that the process of obtaining a licence and the necessary decisions, as well as the operational start of the operator’s activities, requires considerable initial expenditure.
Launching your own distribution network in a facility is a good solution for tenants, users and other entities using the commercial space, as it allows them to obtain the status of end users. This allows them to:
- Conclude an electricity sales agreement with a selected supplier operating on the premises.
- Connect your own renewable energy installation installed on the premises, provided that the owner agrees to this.
- Gain greater control over the billing rules.
Performing the function of an OSDn also entails a number of responsibilities. However, what is most important is that the biggest problems are usually encountered when starting up operations, i.e. obtaining the necessary administrative decisions and preparing the operational infrastructure. A licence will certainly not be granted to an entity whose financial situation does not guarantee that it can perform its duties in a manner that is safe for the system. It is necessary to submit comprehensive documentation concerning the network in question, starting with the connection conditions issued for the distribution network. An applicant for an electricity distribution licence should also submit a network development plan that takes into account planned revenues and expenditures and illustrates the scale of operations. In parallel with the licence application procedure, it is worth starting preparations to submit an application for designation as a distribution system operator under Article 9h of the Energy Law. In this regard, it is necessary to prepare a tariff (the deadline for submitting an application for tariff approval is only 30 days from obtaining the licence! – Article 47b(1) of the Energy Law), network operation and maintenance instructions, and other documents related to operator cooperation and data security.
The biggest challenges for OSDn
The list of requirements that an entity planning to start operating must meet is long. However, there are several issues that can cause the most problems in practice:
- A detailed business analysis of a given facility in terms of profitability – sometimes launching an OSDn model will not make sense due to, for example, high tenant turnover and the resulting operating costs, low attractiveness of the location, low demand for electricity, or outdated infrastructure requiring significant investment over time.
- Legal and advisory support – operating activities require the creation of a package of documents that must comply with applicable regulations and market practices. It is virtually impossible to develop tariffs or network traffic and operation instructions without specialist support. In turn, proceedings for granting a DEE licence or issuing a decision on the designation of an operator are strongly rooted in the practice of the Energy Regulatory Office. For this reason, in the event of a request to supplement formal deficiencies, the time for submitting the necessary documents may be too short, and as a result, the application will be left unexamined.
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Operational and technical facilities – performing the functions of a DSO requires cooperation with the superior operator, issuing conditions for connection to the network, ensuring correct network metering and processing of billing data, ensuring safe network operation and performing the necessary operational, maintenance and modernisation activities. With advancing technological development, the DSO must be prepared to implement solutions such as remote reading meters, participation in CSIRE, coordination of activities within the balancing market, monitoring of generation equipment and responding to sudden events that pose a threat to the operation of the system.
At Raczyński & Skalski, we offer legal support to entities that are considering or already conducting operating activities. We assist in negotiating distribution network lease agreements, the process of obtaining licences and further stages of operation as an OSDn.
