Distributed Generation and the Regulation of Distribution Networks

Our analysis has shown that increasing presence of distributed generation in distribution networks is not always favourable where specific network and distributed generation characteristics play a crucial role. We analyzed the economic impact of an increasing penetration of distributed generation in distribution networks on the financial position of the DSO taking into account a number of network and distributed generation characteristics. In addition, we included two different network management philosophies (passive and active network management) in the analysis. We find that DSOs operating under a passive network management regime generally do not profit from the presence of distributed generation in their distribution network, except at low distributed generation penetration levels: network reinforcement costs increase with the level of distributed generation penetration. DSOs adopting active network management are generally faced with similar general results as DSOs adopting passive network management. Penetration of distributed generation in the network is favourable for the DSO for low penetration levels, but becomes unfavourable the higher the penetration rate and the more concentrated the presence of distributed generation in the distribution network. The added value of distributed generation with respect to the deferral of investments at the grid supply point (the connection with the higher voltage level network) can be substantial. However, the realisation of this positive value for DSOs is dependent on a larger number of factors that are beyond the scope of our research. These relate to the load growth dynamics and the status of interconnection equipment (economic lifetime and depreciation). Considering the maximum replacement values of distributed generation, it might be expected that the overall impact of distributed generation penetration on the DSO business, can be neutral or positive in the majority of cases. Observing a differential impact on the DSO under passive and active network management we conclude that there is an implicit incentive for the DSO to adopt an active network management approach in a number of cases, in particular the case where distributed generation penetration is low or medium. For