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DNO to DSO – A transformation of skills

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  1. DNO to DSO – A transformation of skills a true talent partner

  2. DNO to DSO – A transformation of skills Executive Summary 2 Change and transformation are rife in the energy sector The essential transition of UK distribution network operators (DNOs) into distribution system operators (DSOs) – a subtle, but far-reaching change - is envisaged to take place between now and 2030. Currently, the DNOs control and maintain the transmission and distribution networks. Under the DSO model, the operator will take a more active role in managing local electricity generation and use. Specifically, under the Energy Networks Association’s new definition, the DSOs will securely operate and develop an active distribution system comprising networks, demand, generation and other flexible distributed energy resources. They will enable competitive access to markets and the optimal use of distributed resources on distribution networks, in the support of whole system optimisation. How are DNOs responding? The majority of the DNOs have announced their strategies detailing how and when they will be achieving this mighty task, with many tackling it in phased approaches up to 2030. The DSO model is the future of the industry. If existing DNOs do not act, they will be vulnerable to new and disruptive technologies that are ready to enter the market and shake it up. Change needs to start now. In this discussion paper, we share insights and stimulate thinking on a variety of issues surrounding DNO to DSO. This paper sets out to explore the answers to questions such as: • What is driving change? • What does the power distribution system of the future look like? • What are the commercial and regulatory barriers? • What are the top strategic priorities? At Holmes Noble, we advise and work closely with the leaders of today, coaching them to ensure that they are fully aware of trends and developments, so that they are actively making a difference within organisations. www.holmesnoble.com

  3. DNO to DSO – A transformation of skills 3 What is driving change? At a roundtable event held in Manchester in February 2018, we invited some of the UK’s senior CEOs and Directors from the energy industry to discuss the transformation from a DNO to a DSO model. When discussing what is driving the need for change, a quote from around the table stated: “Coordination of the bulk power system across the national grid drives down renewable energy integration costs and is a growing necessity given the current power needs of the UK. “Also, the cost of renewable energy is falling for individual customers and, therefore, customers increasingly own their own generation systems to provide themselves with resiliency in the event of grid failure and a choice of where and how they source their power to manage cost.” “People now want new opportunities to engage in the energy market, enabling households and businesses to have greater control over their electricity and unlock the potential from new technologies like battery storage and electric vehicles in their everyday lives.” Impact of renewables With renewable technologies interacting with the grid at low-voltage levels, the power system architecture and organisational roles and relationships will need to change. The system is currently designed to distribute electricity from generation through transmission, distribution and onto consumers, avoiding congestion and bottlenecks. The impact of renewables is changing this system. As renewable energy production reduces in cost, deployment increases and drives power system autonomy and interconnection simultaneously. www.holmesnoble.com

  4. DNO to DSO – A transformation of skills 4 “Electric vehicles, like all vehicles, are an under-utilised asset: cars are parked 90% of the time, doing nothing. So why not make some use of it, to allow us to deploy renewables on the grid and to allow the owner of the car to benefit somehow?” “The next big challenge is going to be how we integrate all these electric vehicles into the grid system. In time, you can see how this is a complete change in the way we think about energy, motoring and vehicles.” Electric cars The ability to make vehicle batteries part of the national grid will become real next year, forcing utility firms to rethink their relationship with customers and the energy storage provisions. The vehicle-to-grid concept and technology will become more mainstream in the next decade, boosted by a £20m government fund for projects starting next year. Although electric car models are now more available, not all have the technological vehicle-to-grid capability. “The market’s destination must be able to aggregate and coordinate many prosumer supply and demand points to allow the ongoing cohesive operation of the wider power system, whilst at the same time supporting the independence of the prosumer to interact with their local system based upon their own needs. “What is more, if DNOs fail to interact with the new individual prosumers who are likely to be higher credit individuals, as they move to DSO status; they will be left with a customer base of lower credit households who are likely to be higher in relative cost to maintain on the network.” The rise of the prosumer This switch, from individuals potentially giving back power to their supplier as well as taking it, marks the beginning of a whole new relationship between energy company and citizen. Consumers are becoming simultaneous producers and consumers of power: Producer + Consumers = Prosumers. www.holmesnoble.com

  5. 5 DNO to DSO – A transformation of skills What does the power distribution system of the future look like? Smart Grid CONTROL CENTRE The traditional model for electricity generation is set to change. In the future, everyone will have the potential to be both a producer and a consumer. “Our relationship with the grid will become quite different. We’ll move from being utterly dependent on the grid for power to people becoming more interdependent - giving and/or taking. Wind turbines, solar panels, electric vehicles and other low carbon technology will be within the reach of consumers. “There’ll be a role for energy companies. It’ll just be very different. It could be considerably diminished in terms of energy supply if you go far into the future.” Houses will be fully connected and enabled for smart appliances, smart meters, storage and control. Advances in electricity storage also mean that batteries can be connected to the network and can charge during the day with the stored electricity available for use in the evening. “We may also see the increase of peer-to-peer electricity trading which means that generators and consumers can trade directly with each other. We expect soon to see the decline of the linear, top-down relationship between generators, network operators and customers and the rise of a de-centralised, multi- faceted community of power.” “As energy exchanges become more localised, distribution network operators like us are likely to evolve into distribution system operators to ensure the system is properly coordinated to deliver secure and affordable electricity supply.” “In the future, a combination of substation monitoring installed on our network, combined with smart meters, smart appliances and analytics will help to ensure that the network stays within safe limits and that we continue to provide a reliable power supply as well as cheaper and quicker connections for our customers.” www.holmesnoble.com

  6. DNO to DSO – A transformation of skills What are the top strategic priorities for the energy sector? 6 TALENT CUSTOMER Understand the new emerging consumer, their increased expectations, and the need for digital energy management. Leaders in the energy sector now need to understand technology, at every level and from every angle, the sector now needs to fill this talent gap. DATA Asset overview, data insights (analytics) for optimisation, operations, customer choice. COMPETITION Changing competition rules, smart utility emergence, increased customer choice. INNOVATION New value chains, new customer offerings and pricing models. Top priorities for the power distribution system RENEWABLES Understanding the impact and opportunity that renewable technologies are having on the grid. COLLABORATION The government and energy industry must commit to greater collaboration if the UK is to capitalise on the benefits of increasing numbers of electric vehicles and other new emerging technologies. TECHNOLOGY Internet of Things, smart grid, smart metering, digital utility, data analytics, tailored clouds. REGULATORY Regulatory challenges, environmental regulations, smart utility policies. www.holmesnoble.com

  7. 7 DNO to DSO – A transformation of skills What are the skills challenges? SMART KNOWLEDGE SYSTEM ARCHITECTS MACHINE LEARNING DIGITALISATION SKILLS Many DNOs are auditing their skills to identify the gaps – particularly in their leadership teams - to reach these ambitious targets. Many are left questioning whether a new form of leadership is required? “The role of the distribution network operator (DNO) is no longer only to maintain the network and to keep the power on. It is also to think smarter and get more out of the network to reduce costly new infrastructure, analyse and respond to shifts in customer behaviour and help customers in fuel poverty.” New kinds of skills required The move to DSO reflects how the energy network has changed. The customer offering now includes solar farms, offshore wind farms and combined heat and power plants, as well as the traditional sources of power supplied to commercial, domestic and industrial customers. A new talent pipeline The competition for that talent is red hot. The speed at which organisations are transforming is facilitated by how quickly they can install fresh talent (in terms of essential leadership changes) to have a significant impact on how quickly a DNO transforms into a DSO. “The renewables trend has been fortified following government plans to ban the sale of new diesel cars by 2040, which has created a surge towards new electric cars.” Senior managers now need new skills under their belts, such as a strong knowledge of frameworks, data digitalisation, artificial intelligence, machine learning, prototypes and systems architecture, to name just a few. The increase of renewable sources of energy and the variety of customers means that the energy sector will continue to evolve and that it needs new skills sets, which could not have been envisaged when the UK network and market were originally conceived or constructed. Victoria McQueen, Managing Partner - Energy and Infrastructure Practice at Holmes Noble, said: “Concern about the growing skills shortage in the UK energy market is by no means a new dilemma. However, in an industry that loses one in four employees to adjoining markets, recruiting the next generation of digitally- savvy managers is a challenge.” Leaders in the energy sector now need to understand technology, at every level and from every angle, and then be able to convey that in ways which customers find easy to adopt and interact with. www.holmesnoble.com

  8. DNO to DSO – A transformation of skills Conclusion So, what is the answer? 8 The energy and utilities sector predicts that 221,000 vacancies will need to be filled within the next decade. This has been brought about by 100,000 existing employees (20% of this sector’s workforce) being set to retire, and 90,000 people who will leave to find new roles, according to the Energy and Skills Partnership report 2017. Casting recruitment nets further afield has become a business necessity for the energy sector. Holmes Noble is finding transferable skills in sectors such as telecoms and fintech, as well as retail. These sectors have already been through a transformation of digitalisation. Their senior talent now sees the energy industry as an opportunity to take the lessons learned, make the change and create a legacy. The DNOs which will thrive during the transition to becoming a DSO will be those who stage a revolution of their own making – radical shifts, across several disciplines, in the way that they acquire and retain talent. www.holmesnoble.com

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