Our analysis allows us to draw some policy recommendations. Firstly, current regulation of DSOs should recognise the differential impact of an increasing level of distributed generation on the financial position of the DSO and therefore regulators should investigate alternative regulation that can sufficiently take into account the drivers behind this impact. Secondly, as a specification of the first recommendation, we suggest to implement a
regulatory formula where the impact of distributed generation on both operating expenditures (with the main driver being electricity generated by distributed generation units, impacting distribution losses) and capital expenditures (with the main drivers the amount of distributed generation units connected to the distribution network) are included. Thirdly, in determining the specific values in the alternative regulatory formula we would recommend to aim for some ‘overcompensation’ of any negative impact of distributed generation penetration on DSOs in order to provide them with an explicit incentive to facilitate and accommodate new distributed generation connections in their distribution networks. Fourthly, when considering the above recommendations on the neutralization and possible incentivisation of DSOs it should be kept in mind that the desirability of regulation aimed at these aspects is intertwined with the developments in the field of ancillary services provision by DSOs. This was discussed in Jansen et al. (2007). On the one hand, DSOs might need to be compensated for the negative impact following the penetration of distributed generation in distribution networks. On the other hand, if DSOs benefit from the provision of ancillary services enabled by the increasing presence of distributed generation, the DSO should compensate the distributed generation operators for this. Netting both impacts implies that valuable economic signals are lost. Changes in regulation should therefore be targeted at either one, or both, described impacts. In the long – run, implementation of location and time dependent network charges could counter the negative impacts for DSOs described in this paper. However, considering the fact that DSOs in some countries are already experiencing the negative impact of large shares of distributed generation in the network, solutions to this particular problem need to be found in adaptation of current regulation in the short-run.
In addition to the recommendations for policy and regulation we can also draw some recommendations for future research. Firstly, further research is needed into the issue of deferred investment value. Our analysis showed that this is a very important variable in any financial analysis on the integration of distributed generation in electricity systems. Secondly, the focus of our analysis was on the integration of distributed generation and its impact on the (financial position of the) DSO. The underlying goal of the research was the efficient integration of renewable and distributed generation in current electricity systems. Since this process of integration affects all actors in the electricity system a focus on just the distribution network and its operator is not sufficient. In the end what should be assessed is the overall socio-economic optimal integration of renewable and distributed generation. In other words: how can we optimally facilitate the transition to an electricity system with a larger share of renewable and distributed electricity generation at the least cost for society as a whole? This requires an integral impact analysis of an increase in the penetration of distributed generation on society as a whole, including the impact on networks (distribution and transmission), markets (wholesale, balancing, ancillary services) and the environment (environmental externalities.
