Executive Master in International Business

Master Thesis Project 18 ECTS

Author: Johannes P. Maree

Supervisor: Prof. Anna Glaser
Title: Change Management during the Green Energy
Transition: A Distributed System Operators
Perspective

Confidentiality: Public Information

 Declaration of Honour

I, Johannes P. Maree, graduating in the Academic Year 2022-2024

Participant of the Executive Master in International Business

Hereby confirm that I have not incurred in plagiarism in this

Master Thesis Project. I declare that I have personally written
the entire text and that all the original published or non-published
material used in drafting this thesis is expressly mentioned and
referenced. I expressly authorize ESCP Business School to use any
means considered necessary to verify the originality of the text. I
am aware that the failure to honour this commitment will lead to
disciplinary action.

I also hereby confirm that this Master Thesis Project has not been
presented previously by earlier ESCP Business School students.

This commitment only concerns myself.

Johannes P. Maree
December 18, 2023
Change Management during the Green Energy Transition:
A Distributed System Operators Perspective

December 18, 2023

Executive Summary
The global commitment to combat climate change, notably emphasized in the Paris Cli-
mate Agreement, highlights the pivotal role of reducing greenhouse gas emissions to mit-
igate the impact of rising global temperatures. A significant repercussion of this pact
is the emphasis on electrification within the energy sector. Electrification entails transi-
tioning from fossil fuel-reliant technologies to sustainable electric alternatives, shaping a
critical theme in energy transformation (Delbeke et al., 2019). Specifically, this research
centers on electrification trends within the energy sector, focusing on changes in energy
production, distribution, and consumption.

The incorporation of distributed renewable energy resources (RES) stands as a cata-

lyst for electrification. The integration of renewable energy sources such as hydropower,
wind, and solar forms the cornerstone of reducing reliance on fossil fuels (Ritchie et al.,
2022). Despite an abundance of renewable resources and technological advancements
in harnessing them, challenges persist, notably in managing their intermittency and dis-
tributed nature. These hurdles underscore the need for a revamped energy system capable
of integrating and managing diverse RES.

Furthermore, the evolution of energy transmission and distribution presents a pro-

found shift. Historically, energy flowed unidirectionally from central power stations to
passive consumers. With the emergence of distributed RES, the conventional approach
of Transmission System Operators (TSOs) and Distributed System Operators (DSOs)
faces disruption. Legislation and funding initiatives support the transition toward a more
consumer-centric energy landscape, giving rise to prosumers who both consume and pro-
duce energy. This paradigm shift challenges DSOs in managing bidirectional energy flow,
necessitating operational adjustments (EU Commission, 2019).

The thesis accentuates the pivotal role of DSOs in the green energy transition, un-
derscoring the urgency for adapting operational models to incorporate distributed RES
and cater to evolving consumer behaviors. Strategies to navigate these challenges must
prioritize adapting to a consumer-centric vision and mitigating weaknesses identified in
the SWOT analysis. The research draws attention to education as a critical factor in
empowering DSOs to align with end-consumer-centric missions, an aspect vital for navi-
gating these transformative times.

While this thesis provides an initial analysis of disruptive factors confronting DSOs in
the evolving energy landscape, it calls for deeper explorations into environmental factors
and expanded expert panel discussions. The imperative nature of adapting DSOs to these

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changes demands a strategic change management approach to harmonize evolving trends
with organizational capacities. As Michelle Obama aptly said, ”Change happens one per-
son at a time”. Future work should strategically address key themes across organizational
boundaries, adapting processes, procedures, and culture in the context of the presented
Cynefin framework. This adaptation is essential for the sustained success of DSOs amidst
the paradigm shift in the energy sector.

2
Contents

1 Introduction 5
1.1 Problem statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
1.2 Purpose statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
1.3 Research questions and objectives . . . . . . . . . . . . . . . . . . . . . . . 8
1.4 Thesis layout . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

2 Literature review 11
2.1 The management and nature of change . . . . . . . . . . . . . . . . . . . . 11
2.1.1 Recognizing the need for change . . . . . . . . . . . . . . . . . . . . 13
2.1.2 Diagnosis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
2.1.3 Planning and preparing . . . . . . . . . . . . . . . . . . . . . . . . 16
2.1.4 Implementation and change monitoring . . . . . . . . . . . . . . . . 18
2.1.5 Sustaining change . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
2.2 Theoretical frameworks for change management . . . . . . . . . . . . . . . 21
2.2.1 The cultural excellence approach . . . . . . . . . . . . . . . . . . . 22
2.2.2 The processual approach . . . . . . . . . . . . . . . . . . . . . . . . 23
2.2.3 The planned approach . . . . . . . . . . . . . . . . . . . . . . . . . 24
2.2.4 An economic approach to change management . . . . . . . . . . . . 25
2.2.5 An organizational development approach to change management . . 26
2.3 Change management in the context of complexity theory . . . . . . . . . . 28
2.3.1 A brief introduction to complexity theory . . . . . . . . . . . . . . . 28
2.3.2 Complexity theory in context of organizations . . . . . . . . . . . . 31
2.3.3 Frameworks for managing complexity in organizations . . . . . . . . 33
2.4 The Delphi method for collective sense making . . . . . . . . . . . . . . . . 38

3 Research methodology 41
3.1 Philosophy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
3.2 Method . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
3.3 Design . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43

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4 Environmental Analysis 46
4.1 Macro environment PESTEL analysis . . . . . . . . . . . . . . . . . . . . . 46
4.1.1 Political . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
4.1.2 Economic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
4.1.3 Social . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
4.1.4 Technological . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
4.1.5 Environmental . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
4.1.6 Legal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
4.2 Micro environment SWOT analysis . . . . . . . . . . . . . . . . . . . . . . 54
4.2.1 Strengths . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
4.2.2 Weaknesses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
4.2.3 Opportunities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
4.2.4 Threats . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58

5 A Qualitative Assessment 63
5.1 Discussion on Emerged Themes . . . . . . . . . . . . . . . . . . . . . . . . 63
5.1.1 Technology and Innovation . . . . . . . . . . . . . . . . . . . . . . . 64
5.1.2 Political and Environmental . . . . . . . . . . . . . . . . . . . . . . 67
5.1.3 Corporate governance and Culture . . . . . . . . . . . . . . . . . . 67
5.1.4 Legislation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
5.1.5 Regulatory bodies . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
5.1.6 Education . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73

6 Conclusion 76

A Expert panel interview results 79

A.1 Participant 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
A.2 Participant 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
A.3 Participant 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
A.4 Participants 4 and 5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
A.5 Participant 6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
A.6 Participant 7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96

Bibliography 99

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Chapter 1

Introduction

To combat global climate change, most countries have ratified the Paris Climate Agree-
ment (Delbeke et al., 2019). To minimize the adverse effects of climate change, partici-
pating countries have committed to reducing their greenhouse gas emissions to limit the
repercussions of global temperature rise. A major emerging theme, resulting directly from
the Paris Climate Agreement, is the electrification of the energy sector. This is defined as
the transition from technologies and processes that predominantly use fossil fuels, such as
combustion engines and gas boilers, toward more sustainable, electrically-powered equiv-
alents like electric vehicles or heat pumps. This facilitates the decarbonization of the
energy sector. Aalto et al. (2021) defines seven major trends used to characterize elec-
trification in the energy sector. Of particular interest for this research are three trends
related to how the electrification of the energy sector has led to changes in how energy is
produced, distributed, and consumed.

In the production phase, a major catalyst for the electrification of the energy sector
is attributed to distributed renewable energy resources (RES). Transforming economies
to become less reliant on fossil fuels as the primary source of energy necessitates incor-
porating RES in the energy mix. Currently, renewable energy is primarily procured from
hydropower, wind, and solar sources Ritchie et al. (2022). Integrating these renewable
energy resources into the existing energy mix necessitates a significant transition of the
energy system. It has been estimated that we have a sufficient and diverse variety of
RES to replace our current dependence on fossil fuels. In addition, the last decades have
seen disruptive innovation resulting in technologies to exploit and harness these RES
(Yahyaoui, 2018). Despite the ample supply of RES and the underlying technologies to
leverage such potential, the integration and operation of distributed RES pose ongoing
challenges that remain to be solved. Two major characteristics of RES are related to the
intermittency of these energy resources and their distributed nature. Intermittency of
RES is simply described as the uncertainty of energy production due to the fluctuating

5
Figure 1.1: The three primary trends characterizing the electrification of the energy sector
are attributed to the core grid components comprising the generation of energy, the distri-
bution grid infrastructure, and energy end-consumers. Illustration taken from Hevia-Koch
and Wanner (2023).

availability of natural resources required to produce energy. For example, a wind farm
can only produce power when the wind is blowing favorably, and a solar farm can only
produce energy when the sun is shining during the day.

A second major trend characterizing the electrification of the energy sector concerns
the transmission and distribution of energy from the source of production to the energy
end-consumer. Historically, energy has been produced from a central location, such as
a large coal- or nuclear power station. To distribute this energy to the end-consumer,
the electrical sector has incorporated two commercial entities characterized as natural
monopolies: Transmission System Operators (TSOs) and Distribution System Operators
(DSOs). These entities have traditionally adopted an operational and energy manage-
ment model concerned with centralized energy generation and distribution. In this tradi-
tional model, energy flows in one direction to passive, rate-paying end-consumers. TSOs
have primarily been concerned with transmitting energy along high- and medium-voltage
transmission lines, across national borders. DSOs, subsequently, are concerned with the
redistribution of energy along low-voltage distribution networks. With the introduction
of distributed RES in the energy mix, the historical way in which TSOs transmit energy
across national borders is fundamentally challenged from an operational and management

6
perspective. Energy is no longer produced at a central location, but instead dispersed
across distributed locations. Legislation at the EU level has seen large amounts of fund-
ing made available for research and development initiatives coupled with the green energy
transition. This has led to a fundamental shift in how energy is managed and consumed
from an energy end-consumer’s perspective, introducing the third major trend that char-
acterizes the electrification of the energy sector.

The Clean Energy for All Europeans package (CEP) (EU Commission, 2019) em-
phasizes that energy end-consumers should play a central role during the green energy
transition. The EU Commission’s mandate is to safeguard the end-consumer against the
rise of energy poverty and ensure that any social welfare unlocked during the green en-
ergy transition directly benefits the end-consumer. Energy poverty refers to the fact that
current medium-income households spend on average 6% of their disposable income on
energy, whereas low-income households spend more than 9% of their disposable income
on energy. This 50% increase in energy costs is expected to rise for those who are not
able to participate in the green energy transition. The green energy transition has given
rise to the concept of prosumers, individuals who not only consume energy but can also
produce and even store their own energy locally. Production in this context is typically
by means of rooftop solar panels

1.1 Problem statement

The problem we aim to address is assisting Distribution System Operators (DSOs) in
making well-informed decisions regarding investments to acquire new capabilities that
will enable them to thrive during the green energy transition. The primary problem is as-
sociated with the strong organizational culture of DSOs, characterized by deep-rooted es-
tablished processes, procedures, and values. This culture has been ingrained over decades,
validating assumptions about how a distribution grid should be operated, managed, and
expanded. The nature of DSOs, as natural monopolies, implies that avoiding change
may not only be detrimental to the sustainability of their business goals but also hamper
progress in decarbonizing the energy sector. From a DSO’s perspective, it is challenging
to assimilate the exponential growth of shareholders who are now demanding new and
innovative ways for them to adapt and change their operational models. As argued by
Savini and Giezen (2020), responsibilities are a central concern for socio-economic and en-
vironmental policies because they form the foundation of regulatory frameworks for utility
services. A challenge for DSOs is understanding how their responsibilities for ensuring
the security of energy supply with pre-established levels of quality ought to be adapted in
a growing consumer-centric market where the energy end-consumer will start taking on a

7
more proactive role in participating in the green energy transition.

1.2 Purpose statement

The purpose of this study is primarily to establish a holistic overview of the changing
landscape in which DSO’s need to operate, given the context of the green energy tran-
sition. It has been argued from various viewpoints that DSO’s will need to adapt to a
business environment transitioning from a distribution infrastructure-centric perspective
to a consumer-centric perspective. In this regard, the purpose of this study is first to
gain an understanding of how DSO’s have been managing and operating the distribution
network to date. In other words, what have been the business drivers, strategies, and vi-
sion. This will provide insights into which processes and procedures are valued and deeply
ingrained, thus needing adaptation. Additionally, this study adopts a consumer-centric
view, taking into account changing legislation with political and environmental agendas,
to determine the potential weaknesses, strengths, opportunities, and threats that DSO’s
face. The overarching outcome and purpose of this study are to formulate themes that
can initiate and potentially facilitate change initiatives to be undertaken by DSO’s.

1.3 Research questions and objectives

The following research questions will be asked during this study:

1. What are the main external and internal environmental factors which dictate how
DSOs will respond to changes in the energy sector?

2. Given these environmental factors, what are the respective weaknesses and strengths
that DSOs currently internalize in existing processes and procedures?

3. What are the opportunities that DSOs can exploit in the green energy transition
given their strengths, and what are the threats due to systemic risks in electricity
systems?

4. What are the themes that can be seen as primary drivers of the environmental
landscape, and how could DSOs potentially address these themes in a pragmatic
way?

The green energy transition was born out of a collective global call to reduce the negative
side effects of climate change. To such an extent, behind most decisions, one will find EU
legislation that has been enforced to promote the decarbonization of society in general.
In this context, the listed research questions will be addressed by achieving the following
objectives:

8
 1. The first objective is to conduct an environmental analysis of the energy sector and
how it has evolved in the wake of numerous EU policies adopted. This will not
be an exhaustive study, but instead, the objective is to gain a general overview of
certain key policies (or EU directives) that directly refer to the role of DSOs in the
green energy transition.

2. Given the nature of DSOs as natural monopolies with strong ingrained corporate
cultures, it is an objective of this study to consider change management approaches
on how to improve decision-making capabilities and acquire new capabilities aiming
to promote sustainability in a complex organizational environment.

3. The concluding objective of this study is to establish a foundation for a potential

roadmap that DSOs can consult and expand on when making key critical strategic
decisions.

1.4 Thesis layout

This chapter introduces the general background to the research problem of concern with
technical terms to be used throughout this thesis. This chapter is primarily concerned
with change management of DSOs during the green transition.

In Chapter 2, we present a brief literature review on change management as seen from

a complex organizational perspective. Here, it is of concern to present key concepts and
frameworks that will be utilized when formulating change management strategies in the
context of DSOs.

Chapter 3 outlines the detailed research plan and objectives for this thesis and also
describes the expected results to be presented in subsequent chapters. In principle, this
thesis will consist of two result chapters.

The first results of this thesis are concluded in Chapter 4, which presents a holistic
analysis and overview of the environmental context in which DSOs currently operate and
need to adapt to. The results are summarized in Tables 4.1 and 4.2, respectively.

Based on the quantitative study and results concluded in Chapter 4, Chapter 5 con-
cludes with results from a qualitative study that has applied thematic analysis in combi-
nation with a Delphi framework to identify emerging themes of interest for DSOs during
an expert panel interview. These emerged themes are cast in a Cynefin framework to as-
sist DSOs in identifying relationships among themes and subsequently prioritize themes

9
for strategic change initiatives.

Chapter 6 will conclude this thesis with final remarks and suggest potential avenues
for future research.

10
Chapter 2

Literature review

Organizations can be perceived as socio-technical open systems comprising a series of

interconnected components. Consequently, organizations must increasingly accommodate
complexity within the corporate environment to facilitate volatile and changing environ-
mental dynamics. The complexity of corporate environments is characterized, among
other factors, by entities such as (Lauer, 2021):

ˆ Social systems, including social demographics, lifestyles, and values

ˆ Macroeconomic factors driven by cyclical lifestyles

ˆ Political stability accompanied by corresponding legislation

ˆ Technological advances and disruptive innovations

ˆ Ecological factors, characterized by changes in climate and mineral resource scarcity

ˆ Institutional composition, including physical and intellectual infrastructure

To ensure the long-term sustainability of organizations, it is crucial to establish the state

of alignment (quality of fit) between the internal and external components of the system
through effective change management initiatives. In other words, the prerogative of ef-
fective leaders is to set the direction of change and influence others to achieve goals that
improve internal and external alignment (Hayes, 2022).

2.1 The management and nature of change

Field theory, introduced by Lewin (1951), provides an intuitive framework for describing
the nature of change. In this context, a field is defined as the totality of coexisting facts or
forces that are mutually interdependent (Burnes, 2004b). An organization, viewed from a
socio-technical open systems perspective, resides in a state determined by the equilibrium
of internal and external forces acting upon it. A stable or no-change behavior of this

11
state, according to Lewin (1951), does not imply that everything is stationary. Rather,
no-change refers to a state of stable quasi-stationary equilibrium where change and con-
stancy are relative concepts. Organizations and groups are always undergoing change,
differing only in the amount and type of change. The analogy of a flowing river illustrates
no-change as a steady, tranquil flow in a specific direction, with change equating to alter-
ing the river’s course.

Leifer (1989) views change as the natural response to internal and external environ-
mental stimuli and evolving conditions. Senior and Fleming (2006) categorize change into
three types:

ˆ The rate of occurrence, being either discontinuous or incremental

ˆ The means of introduction, varying between planned and emergent change initiatives

ˆ The scale at which change initiatives are promoted, such as corporate transformation
versus fine-tuning newly established processes

Since no-change implies a stable quasi-stationary equilibrium state, Miles and Snow (1984)
argue that change initiatives should be seen as a process, as perfect alignment of internal
and external environments is never fully achieved. Moran and Brightman (2001) defines
change management as the ongoing process concerned with continuously adapting an or-
ganization’s (i) direction, (ii) structure, and (iii) capabilities, aiming to more effectively
serve the evolving needs of internal and external stakeholders.

Potential starting points for change management initiatives, from a holistic perspec-
tive, include (Lauer, 2021): (i) An individual context, focusing on recognizing employees
as independent resources, adapting and acquiring new skill sets, and fostering new be-
haviors and attitudes. (ii) Formal structures of the corporate environment, underlined by
existing processes, methods, and corporate structure. (iii) Informal structures, concerned
with influencing attitudes, values, and assumptions, leading to an adaptation of corpo-
rate culture. Change emphasizes five key aspects (Hayes, 2022): (i) Developing change
relationships between agents and those affected. (ii) Diagnosing the current state and
formulating a more desirable state. (iii) Developing change strategies and plans. (iv)
Implementing initiatives, including communication methods. (v) Sustaining change by
establishing new processes and procedures.

Hayes (2022) argues that managing change involves seven core activities. If managing
change aims to transition from a present state to a desirable future state, then continuous
learning and leading and managing people issues are overarching activities throughout
the process. The definitions by Moran and Brightman (2001) and Lauer (2021) align

12
with developing new capabilities (learning) and focusing on the individual (leading and
managing people). Christensen and Overdorf (2000) notes that managers often neglect to
critically think about organizational capabilities as much as individual capabilities. They
suggest four questions for approaching core activities of individual and organizational
learning and management:

ˆ What team and organizational structure will most effectively support necessary and
potential disruptive innovation efforts?

ˆ Does the organization have the resources to support change initiatives?

ˆ Are the right processes in place to facilitate change?

ˆ To what extent are the organization’s values aligned with the introduced change
initiatives?

Christensen and Overdorf (2000) also states that developing new organizational capa-
bilities involves adapting the organization’s (i) values, (ii) resources, and (iii) processes.
Values are considered from a monetary perspective, guiding decisions on acceptable gross
margins for investment and operation and determining viable business opportunities. Re-
sources question what the organization can accomplish with tangible and intangible assets.
Processes, either formal or informal, involve patterns of interaction, coordination, com-
munication, and decision-making.

Developing new individual and organizational capabilities through learning, managing

people, and technical challenges are continuous throughout the change initiative, supple-
mented by the five core activities completing the process as presented by Hayes (2022).

2.1.1 Recognizing the need for change

The first core activity is concerned with recognizing the need or opportunity associated
with change. With recognition, we are foremost concerned with establishing and promot-
ing effective relationships and cooperation between change agents advocating for change
and those affected. During this stage, opposition to change, potentially due to historical
success factors and lack of any immediate crises, should be recognized and consequently
necessitate that the need and desire to change should be convincingly communicated. The
failure in recognizing the need for change may lead to the misalignment of the internal
and external environmental factors affecting the company and subsequently undermine
organizational effectiveness (Hayes, 2022).

13
 Greiner (1998) defines five internal evolutionary stages of an organization. Each re-
spective stage introduces moments which necessitates self reflection and the recognition
for change in aim of fostering continuous growth.

ˆ A crises in leadership due to strong growth: Young organizations and start-up

ventures are often manged by the founders or entrepreneurs who often exhibit strong
technical and entrepreneurial qualities. Consequently, organizations often have loose
structures and informal procedures with respect to systems and culture. After strong
growth, the need of knowledge to promote efficiency of processes, procedures and
professional systems may result in a leadership crises.

ˆ A crises of autonomy due to directive implementation of vision: The formalization

of processes and procedures may over time lead to the encroachment of autonomy
due to an increase of bureaucracy.

ˆ A crises of control with delegation: To foster a autonomy, a decentralized loose

management hierarchy may pose the risk that individuals loose sight of organiza-
tion wide goals and vision. Here, departments may increasingly adopts parochial
mindsets with projects executed too independently in functional silo’s.

ˆ A crises of bureaucracy through excessive coordination: To circumvent the crisis of

autonomy, formal systems and procedures are established on the global corporate
level in aim of coordinating resources more effectively in line of the organizational
strategy and vision. The latter facilitate the coordination and alignment of functions
and departments around organizational goals; however, bureaucratization of the
organization may lead to stifling initiatives and strangles growth.

ˆ A crises of innovation: Large established companies are increasingly inwards focused

and aim of managing internal processes which, historically, have been shown to be
efficient and profitable. Losing sight of the external environment and customer
needs, mature organization need to foster new means of innovation and promote
collaboration.

Egan (1988) argues that an organization must develop a culture of vigilance. Vigilance
may be circumvented in the presence of cognitive biases or retrospective rationality. His-
torical successes may lead to short-term perspectives where future decisions are justified
based on past decisions.

The challenge for recognizing the need for change may be particularly difficult due to
group-think (Hayes, 2022). Within group settings, beliefs of other members may play a
decisive role in affecting the collective sense of the group when compared to the influence

14
individual members may exercise based on experience. This may increasingly impair
the ability to make independent sound judgments and take necessary steps of innovation
to grow the organization. that the need and desire to change should be convincingly
communicated.

2.1.2 Diagnosis
Intertwined with recognizing the need for change is the diagnosis of potential emerging
problems and also presented opportunities. In the context of organizational diagnosis, one
is concerned with fundamentally understanding the functioning of an organization and
how the latter can be utilized to propose new change improvements. During the diagnosis
core activity, new perspectives should be established by challenging current organizational
assumptions and revising the vision and organizational outlook. The organization would
typically be involved in developing and evaluating a range of future scenarios. These
scenarios can facilitate reflection on the current state (stable quasi-stationary equilibrium
state in context of the field theory model of Lewin (1951)) of the organization and help
with: (i) making an alternative vision promising and more compelling than the current
vision; (ii) cause a certain level of discomfort in the established status-quo that is build
on the assumption that all is well; (iii) from the previous point, create sufficient levels of
anxiety to foster a sense of urgency to seek new opportunities and possibilities. It should
be emphasized in the last two points that the psychological safety, future benefits and
minimum threat to well-being of individuals should be ensured.

Hayes (2022) characterize two type of models which can be applied when conducting
organizational diagnosis in the context of change managements. These models can be
differentiated between: (i) component models; and (ii) holistic models. In the former, the
focus is placed on specific components of an organization functioning which may include
the general levels of motivation, internal group dynamics and the structure of the orga-
nization. A down-side to these models are at they are very specialized and may present
a misleading view of the organization with a misplaced emphasis where the change ini-
tiatives are critical. In contrast, holistic models consider the organization from a whole
perspective and is rather advocated as a starting point for organizational diagnosis prior
to adopting a component model diagnosis.

The holistic model approach adopts a open system theory framework to assess and
diagnose an organization. In an open system approach, the organization is perceived as
an interconnected system that interfaces with the external environment. Diagnosis in this
context is concerned primarily with assess how how the organizations internal components
aligns with the external environment. An organization, as perceived from an open systems

15
perspective, is characterized by several factors Hayes (2022). An organization is foremost
embedded in a larger environmental context being dependent on information, resources
and depends on regular feedback to make appropriate strategic choices. In contrast to
closed system, organization have control of their entropy where by means of reconfiguring
processes to increase their sustainability and viability over the long term. It is natural to
perceive organizations as being bounded by regions of influence, responsibility and reach
which separates them from the external environment. As an open system with continu-
ous feedback, the aim of the organization is to reach a point of stable equilibrium that
regulates cyclical modes of functioning in a self sustaining manner.

Based on the framework of open systems theory, four prominent holistic models are
Hayes (2022):

ˆ Kotter integrated model of organization dynamics which is predominant focused on

the alignment of internal and external environmental factors in aim of improving
the effectiveness of the organization to manage change over the long, medium and
long term perspective.

ˆ The McKinsey 7S model develops tools which can be utilized to diagnose potential
misalignment of internal and external environmental factors. Outcomes can be
subsequently used to develop procedures in addressing these deficiencies.

ˆ The Weisord’s six-box model places stronger emphasis on the formal and informal
causality of functional components of the organizations opposed to managing the
alignment perceived from a organization-environment relationship.

ˆ The Burke-Litwin causal model defines a causal relationship between interconnected

components within an organization and redirect the focus of attention to particu-
lar units depending on whether one is concerned with transformational change, or
transactional change.

In the Burke-Litwin causal model model transformational change is often associated with
fundamental changes to organizational functioning and consequently direct attention to
address strategy, vision and organizational culture. As to transactional change, attention
is directed to managing processes and procedures more effectively, improve work climate
and motivate employees.

2.1.3 Planning and preparing

The next core activity of the change management process involves planning and prepar-
ing (Hayes, 2022). To bring about change, in the context of the field theory model of
Lewin (1951), changing the stable quasi-stationary equilibrium state of an organization

16
may necessitate a combination of a push or pull strategy to change. In the former, due
to anticipated resistance to change, one may expect an increase in tension within the or-
ganization with high levels of emotion and potential low levels of constructive behaviour.
The pull strategy, in contrast, promotes a process of relative low tension. Planning, in
this context, can be perceived as an iterative open-ended process that will deal with
people management issues as well as technical and operational challenges. It has been
observed that few organizations take the time to systematically assess the forces within
an organization that my pose resistance. Instead, organizations often default to historical
experiences as guidelines to change initiatives where they typically apply a biased set of
categorical assumptions and beliefs on those who may oppose change.

In aim of understanding the sources and causes of resistance, Kotter and Schlesinger
(1979) lists four factors: (i) resistance may occur due to the fear of losing something
of value (status, power, etc.) and may often resolve to politics within an organization;
(ii) there may be a misunderstanding why change is required and what benefits it will
promote; (iii) due to different sets of information, as perceived from the change agents in
contrast to those effected, one may result with different assumptions and belief sets that
are not compatible; and (iv) due to underlying fears, anxieties and insecurities; involved
parties may exhibit low tolerance to change where they may adopt the opinion they will
not be able to acquire the necessary skill-sets and behaviour or attitudes required for
change.

To overcome resistance, six approaches can be considered as methods to promote

change. These methods, in context of the field theory concepts concerned with push
and pull strategies for change (Lewin, 1951), naturally emphasizes either a push, or a
pull strategy approach, respectively. To overcome resistance, and promote change, pull
strategies are concerned with utilizing (Kotter and Schlesinger, 1979): (i) effective com-
munication to translate the need for change and associated benefits; (ii) engage those
resisting as potential participants in the change initiative where it has been shown that
participation leads to commitment and not merely compliance (Marrow et al., 1967); (iii)
incentivize those resisting change by negotiating favourable win-win solutions; (iv) orga-
nizations should be supportive by providing necessary training to adapt and learn new
skill-sets while actively listening and provide emotional support. These methods, associ-
ated with a pull strategy to change, will naturally evolve at a slower, more cost intensive,
pace. This would often entail a less clear path to the implementation of the change strat-
egy and would involve several parties to participate in change. In contrast to the latter
(in context of a push strategy to change, environmental and organizational factors (cost,
time, opportunity) may necessitate a rapid implementation of a change initiative with
a clear defined path that cannot accommodate the participation and inclusion of all af-

17
fected persons. In this case, Kotter and Schlesinger (1979) advocates using the following
methods to promote a push strategy for change: (i) manipulation or co-optation can be
used to subsume or acculturate an individual, or group, of influence by selectively using
information in aim of consciously structuring events promoting change; (ii) coercion can
be utilized to force those resisting change to accept it.

It has been argued that these approaches associated with respective push and pull
strategies are often, by themselves, not sufficient to induce change and that managers
should be sensitive to the strengths and limitations of each approach in context of the
situation and need. Kotter and Schlesinger (1979) presents four situational factors which
can be used when evaluating the context: (i) the amount and level of resistance perceived
within an organization may indicate a preference towards a pull strategy which promotes
a more bottom-up hierarchical approach to change; (ii) the cultural power distance, which
is one dimension of national cultures (Hofstede, 2011), my indicate which methods will
resolve into more desirable results, or be opposed from a cultural predisposition; (iii)
the source of information, required to support change initiatives, may not always reside
with the change agents, hence would necessitate a more collaborative, participative pull
approach; (iv) the urgency of the situation (or the cost to opportunity) may necessitate
little involvement and a top-down push approach with a clear path to the short term
outcome. Despite arguments for adopting the latter approach, it has been argued that
change initiatives often fail because managers have moved too quickly and involved too
few people (Hayes, 2022).

2.1.4 Implementation and change monitoring

The fourth core activity to the change management process is concerned with shifting the
focus from planning to implementation. Similar to the planning phase, change initiatives
fail during the implementation phase due to managers that fail to give sufficient attention
to managing people issues appropriately. Primary factors that need particular attention
include (Hayes, 2022): (i) effectively communicating the change and how successive steps
of implementation will impact and benefit particular participants; (ii) motivate individu-
als and groups and reinforce the new vision in context of the change initiative; and (iii)
manage stakeholder interests and expectations.

If change management initiatives are the pragmatic steps taken towards aligning in-
ternal and external components in light of changing environmental conditions; then, lead-
ership plays a crucial role in refining micro alignment initiatives within the organization.
Here, leadership adopts the role of coordination which aims at promoting alignment and
communication with others that will inspire collaboration and support to the change ini-

18
tiative. To successfully initiate and manage change, we consider two leadership styles
namely transformational and transactional leadership styles. As argued by Lauer (2021),
roles and personality types plays a crucial role in managing change initiatives. Pivoting
between transactional and transformational leadership styles will become a fine balancing
act in promoting sustainable change. From personality theory, it is assumed that the
characteristic traits of transactional and transformational leadership styles cannot reside
solely within one person. Hence, it is imperative to construct the correct leadership mix
during change.

It is argued that transformational leadership styles are more beneficial for initiating
and communicating change initiatives since they are associated with advocating idealized
influence, inspirational motivation, intellectual stimulation and individual consideration
(Bono and Judge, 2004). In the context of the field theory model (Lewin, 1951), transfor-
mational leadership characterizes the effective communication and establishing of intrin-
sic motivation for change and shift the balance towards external accelerating forces for
change. This consequently employs intellectual stimulation by challenging organizational
norms and encouraging divergent thinking in aim of developing new values and processes
while reacting to new information.

In contrast, transactional leadership styles are characterized by contingent rewards,

management by exception-active and by exception-passive, and laissez-faire (Bono and
Judge, 2004). The latter promotes order and consistency, ensuring effectiveness of getting
things done, goal setting, planning, decision making and control (Lauer, 2021). This
leadership style is primarily concerned with stabilization and integration (reconciliation)
after change. This facilitate a period of rest required to adapt behaviors and attitudes
and leverage newly developed capabilities to their fullest potential.

2.1.5 Sustaining change

To sustain change, organizations have to permanently adapt to new environmental con-
ditions which necessitates a learning organization (Lauer, 2021). A learning organization
acquires new capabilities by adapting their values, resources and processes to accommo-
date new environmental conditions by aligning internal and external organizational forces
Christensen and Overdorf (2000). Lauer (2021) argues that organizations can learn and
acquire new capabilities in two ways:

ˆ learning through the sum of individual learning steps based on the classical stimulus-
response approach; or,

ˆ learning through the interaction of individuals in the context of an emergent systems

19
 approach

The cumulative learning effect gained through the individual learning steps is governed by
the stimulus-response approach. Here individual knowledge in addition to the individual
preferences of organization decision makers, as reflected in strategy and other concrete
operational and management measures, receives a response from the external environ-
ment. Based on this response (learning by internalizing new information), individuals
adapt their assumptions and strategies appropriatly.

Organizational learning, from the emergent systems approach, dictates that learning
is abstracted away from the individual. Instead, learning is acquired at a higher organi-
zational level through the interaction of individuals that underline patterns of action and
thinking. Corporate culture, which has been cultivated through internalized beliefs, based
on historically confirmed assumptions, plays a strong role in expressing these patterns of
action and thinking. Corporate culture is regulated by opportunities and risks as pre-
sented by changing environmental dynamics. Opportunities in this context is dependent
on the uniform and efficient reaction to changing environmental dynamics. Risks lies with
organization-specific patterns which are no longer a good fit with a changed corporate en-
vironment. Organizational learning in this context can occur by means of three processes
(Lauer, 2021):

ˆ in single-loop learning, existing process and operation procedures are adapted for
efficiency with increased performance to compensate for any performance deviations
due to changing corporate environments;

ˆ double-loop learning incorporates reflection on the outcomes of learning and assess

whether a change in the basic course of action is required, contrary to existing
assumptions and beliefs;

ˆ in deutero learning, organizations learn to learn by introducing measures in how to

adapt the general strategy in an agile manner, thereby avoiding executing unsuitable
strategies for too long.

To sustain change, the strategy adopted for learning new capabilities plays a strong role.
Learning through means of altered strategies, pushed from a top-down approach, may
result in compliance, however, relapse to previous processes, behaviors and attitudes
may occur as soon as nine months after change initiatives were introduced (Lauer, 2021).
Involving pull strategies (bottom-up approach), which naturally involve more participants,
may constitute towards increased commitment and sticking of learning. In the context
of field theory, it may equate to removing, or reducing, the resisting forces to change by
increasing participation which constitutes towards more efficient learning.

20
2.2 Theoretical frameworks for change management
Senior (2002) posit there characteristics associated with change: (i) the rate at which
change occur; (ii) the means by which change is introduced; and (iii) the scale of which
change will occur.

The rate of change can be differentiated between discontinues or incremental rate of

occurrence. For the former, change is triggered by sudden internal or external shocks that
subsequently necessitate rapid adaption and shifts in corporate strategy, organizational
structure and culture. These types of change can be perceived being cost effective since
the change initiative is not pursued over a prolonged period of time. Due to the limited
duration, it may reduce induced change fatigue experienced by employees, however the
risk of these type of change durations are that any new processes and behaviors culti-
vated during the change initiative may quickly dissipate if not reinforced on a regular
basis (Lauer, 2021). Incremental change is more concerned with the ability to ensure
fundamental change by targeting individual parts of an organization to deal with prob-
lem areas in an isolated manner. Here change is perceived as optimally implemented
and managed through successive, limited negotiated shifts over a longer period of time.
Incremental change can further be classified as either being smooth where change initia-
tives are considered slow and systematic with a pragmatic and predictable rate. This is
considered the exceptional way and is rare. Contrasted to smooth incremental change is
that of a bumpy incremental change (By, 2005).

The means by which change can be introduced are either planned or emergent. In
the planned context, the change process foremost aim at explaining what has caused the
change. Next, stages are mapped which the organization need to go through to manage
the change. The emergent context rather perceives the change process as an open ended
process of adaptation and emphasizes the unpredictable nature of change. Instead emer-
gent change is more associated with a process of organizational learning and adaptation
as the organization pursues internal and external alignment.

By (2005) differentiate between four levels of scale associated with the induced change.
At the coarsest level, one is concerned with organizational transformation which can ar-
guably be associated with discontinues change that necessitate fundamental organizational
structure and culture change. The next level of scale is that of modular transformation
which often necessitate major radical shifts in one or more departments. Incremental
adjustments is the third level of scale and is associated with distinct modifications and
changes to established management processes and organizational strategies. The highest
resolution to scale is seen as fine tuning. In this context, one is concerned with convergent

21
change management that defines a continuous process of aligning newly introduced change
initiatives with evolving processes, behaviors and attitudes. Where change necessitate the
development of new organizational and individual capabilities, fine tuning can he be seen
as the process of maturing these new capabilities and internalizing new processes and
procedures as part of the organizational DNA.

Several approaches to change management have been proposed over the decades, how-
ever the failure rate of around 70% indicates that there is yet no consensus on a robust
framework suitable for general application (By, 2005). To follow is brief summary on
established approaches that has attracted considerable attention to date. At the end of
this section, the presented content for each approach is concisely summarized. Table 2.1
compare the various change management approaches along several dimensional compo-
nents as adopted from Beer and Nohria (2000) and Senior (2002).

2.2.1 The cultural excellence approach

The culture excellence approach contends that organizational culture plays a fundamental
role in shaping behaviors, attitudes, and values within an organization. It recognizes that
cultural factors significantly impact the success or failure of change initiatives. Unlike
traditional change models that focus primarily on structural or procedural aspects, the
culture excellence approach highlights the importance of aligning organizational culture
with desired change outcomes (Van de Ven, 1983).

Central to the culture excellence approach is the belief that organizational culture can
act as a powerful driver or inhibitor of change. It emphasizes the need to assess and
understand the existing culture, identify cultural strengths and weaknesses, and leverage
cultural assets to support change efforts. This approach recognizes that a strong and pos-
itive culture can foster employee engagement, commitment, and resilience during times of
change.

Furthermore, the culture excellence approach emphasizes the role of leadership in

shaping and influencing organizational culture. Leaders are seen as key change agents
who are responsible for setting cultural norms, values, and behaviors that align with de-
sired change goals. They play a crucial role in modeling and reinforcing cultural change
through their actions and behaviors.

The culture excellence approach also highlights the importance of communication and
employee involvement in the change process. It emphasizes the need for open and trans-

22
parent communication channels to share information, engage employees, and foster a sense
of ownership and commitment to the change initiatives.

Overall, the culture excellence approach provides valuable insights into the complex
relationship between organizational culture and change. By recognizing the influential
role of culture, this approach offers a more comprehensive understanding of the dynamics
and challenges involved in organizational transformation. Its contributions have led to the
development of strategies and practices that leverage culture as a catalyst for successful
change implementation.

2.2.2 The processual approach

The processual approach views change as a complex, non-linear process that unfolds over
time. It recognizes that organizations are social systems with multiple stakeholders and
emphasizes the importance of understanding the interplay between various actors, struc-
tures, and contexts. Unlike traditional linear models of change, the processual approach
acknowledges the existence of ambiguity, uncertainty, and the need for continuous adap-
tation (Dawson, 2019).

Central to the processual perspective is the recognition that change is not a one-time
event, but rather a series of ongoing interactions and negotiations. It emphasizes the
importance of sensemaking, where individuals and groups construct meaning through on-
going dialogue and sensemaking activities. This perspective highlights the significance
of communication, learning, and reflexivity as crucial elements in facilitating successful
change.

Furthermore, the processual approach emphasizes the role of leadership in orchestrat-

ing change. It recognizes that leaders are not just change agents but also sensemakers
who shape and influence the change process. The approach also emphasizes the role of
power and politics in organizational change, acknowledging that change initiatives are
often subject to resistance, negotiation, and conflict.

Overall, the processual approach offers a holistic and nuanced understanding of organi-
zational change. By focusing on the process and dynamics of change, it provides valuable
insights into the complexities and challenges inherent in managing change in contempo-
rary organizations. Its contributions to the field have paved the way for more adaptive
and flexible approaches to change management, allowing organizations to navigate the
ever-changing business landscape more effectively.

23
2.2.3 The planned approach
The planned approach recognizes that successful change requires a systematic and com-
prehensive approach. It is in integrated framework for analyzing, understanding and bring
about change in the group and organization (Burnes, 2004b). It integrates various the-
ories and models to provide a holistic understanding of the change process and offers a
structured framework for change implementation.

The planned approach draws on field theory, which emphasizes the interplay between
the internal and the external environment to determine the state of an organization. In
such a field, the totality of facts are mutually interdependent and the state of the organi-
zation evolves continuously in the process of adaptation. Here, change and constancy, are
perceived as relative terms and Lewin (1951) emphasizes that the difference is merely the
scale of change and the type. It recognizes that change occurs within a complex system
of interrelated factors and emphasizes the importance of understanding and addressing
these contextual dynamics.

Group dynamics theory is another key component of the planned approach. Burnes
(2004b) defines a group as not primarily the similarities observed between individuals, but
instead the extent of sharing similar interdependent fate of circumstances. In the con-
text of group dynamics, it is stated that being about change at group level but changing
individuals is a fruitless venture. Here, individuals will simply conform to group norms
and resist permanent change. It emphasizes the influence of group processes, interactions,
and norms on individual behavior and change outcomes. The planned approach recog-
nizes the significance of fostering collaboration, communication, and shared goals among
individuals and groups involved in the change process.

Action research is an essential element of the planned approach, emphasizing the iter-
ative and participatory nature of change. It involves diagnosing the current state, plan-
ning and implementing change interventions, and evaluating the outcomes. The approach
encourages active involvement and learning from stakeholders throughout the change pro-
cess. Based on Gestalt psychology, action research states that change can only be success-
fully achieved by helping individuals to reflect on the current circumstances and gain new
insights which creates the need, motivation and apprehension to embrace change (Burnes,
2004b).

Lastly, the planned approach incorporates the 3-Step Model (Burnes, 2004a) which
consists of three stages: (i) unfreezing; (ii) moving; and (iii) freezing. During the unfreez-
ing stage, motivation and the need to learn is created, however it does not involve control

24
and predictive direction. The stability of individuals and human behavior is based on a
complex balance between driving and restraining forces. To promote change, this stabil-
ity has to be destabilized by means of dis-confirmation of the validity of the status quo
and a level of survival anxiety needs to be unleashed to unfreeze existing behaviors and
attitudes. In parallel, it is imperative to create a destination of psychological safety to
ensure unfreezing resolves into moving (Schein, 1996). During the moving stage, adopting
principles of action research, learning is promoted by evaluating (by trial and error) dif-
ferent scenarios which facilitate critical reflection and the cultivation of new capabilities.
The refreezing stage is associated with the process where new group behaviors need to
be internalized and a new form of quasi-stationary equilibrium is required prior to com-
mencing with new change initiatives. This required state of quasi-stationary equilibrium
is necessary from the context of preventing regression of new behaviors as reflected in the
culture, group norms, policies and processes. This model provides a practical framework
for initiating and managing change, emphasizing the importance of creating a sense of
urgency, building momentum, and reinforcing the change to ensure its sustainability.

Overall, the planned approach offers a comprehensive and integrated model for manag-
ing organizational change. By drawing on field theory, group dynamics, action research,
and Lewin’s 3-Step Model, this approach provides a robust framework that addresses
the multi-faceted nature of change, facilitates stakeholder engagement, and enhances the
chances of successful change implementation.

2.2.4 An economic approach to change management

Beer and Nohria (2000)’s economic approach emphasizes the importance of aligning
change initiatives with organizational economic goals and objectives, particularly in terms
of maximizing efficiency and cost-effectiveness. It views change as an investment aimed
at improving organizational performance and competitiveness.

Central to Beer and Nohria (2000)’s economic approach is the notion that change
should be driven by a thorough analysis of costs, benefits, and risks which incorporates
a tough, top-down, results-oriented approach. It promotes a systematic evaluation of
the financial implications of change, including the identification of potential cost savings,
increased revenue opportunities, and the impact on the organization’s bottom line. By
adopting this approach, organizations can make informed decisions and allocate resources
effectively.

Moreover, the economic approach emphasizes the need for a clear and compelling busi-

25
ness case for change. It emphasizes the importance of demonstrating the economic value
and return on investment (ROI) associated with change initiatives. This approach encour-
ages organizations to communicate the financial benefits and align them with the interests
of key stakeholders. Additionally, the economic approach underscores the significance of
monitoring and evaluating the financial outcomes of change initiatives. It emphasizes the
importance of measuring the actual impact of change on organizational performance and
making necessary adjustments to ensure cost-effectiveness. Solutions associated with this
approach is restructuring, re-engineering drivers for efficiencies and layofs.

Overall, the economic approach provides a pragmatic and results-oriented perspective

on change management. By considering the economic implications and aligning change ef-
forts with organizational goals, this approach enhances the likelihood of successful change
implementation while maximizing the efficient utilization of resources. This approach,
however, has been criticized for promoting compliance at the cost of commitment. This
may deliver on short-term results but fall short on guaranteeing long term success.

2.2.5 An organizational development approach to change man-

agement
Beer and Nohria (2000)’s social approach to change management recognizes that success-
ful organizational development and change rely on the active engagement and involvement
of individuals and groups within the organization. To sustain competitive advantage and
support high performance teams, new capabilities need to be developed from a bottom-up
perspective. It emphasizes the significance of social dynamics, relationships, and commu-
nication in shaping organizational behavior and facilitating change.

Central to the social approach is the concept of social systems within organizations.
It views organizations as complex social systems where people’s interactions, networks,
and shared meanings play a critical role. This approach emphasizes the importance of
understanding and leveraging these social dynamics to facilitate organizational develop-
ment and change.

Moreover, this approach highlights the significance of collaboration and participatory

processes in driving effective change. It encourages organizations to involve employees at
all levels in the change process, seeking their input, feedback, and active participation.
This approach recognizes that fostering a sense of ownership and empowerment among
employees leads to higher levels of commitment and success in implementing organiza-
tional development strategies. The social approach underscores the importance of effective
communication and dialogue as essential components of organizational development. It

26

Dimensions of change Cultural-excellence
Change objective foster strong values,
high-performance culture
development
Leadership transformational leader;
empowers, communicates,
builds ownership, fosters
collaboration
Focus spirit of innovation via
strong culture
Process assess, understand and
leverage organizational
culture
Reward system incentivize cultural growth,
driving change through
recognition, and rewards
Consultants iagnose, advise, facilitate;
cultural expertise drives
transformational change
Rate of change smooth incremental with
cultural adaptation
Occurrence/means of culturally embedded change,
change emergent or planned,
enhances organizational
values and behaviors,
concerned with change
readiness
Scale of transformation fine-tuning to corporate
scale; cultural enhancement
focus
Table 2.1: Comparing approaches of change management with dimension of change adopted from Beer and Nohria (2000) and Senior (2002)
Change management approach
Processual
enhance efficiency,
continuous improvement
through processes
orchestrative leader;
negotiates, manages
resistance, and handles
conflicts tactfully
understand interconnected
complexities
analyse underlying
complexities and resolve
ambiguity
systematically rewarding
process improvements and
collaboration
analyse processes, guide
improvements, foster
collaboration; expert
consultation ensures success
incremental
incremental improvements,
emergent change; adaptable,
systematic enhancements in
processes
incremental to corporate
scale; systematic process
improvements
Planned Economic Organizational
development
achieve specific goals, optimize finances, prioritize cultivate adaptability,
controlled transformation cost-effectiveness and holistic growth, and
initiatives profitability people-centric systems
transactional leader; transactional leader; transformational leader;
emphasizes participation, top-down, result-focused, encourages participation,
promotes continuous drives financial optimization fosters collaboration, and
learning in teams supports development
learn to learn and modify strong hierarchical structure importance of shared
belief systems purposes via culture/vision
mutual experiences to promote compliance via participatory evolution to
promote a learning culture plans and programs promote commitment
predetermined incentives extrinsic motivation via intrinsic motivation via
aligned with objectives incentives shared values
pre-plan strategy, provide analyse problems and support management in the
expert guidance; consultants propose solutions change
ensure change effectiveness
bumpy incremental with discontinuous with rapid smooth incremental
unfreeze/refreeze shifts emphasizing sustainable
change
pre-determined objectives, change driven by financial holistic change; planned or
planned interventions; considerations, planned emergent, focuses on people
structured, controlled adjustments, and systems
transformation initiatives cost-effectiveness
optimization
modular to corporate scale; fine-tuning to incremental incremental to corporate
structured, planned scale; financially-driven scale; holistic people and
transformations adjustments systems focus.
emphasizes the need for open and transparent communication channels to disseminate
information, build trust, and foster a shared understanding of change initiatives.

Overall, the social approach to organizational development strategies provides valu-

able insights into the role of social dynamics and collaboration in driving effective change.
By emphasizing the importance of social systems, participatory processes, and effective
communication, this approach enhances organizations’ ability to implement successful
change initiatives and foster a positive and adaptive organizational culture.

2.3 Change management in the context of complex-

ity theory
The approaches generally applied to change management, as briefly summarized in Sec-
tion 2.2, all exhibit varying degrees to which they address the fundamental characteristics
associated with change earlier defined by Senior (2002). These characteristics being: (i)
the rate at which change occur; (ii) the means by which change is introduced; and (iii)
the scale at which change occur, all hinges on the process required to align the internal
interconnected components of an organization with external environmental factors deter-
mining the fit for purpose of the organization of interest. As stated by Lewin (Lewin,
1951) all change and constancy, as perceived by organizations, are relative terms and that
the difference between these two terms are merely the scale at which change occur.

Change, in general, creates uncertainty. This uncertainty is introduced when the or-
ganization becomes less fit-for-purpose due do a misalignment of internal and external
environmental factors. Humans need orientation to reduce uncertainty. This orientation
can be established by means of promoting structure and information (Lauer, 2021). This
section is concerned with adopting concepts of complexity theory to assess organizations
and how they approach change. To such an extent, we are concerned with organizations
perceived as open-system, exhibiting increased forms of complexity, whose aim is to con-
stantly regulating a state of tension associated with a quasi-stationary equilibrium point
previously introduced by field theory (Lewin, 1951).

2.3.1 A brief introduction to complexity theory

Traditional sciences have been well served by reductionist frameworks which is concerned
with breaking down large problems into smaller manageable pieces which can subsequently
be solved independently. Despite the successful application of these type of frameworks (in
particular during the industrial revolution), trends of strong growth in complexity neces-
sitate a transition from reductionist frameworks towards complexity frameworks (Turner
and Baker, 2019). Trends of increased complexity is observed with changes seen in gov-
ernments and organizations due to an exponential increase in innovation, globalization,
increased local and global competition and re-engineering with a mobile multi-cultural
and diverse workforce. In addition, increased complexity is added with the information
revolution where the barriers to information are lowered through reduced costs and a
growth of means for disseminating information given the wide variety of communication
platforms.

Complexity frameworks expand on reductionist frameworks in that the former are

promoting a connectionist approached which is concerned with studying the interaction
among small components to gain a holistic understanding of the bigger problem. The
shift from a system theoretic approach (that applies a reductionist frameworks) towards a
connectionist approached (leveraging complexity frameworks) is accomplished by means
of It’s clear that there is a growing interest in the digitalization of the electricity grid, and
the initiative to create a digital twin of the entire EU-electricity grid is a significant step
in that direction. The EU commission’s decision to sign a letter of intent with the DSO
Entity to support research and development in this area is a positive development. This
initiative has the potential to bring numerous benefits to the energy system and pave the
way for more efficient grid management, improved reliability, and better integration of
renewable energy sources.

In terms of funding allocation, it’s crucial to ensure that the investment is made wisely
and efficiently. Developing a digital twin of such a complex and extensive system will re-
quire substantial financial resources. Therefore, the allocation of EU funding for this
initiative should be carefully planned and monitored to ensure that it’s used effectively.
It’s essential to have clear objectives and performance indicators to measure the impact
of the investment and to ensure that the desired outcomes are achieved.

Additionally, collaboration between different stakeholders, including DSOs, TSOs,

technology providers, and regulatory bodies, will be key to the success of this initiative.
It’s a significant undertaking that requires a coordinated effort among various players
in the energy sector. Proper governance and cooperation will help in ensuring that the
digital twin project reaches its full potential.

It’s also important to take into account the differences between transmission and dis-
tribution networks, as mentioned in the literature. While creating a digital twin for
transmission networks may be manageable due to their relatively smaller size, the same

29
approach may not be feasible for low voltage distribution networks, which are more ex-
tensive and diverse. Therefore, the funding allocation should consider these distinctions
and prioritize areas where the impact will be most significant.

In conclusion, the allocation of EU funding for the development of a digital twin of the
EU-electricity grid is a positive step, but it should be accompanied by effective planning,
monitoring, and collaboration among stakeholders to ensure its success. The allocation
of resources should be strategic and consider the unique challenges posed by different
parts of the grid, particularly the low voltage distribution networks. adopting complex
adaptive systems terminology (Turner and Baker, 2019). In the connectionist approach,
one is foremost interest in establishing boundaries between various components. These
boundaries, in principle, define the means by which information, energy and resources
are shared among components and subsequently facilitate the identification and under-
standing of rules dictating interaction. Interaction among individual components leads to
new states of emergence. This emergence characteristic is a fundamental trait of complex
adaptive systems which is enabled by spontaneous self-organization during interaction
(Turner and Baker, 2019).

Complexity theory, in general, is concerned with the emergence of order for dynamic
non-linear systems that operates on the boundary of chaos. It is based on the assumption
that a disequilibrium of a system state on this boundary is a prerequisite and necessary
condition required for dynamic growth. From a theoretical perspective, supporting theo-
ries underlying complexity theory include chaos theory, dissipative structures and complex
adaptive systems (Holbrook, 2002). In the context of chaos theory, one is concerned with
complex processes or dynamic systems that constantly transform themselves. An observer
may perceive such systems being driven by chance even though their transformational be-
haviour is driven by precise laws. For dissipative structures, systems undergo a period
of instability prior to reaching a point where they spontaneously self-reorganize. This
self-organization is often characterized by a different structural composition and may ex-
hibit different adapted behaviour. Complex adaptive systems comprise of a large group
of agents which behaves each according to a set of principles (rules or values) modulated
to the extent how they interact with neighbouring agents. Local interactions of agents
promote self-organizing which in turn facilitate adapting to the environment.

To appreciate these paradoxical relations between complex non-linear and random

dynamics, and that of self-organizing behaviour, complexity theory uses three central
concepts to explore the theory and underlying repercussions thereof: (i) the nature of
chaos and its relation to order; (ii) operating on the edge of chaos; and (iii) the ability
of generating order-generating rules (Burnes, 2005). In the nature of chaos and order,

30
it is argued that chaos and order are not necessarily contrasting characteristics of com-
plex systems but rather complementary twin attributes. That is, complex systems are
characterized by convoluted, inter-connected layers of chaos and order where chaos can
equivalently be perceived as orderly disorder, concealing underneath patterns of behaviour
exhibiting structured-order. The edge of chaos dictates the conditions under which a com-
plex system need to operate to thrive and henceforth contribute towards the stability and
sustainability of the systems. If too much order is enforced, then the complex system
does not retain the flexibility to transform itself and change. Contrary, too much chaos
my push the system past the point of control and may destroy itself due to overwhelming
uncertainty. It has been argued that on the edge of chaos (which exhibits the fine balance
between order and chaos), complex systems retain increased creativity with sustainable
growth by self-organizing itself. The process of self-organization proceeds according to
a simple set of order-generating rules. Operating on the edge of chaos that promote in-
creased creativity, complex systems in addition, retain the ability to generate new, and
more appropriate, order-generating rules.

2.3.2 Complexity theory in context of organizations

Stacey (1991) was one of the first who associated complexity theory with organizational
chance where it was implied that organizations exhibit most characteristics as associated
with complex systems. In general, processes, procedures and corporate culture, based on
corporate belief sets and assumptions, reinforced over a prolonged period of operation,
gives rise to non-linear complex organizational dynamics. Individuals and groups within
the organization can be perceived as autonomous agents whose interconnected reliance
and influence collectively shape the present and future collective behaviour of the organi-
zation and consequently promote continuous emergence and evolution of new behavioural
patterns. Established behavioural patterns, confirmed beliefs and shared values promote
a set of order-generating rules which forms a component of management control, aside
from culture and markets (Büschgens et al., 2013). This set of order-generating rules
facilitate the process of self-reorganization.

For companies to survive (and thrive), it necessitates that they operate on the edge of
chaos where they can optimally pursue continues innovation (Burnes, 2005). As empha-
sized by Burnes (2005), neither small-scale incremental change, nor large-scale transfor-
mation change management initiatives works in general which may explain the 70% failure
rate of reported change management programs (Lauer, 2021). In relation to operating
on the edge of chaos, small-scale incremental change can be perceived as fundamentally
managing established processes and procedures, supporting the status-quo of established
order, hence neglecting any sustainable change. In contrast, transformational change may

31
be the over-emphasis and focus on chaos and the management thereof. Operating on the
edge of chaos, as argued by Burnes (2005), is to find the right balance between managing
chaos and order in a way which promote the process of self-organization. Figure 2.3.2
illustrates the reinforcing relation that exists between the process of self-organization, and
the generation, reevaluation and utilization of a set of order generating rules.

Figure 2.1: Reinforcing behaviour between the process of self-organization and order-
generating rules

Paradoxically, the generation of order-generating rules necessitates a process of spon-

taneous self-organization, which in itself, evolve accordingly to a pre-established set of
order-generating rules. The edge of chaos can therefore be perceived as a point of tension
exhibiting a state of quasi-stationary equilibrium where minor perturbations of excitation
around this point contributes to updating the set of order-generating rules during the
process of spontaneous self-organization. The process of self-organization is characterized
by three traits (Burnes, 2005):

ˆ self-organization explicitly rejects cause-and-effect often supported by top-down and

command-and-control management styles

ˆ it necessitates that dissipative organizations are organized into flexible units which
allow and support the spontaneous emergence of new organizational structures

ˆ and require that organizations operate on democratic principles to promote contin-

uous and sustainable change (Bechtold, 1997)

The latter point resonates strongly with preliminary belief sets that gave rise to the
planned approach (Burnes, 2004b). The planned approach was based on the core belief and
assumption that the permeation of democratic values in all facets of the organization could

32
reduce the worst social conflicts. In turn, democratic values support the participation and
collective learning and so enable individuals to acquire empathy, insight, and subsequently
reassess their preliminary assumptions and belief sets. To promote democratic values in
the support of the process of self-organization, organizations can (Burnes, 2005):

ˆ ensure there is a balanced distribution of power

ˆ there is a strategy for continues learning

ˆ the organization has a strong customer focus

ˆ an the organization has an outwards orientation towards community service

The last two points exhibit a strong external orientation for the organization which
enhances the beneficiary contact of individuals within the organization. Beneficiary con-
tact here refers to the interaction between employees and the individuals who benefit from
their work, such as customers, clients, or patients. This interaction allows employees to
see the tangible, meaningful consequences of their contributions for other people, which
can enhance their perception of prosocial impact and motivate them to work harder and
perform more effectively (Grant, 2012). Subsequently, beneficiary contact reinforces the
social cues provided by transformational leaders by allowing employees to see the poten-
tial prosocial impact of their work on beneficiaries, which aligns the design of employees’
jobs with the social cues they are receiving from leaders and reduces uncertainty and
ambiguity about the prosocial impact of their work, thus enhancing the effectiveness of
transformational leadership in motivating followers. Transformational leadership plays a
strong role during change management initiatives (Lauer, 2021). As emphasized by Figure
2.3.2, the underlying supportive characteristics of the process of self-organization is di-
rectly supportive of transactional leadership during the change process where beneficiary
contact, in particular, increases the effectiveness of transformational leaders (Grant, 2012)
enabling them to reassess and generate order-generating rules that support the process of
self-organization going forward.

2.3.3 Frameworks for managing complexity in organizations

To start the process of change management, one is concerned with promoting change
as concerned with: (i) individuals; (ii) informal corporate structures such as attitudes,
values, informational rules and behaviors; and (iii) formal corporate structures such as
processes and procedures, logistics etc (Lauer, 2021). The interconnected nature of these
elements contribute towards increased complexity that needs to be managed at high lev-
els of uncertainty. By providing orientation, leadership can reduce uncertainty (Lauer,
2021). Orientation is established when sufficient structure and information is provided.

33
The manner by how leadership should proceed remain, however, a daunting task and ne-
cessitates a framework which support effective decision making during high times of high
uncertainty characterized by varying degrees of complexity.

The Cynefin framework is a sense-making framework which promotes enhanced deci-

sion making capabilities is the (Kurtz and Snowden, 2003).This framework originated from
knowledge management and has deep fundamental roots in action research that in princi-
ple is concerned with providing orientation by answering the three fundemental questions
(Burnes, 2004a): (i) what is the present situation? (ii) what are the eminent dangers
and opportunities? (iii) what at are the next steps to take us from the present chaos the
the futuristic ideal? The Cynefin framework, in principle, distinguishes between formal
communities associated with order and informal communities permeated with chaos. In
contrast to categorization frameworks (?) that is concerned with categorizing situations
into four static discrete quadrants, the Cynefin framework embraces the evolving nature of
complexity, underlined with uncertainty, and is henceforth more associated with process.
It does not so much build on logic arguments that is supported by empirical validation,
but instead provide decision makers with narratives to make sense of unspecified prob-
lems. Scenario planning frameworks are concerned with generating probabilistic scenarios
for determenistic ranges and variables, whereas the Cynefin framework acknowledges that
dynamic processes, chaotic of nature, often are dependent on unobservable and unknown
variables and ranges.

Figure 2.2 illustrates the Cynefin framework which has slightly been modified from
the version of Kurtz and Snowden (2003). The framework, in principle, defines the pro-
cess of managing knowledge as it moves through different domains of stability in aim of
sense-making. Here, stability is concerned with the state of quasi-stationary equilibrium
in the context of field theory (Lewin, 1951). The framework, in general, differentiates
between two primary domains. The left-hand side is concerned with the emergence of
new states whereas the right-hand side is associated predominantly with order. Kurtz
and Snowden (2003) used the term unordered to describe the characteristic of emergence.
They emphasized that their use of term does not convey the lack of order, but instead
points to a different set of order which can be justified considering the nature of chaos
and order (Burnes, 2005). Here, however, we feel its more appropriate to use the term
emergence which is associated with new capabilities and patterns that emerge out of chaos
for complex systems that have adapted.

At a primary level, the right hand side of the figure is concerned with order that
differentiates between: (i) what is known, perceivable and measurable; and (ii)what is
knowable. For known domain, we are concerned with the status-quo that is concerned

34
Figure 2.2: A Cynefin framework for decision making modified from the versions presented
in Kurtz and Snowden (2003) and Snowden (2010)

with standard processes and procedures. In this context, the aim of management is to
increase efficiency by optimizing the cause and effect relationship that is measurable and
predictable. The decision model adopted in this domain is that associated with catego-
rization frameworks that is concerned with sensing new incoming data, categorize based
on business priorities, and respond in accordance to established practices and procedures
Kurtz and Snowden (2003). The knowable domain perceive cause and effect as a relation
which is separated over time and space and adopts the scientific method to innovate new
product, procedures and processes. For this domain, the analytical reductionist approach
plays a predominant role where complex systems are reduced down into simpler represen-
tations that can be solved within budget and time.

The right hand side of Figure 2.2, associated with emergence, differentiates between:
(iii) complex knowledge domain; and (iv) the chaotic domain. In the former, we are
concerned predominantly with complex adaptive systems as associated with complexity
theory. As discussed earlier, complexity theory rejects cause and effect (Burnes, 2005)
where the latter only become coherent in retrospect and never repeat Kurtz and Snowden
(2003). For this domain, the decision model is based on identifying the emergence of
patterns which necessitates participation and collaboration across the organization. The
latter seen from a contortionist approach is concerned with the interactions between in-
ternal and external factors and to adapt perspective filters. The last domain, associated
with chaos, lacks any cause and effect or perceivable relationships. In this chaos, the

35
decision model necessitates the support of stability focused interventions that manages
crises and provide strong and decisive orientation midst the chaos.

On boundaries, personas and classical mechanics to disorder

Strong analogies can be drawn between the planned approach to change management
(Burnes, 2004b) and the Cynefin framework Kurtz and Snowden (2003). Foremost, both
conceptual frameworks are concerned with a process that systematically promotes sense-
making and internalization of new information to support sustainable adaptive behavior.
The planned approach defines the three step process concerned with unfreezing, moving
and refreezing. In the context of the Cynefin framework, the three step approach is analo-
gous to that of moving through the domains of stability in the successive order of known,
chaos, complex, knowable and then return to known.

Moving across different domains will implicitly imply crossing certain thresholds or
boundaries that differentiate the respective domains. These boundaries will accentuate
the differences that arise among new emerging patterns and provide new insight in how
the boundaries, and the perception thereof, influence the individual sense of the situation.
It has been argued by Kurtz and Snowden (2003), boundaries are the most important el-
ements in sense making as they determine the interactions that will take place between
the various domains. In the context of the connectionist approach, boundaries, in prin-
ciple, define the means by which information, energy and resources are shared among
components and subsequently facilitate the identification and understanding of rules dic-
tating interaction (Turner and Baker, 2019). It has been argued by Burnes (2005) that
organizations need to operate on the edge of chaos, which in Figure 2.2, can be defined
as the boundary that exists between the known and chaos domain in the Cynefin frame-
work. This edge of chaos boundary has been described by Kurtz and Snowden (2003)
as a plateau between the known and chaos domain. Crossing this boundary poses the
most greatest risk to the organization as it can easily succumb to the extremes. On one
extreme, it can looses all control midst too much chaos, or, in the other extreme, lead to
the draconian imposition of order which stifles all potential for creating conditions for in-
novation. During change, it is however necessary to cross the plateau to disrupt outdated
patterns in the known domain and help promote conditions for innovation. A convergence
in behavior, attitudes and sense-making leads to crossing over into the complex domain
where patters may start arising. In the complex domain, one perceive ambiguity which
promotes exploration. Sufficient exploration leads to sense-making of certain pattern
which can cross the chasm boundary into the knowable domain. The boundary between
the knowable and know is defined by Kurtz and Snowden (2003) as a shallow river which
can easily be crossed. This, among other, lead to incremental improvements. Crossing

36
from the known to the knowable facilitate alterations of patterns, processes and behavior
whereas crossing from the knowable to the known leads to standardization (Snowden,
2010).

In the various domains of the Cynefin framework, one can identify distinct personas
who naturally reside in their respective domains. Kurtz and Snowden (2003) associate
authoritative personas to reside in the known domain whose motivation is driven from
establishing order and creating rules. In the knowable domain, experts may want to apply
the scientific method, conduct research and accumulate data for analysis. In the com-
plex domain, politicians want to increase their range of contacts, explore opportunities
and promote increased cross-functional collaboration. In the chaotic domain, dictator
personas are interested in command and control and take advantage of the situation to
adjust orientation. These personas, having distinct (often conflicting) objectives and in-
ternal motivation may imply one can have opposing and resistive viewpoints hampering
the moving forward through the respective domains of stability. As change management
is a process, we are foremost concerned with a controlled and continuous evolution. As
argued by Kurtz and Snowden (2003), personas in their respective domains can often
agree on the major overarching themes. However, getting closer to the center, they can
disagree on subtle differences which may lead to resistance and subsequently disorder.
The disorder area- encapsulate all issues that has relevance for all domain personas. The
more important the issue, the stronger various participants will pull it towards the domain
where they have the strongest capabilities.

To minimize the area of disorder, Kurtz and Snowden (2003) has observed that partici-
pants need to engage in a consensual act of collaboration. As an analogy, using inspiration
drawn from classical mechanics in physics, and organization is interested in maximizing
their torque of change. Mathematically, torque (τ ) is defined as the product of the force
(F ) applied to an object and the perpendicular distance (r) from the axis of rotation to
the line of action of the force. It can be expressed as:

τ =F ×r (2.1)

where:

ˆ τ is defined as the Torque (measured in units of Newton-meters or Nm)

ˆ F is defined the Force applied (measured in units of Newtons or N)

ˆ r being the perpendicular distance from the axis of rotation to the line of action of
the force (measured in units of meters or m)

37
 In simple terms, the longer the lever arm r (distance from the axis of rotation to the
point where the force is applied), or the greater the force F applied, the greater the torque
τ will be. Torque plays a crucial role in understanding rotational motion, equilibrium of
rotating systems, and various mechanical applications like engines, motors, and wrenches.
In an organizational context, one can associate the force F as the cumulative information,
energy and resources (see also (Turner and Baker, 2019)) needed to be invested to promote
change and move across the respective boundaries. The perpendicular distance r can
analogously be defined as the resistance factor and how close important issues of conflict
for the respective personas reside to the area of disorder. To increase the torque for change,
one can either increase the applied force, or, one can increase the perpendicular distance r;
that is, remove issues of conflict away from the domain of disorder, hence contracting the
area of disorder. Engaging in the consensual act of collaboration, as pointed out by Kurtz
and Snowden (2003) is, in principle, removing points of discourse from the area of disorder
that may hinder the process of change. To conclude, the Cynefin framework is a useful
collective sense making approach that promotes shared understanding to emerge through
multiple discourses of the decision-making group. These discourses, however, may lead to
points of resistance and subsequently necessitate larger forces of change if not overcome
by other means. Lauer (2021) states that one success factor of change management is
to overcome these differences and reducing resistance. The latter necessitates a form of
integration which requires a basic will to work together and individual groups (domains
in the Cynefin framework) that are not too dominant. Lauer (2021) proposed some
conditions which can promote effective harmonization:

ˆ there must be a basic openness and cooperative will to work together

ˆ there should not be group dominance

ˆ leaders of particular groups should avoid bias towards one group

ˆ new group rules need to be created

A technique to support the consensual act of collaboration and subsequently resolve

contending issues that reside in the area od disorder, one can apply the Delphi technique,
to be discussed on the section to follow.

2.4 The Delphi method for collective sense making

The Delphi method is a strategic foresight tool which can help provide orientation to orga-
nizations and subsequently address uncertainty associated with change initiatives (PwC,
2016). The Delphi method provides a framework that enable policy and decision mak-
ers in politics and business to identify early warning signals of upcoming opportunities

38
and potential risks that will necessitate change of existing operational and management
frameworks. The method ameliorate the inadequacy of quantitative methods (often uti-
lizing data-based forecasts derived from extrapolating historical statistical trends) for
adequately addressing highly uncertain long-term future developments. As stated by
Brady (2015), the Delphi method does not depend on a generalizable sample size but
instead aim at reaching new insights by focusing on a purposeful sample size of experts.
From a qualitative experimental design perspective, the Delphi method gathers opin-
ions from respondents within a domain of expertise, and through an iterative process,
often consisting of interviews and questionnaires, aim at achieving a form of consensus
among participants, implicitly, to resolve real-world issues (Aitken and Von Treuer, 2021).

During this iterative process of communication, the Delphi method places emphasis on
conducting all communication in an anonymous manner which avoid direct confrontation
of the experts with each other and reduces the effect of large power distances, organiza-
tional politics and cultural biases (Fletcher and Marchildon, 2014). During this process,
several central problems (or narratives in the context of the Cynefin framework presented
in Section 2.3.3) are posed to the panel of selected experts where the aim is to extract the
respondents reasoning used to draw their respective opinions. In a controlled interaction,
a combination information, as gather from available data sources and factors or consider-
ations suggested by respective respondents, is cross-communicated to the panel of experts
in aim of helping respondents re-assessing and subsequently adjusting their perspectives
on the questions of concern (Dalkey and Helmer, 1963).

Despite the advantages, and application of, the Delphi method in practice, it has been
argued that the method lack methodological guidance in how researchers should approach
data reduction and analysis in qualitative Delphi studies (Brady, 2015). Brady (2015)
proposed applying the process of thematic analysis, as illustrated in Figure 2.3. Thematic
analysis is foremost concerned with identifying concepts and categories that originates
from specific ideas and narratives provided by the individual respondents (purposeful
sample size of experts). Subsequently, the aim is to move from specific, opinionated
concepts and categories towards less specific but more explanatory ideas embedded in
themes. As emphasized by Brady (2015), concepts can be perceived as the closest unit of
original raw data as accumulated from the responses of the respondents. Categories, in
contrast, utilizes external data (to be gathered from external matter experts or literature)
to identify relationships an links in aim of abstracting raw data into categories. In cross-
communicating these categories-of-association back to the panel of experts, in revised
form; through thematic analysis, themes emerge which is a high abstraction layer of
consensus on the central problems originally posed. In the context of the Delphi method,
the process of thematic analysis could potentially be started from the categories layer

39
Figure 2.3: Using the process of thematic analysis for theme identification in the qualita-
tive application of the Delphi method

which uses external data to formulate the first round of central problems (or categories
of concern) which experts need to respond on.

40
Chapter 3

Research methodology

This research is concerned with managing disruptive change within the European Union
(EU) energy sector during the green energy transition. The focus of this research is
foremost addressing change as perceived from a Distributed System Operators (DSO)’s
perspective who are considered the backbone to the green energy transition (Meletiou
et al., 2023).

3.1 Philosophy
This research will adopt the perspective of Stacey (1991) who perceive organizations as
complex adaptive open-systems. We will subsequently utilize concepts within complexity
theory to understand organizational change (Burnes, 2005). In the context of complexity
theory, the relation between cause and effect is rejected. Consequently, this study rejects
post-positivists deterministic philosophical viewpoints which, in principle, has a reduc-
tionist approach (Creswell and Creswell, 2017).

This study foremost adopts a social constructivist viewpoint. The primary aim here
is to help management and leadership within the EU energy sector, particularly those
concerned with managing the low voltage distribution energy network (DSO’s), to make
sense of the changing energy sector and gain orientation amidst the green energy tran-
sition. We are concerned with developing subjective meanings of experiences (for both
energy consumer and supplier) that can assist with the identification of emergence of pat-
terns (or themes in the context of thematic analysis (Bazeley, 2009)) that can facilitate
decision making. To such an extent, in context of applying complexity theory to describe
change management, we are concerned with a connectionist approach to change which is
better suited to address complexity and open social systems (Turner and Baker, 2019).
That is, we are concerned with the complexity of various viewpoints, and resulting in-
teractions (that may lead to potential friction or resistance) caused by these viewpoints.

41
As argued by Turner and Baker (2019), to understand change of complex systems, one
is foremost interested in establishing and understanding the boundaries. Once bound-
aries have been established, only then can one proceed in analysing and gain insight on
the interactions that occur across these boundaries. The environmental landscape, af-
fecting DSO’s, is large, multi-faceted and complex which imply questions (and proposed
solutions) are often broad and general. In the social constructivist viewpoint, we are in-
terested in evaluating subjective meanings. These subjective meanings, when negotiated
socially, and taking into consideration historical context, facilitate the generation and,
subsequently emergence of patterns of meaning (contextualized themes).

Complementary to the social constructivist view; this research design, in addition,

adopts an advocacy and participatory view. The green energy transition is a global
phenomenon with an intertwined political agenda on transforming the energy sector. Eu-
ropean energy consumers, in the context of the Clean Energy for all Europeans Package
(CEP) (EU Commission, 2019), will increasingly play a pivotal role in the green en-
ergy transition. A focal point of this research is understanding how change initiatives
of DSO’s, in aim of navigating the green energy transition, will impact and promote the
social and economical reforms affecting energy consumers and addressing energy poverty.
This research will aim at implicitly advocate the concerns of the energy consumer, how-
ever, direct participation of energy consumers during this research (in terms of direct
consultation via interviews and surveys), is not considered. Instead, by considering the
political agendas, legislative policies and the environmental landscape, among other; this
study is concerned with identifying initiatives (ongoing technical, operational and leg-
islative frameworks) where the participation of the energy consumer can be increased in
the green energy transition that simultaneously support the organizational endeavours
of DSO’s in managing and operating the distribution grid. The latter, in principle, will
facilitate the formulation of new strategies that can exploit emerging opportunities while
minimizing the effects of potential risks. As argued by Senior and Fleming (2006), change
management cannot be completely separated from organizational strategy. It is therefore
the belief in this study that by adopting both a social constructivist and advocacy and
participatory view, we can promote the viewpoints of various stakeholders/participants
in the green energy transformation. In addition, this will facilitate the formulation of sus-
tainable change initiatives to promote organizational strategies that necessitate change.

3.2 Method
This research adopts a sequential explanatory design which, in essence, is concerned with
applying a mixed-method strategy of inquiry that will adopt multiple approaches to data

42
collection. In context of the green energy transition, the range of participants and stake-
holders are so diverse in viewpoints, agendas and motivation, that any single method used
for data collection may potentially introduce bias for specific participants. Adopting mul-
tiple methods of inquiry may reduce, or even neutralize, the bias introduced by individual
methods alone (Creswell and Creswell, 2017). This design is consequently characterized
by two sequential phases.

In the first phase, we will collect and analyse quantitative data. For quantitative data
sources, we are primarily concerned with generalized sample sizes of inquiry conducted
through traditional surveys. This can also include meta literature-reviews on industrial
trends and legislative policies that have originated at the EU level. As pointed out by
Creswell and Creswell (2017), a drawback of using the sequential explanatory design is
that data collection can be extremely time consuming. We will therefore consult all third
party surveys and reviews, conducted by independent researchers and consultants, instead
of conducing our own surveys during the quantitative data collection phase.

For qualitative data collection, we are more concerned with purposeful sampling that
is conducted through observation and interviews, and subsequently have a strong social
component to it. The results form the first phase will be used as a primer to the second
phase. The motivation of first applying a quantitative strategy to data collection is to
gain a better general broad understanding of the environmental context and subsequently
formulate (or identify) key concerns or categories to be prioritized during the development
of change initiatives in the second phase. The primary aim of the qualitative study is
to disseminate key concerns or categories and determine areas of consensus and / or
resistance.

3.3 Design
Figure 3.1 illustrates the conceptual framework that has been adopted for this research
design. As discussed in the aforementioned section, we will adopt a sequential explanatory
design which uses a mixed-method strategy of enquiry. It follows that this research will
have two phases.

The first phase is concerned with determining and understanding the environmental
context in which DSO’s need to operate in, and adapt to, during the green energy tran-
sition. For this phase, we have a broad viewpoint with the aim of establishing general
understanding and formulating open questions. For this, the problem calls for:

ˆ the identification of factors that will influence the sustainability of how DSO’s op-

43
Figure 3.1: Experimental research designs for producing results one and two of this thesis.
Research design one is quantitative of nature adopting an advocacy and participatory
view. Research design two is qualitative of nature adopting a social constructivists view.

erate and manage the distribution network

ˆ the understanding of the best predictors of outcome that will promote the initiatives
of the green energy transition

ˆ and, how the reform of the energy sector will promote the social and economical
welfare of energy end consumers

This problem will predominantly use quantitative methods. Data will be gathered
from legislation and policy frameworks drafted at the EU level which dictates the reg-
ulations in how the green energy transition roll-out is envisioned for the respective EU
member states. In addition to this, large sample surveys, such as conducted by Meletiou
et al. (2023); TUB et al. (2023), will be included for consideration.

All data will subsequently be analysed within the Political, Economic, Social, Tech-
nological, Legal, and Environment (PESTEL) framework (TUB et al., 2023) for macro
environmental factors; and, the People, Resources, Innovation, Marketing, Operations
and Finance (PRIMO-F) framework (Hayes, 2022) for micro-environmental factors. In
the PRIMO-F framework, we will exclude the finance metric and instead include the scal-
ability metric which is critical for the sustainability of the green energy transition. The
financial factor is addressed in the PESTEL analysis under the economic metric. The
PRIMO-F and PESTEL results will be summarized via the Strengths and Weaknesses
(for internal environment assessment); and Opportunities and Threats (for external envi-
ronment assessment) (SWOT) (Terrados et al., 2007) analysis.

For the second part of this research design, we are concerned with sense-making of the
categories / conclusions as obtained from the first phase. The second phase will utilize
the Delphi method (Brady, 2015) which defines purposeful sampling of a small group of

44
experts (desirably ten experts). Combined with the Delphi method, we will apply the
process of thematic analysis which is concerned with the identification of concepts and
categories in order to move from specific ideas found in participant responses to less specific
but more explanatory ideas found in themes (Brady, 2015). For the Delphi method, we
will have two rounds. The first round will start with semi-open questions or statements as
inspired by the general categories that emerged in the first phase of this research design.
The first wave will subsequently include an informal introduction by means of personal
correspondence which is tailored towards the background of participant of concern. The
second wave will be a one-on-one interview with the respective participants. During
this round, results of the first wave will be discreetly used to moderate and influence
conversations that may lead to revising initial preconceived concepts or ideas. To conclude
the second phase, in the context of the Cynefin framework 2.2, themes of consensus will
be mapped accordingly to their areas of uncertainty whereas themes causing resistance
(disagreement) will be located closer to the area of disorder and will highlight potential
areas of conflict that may hamper change initiatives.

45
Chapter 4

Environmental Analysis

Lewin (1951) observed that the state of no change is not where an organization is neces-
sarily stationary but rather a condition where external and internal forces are perceived to
be in a stable quasi-stationary equilibrium. Internal forces (or organizational dynamics)
are dependent on at which phase of the life-cycle the organization finds itself. Exter-
nal environmental conditions, dictated by the market environment, politics, technology,
ecology etc., becomes ever more complex and necessitates that organizations as social sys-
tems need to allow increased levels of complexity to service their environment and remain
sustainable (Lauer, 2021). Distributed System Operators (DSO)’s have well developed
and mature operational and business models which served them well on the last couple
of decades for managing and operating the energy distribution network. The external
environment, from a DSOs perspective, has remained relatively stable prior to the green
energy transition. This environment, however, has evolved and becomthee extremely
complex and convoluted during the emergence of the green energy transition. To assess
the complexity and nature of the external environment, we will proceed with a macro
environment analysis prior to doing a SWOT analysis that assess both internal and ex-
ternal environmental factors. Tables 4.1 and 4.2 summarizes the internal and external
environmental factors contributing towards strengths and weaknesses, and opportunities
and threats, respectively.

4.1 Macro environment PESTEL analysis

To assess the macro environment, and its corresponding factors, impacting foremost the
energy sector with particular focus on Distributed System Operators (DSO)’s, we will
consider the Political Economic Social Technological Legal Environmental (PESTLE)
analysis framework(TUB et al., 2023).

46
4.1.1 Political
The energy sector has witnessed a severe disruption in the wake of the Ukraine invasion
by Russia. To safeguard the European citizens against volatile energy prices caused by
geopolitical risks and instability; the European Commission has implemented its REPow-
erEU plan to reduce exposure to fossil fuel price volatility, aggravated by the dependency
on Russian fossil fuels and geopolitical risk factors (EU Commision, 2022c).

The REPowerEU plan promotes initiatives that include: (i) save energy; (ii) produce
clean energy; and (iii) diversification of energy supplies. The EU, via its diplomatic
and strategic partnership network, has leveraged the REPowerEU Plan to promote their
ongoing initiatives related to expanding on solar photovoltaic (PV) energy and other re-
newables in their energy mix. In the former, the EU Commission has adopted the EU
solar energy strategy (EU Commision, 2022a) which aims at bringing 600GW of PV power
online by 2030 which will displace the dependency on fossil fuels by approximately 9 bcm
of natural gas annually by 2027. To promote the adoption of PV at scale, the EU Solar
Rooftops Initiative, which forms part of the EU solar energy strategy, will implement
legislation that will make the installation of rooftop solar energy compulsory for all new
residential buildings by 2029.

It is the prerogative of Member States to ensure the removal of barriers and bottle-
necks for solar expansion in distribution and transmissions grids. It is anticipated that
politically driven initiatives, concerned with energy transformation, will have significant
consequences for DSO’s to facilitate the efficient integration of decentralized solar instal-
lations (EU Commision, 2022a).

4.1.2 Economic
The role and responsibility of National Regulator Authorities (NRS)’s are to economically
regulate the Distributed System Operators (DSO)’s and Transmission System Operators
(TSO)’s to ensure socially efficient operation, utilization and development of networks.

Appropriate economic regulation is considered the key vehicle used for facilitating
change of DSO’s in midst of the energy transition. Regulation appropriately incentivizes
DSO’s for pursuing the most sensible economic investments that ensure the highest rate
of return on investments required for the operation and improvement oIsak Bergsetf the
distribution network. In context of the energy transition, this type of regulation should
promote DSO’s to take appropriate investment choices that increasingly embrace digiti-
zation and innovation. Consumers, in the context of the Clean Energy for all Europeans
Package (CEP) (EU Commission, 2019), will increasingly play a pivotal role in the green

47
energy transition. Through appropriate regulatory signals from the NRA, DSO’s sub-
sequently design and communicate energy network tariffs to European citizens, which
from a regulatory perspective, aught to promote (Baker, 2020): (i) accurate and non-
discriminatory reflection of the true cost consumers impose on the network; and (ii) fair
compensation for energy consumers when supporting the network via various value offer-
ings.

NRA’s have traditionally emphasized capital expenditure (CAPEX) over operational

expenditure (OPEX) to design regulatory mechanisms for DSO’s. New regulatory mecha-
nisms appropriate for the energy transition foresee a shift from CAPEX based mechanisms
towards total expenditure (TOPEX) which include OPEX (Baker, 2020). The aim of con-
sidering TOPEX, when designing regulatory mechanisms, is to enable NRA’s to incen-
tivize DSO’s to design tariffs for customers that is increasingly geared towards objective
value, as perceived from a customers perspective. In addition, TOPEX regulatory mech-
anisms will promote the utilization of flexibility services over costly grid infrastructure
investments. The desirable outcome for DSO’s should be to adopt a neutral preference
between asset-based and operational based investments that consequently promote the
underlying strategy and vision of promoting consumer-centric energy efficiency. The im-
plement these type of regulatory mechanisms, NRA’s need to: (i) decrease the periods
used for cost recovery and depreciation for operational solutions; (ii) reward and incen-
tivize DSO’s for undertaking significant risk in adopting innovative technologies; and (iii)
provide incentivized financial opportunities to DSO’s that will promote participation in
risky innovative trial studies with unproven technology.

NRA’s will increasingly adopt measures in their regulatory frameworks which will en-
courage DSO’s to adopt a more objective and transparent approach to network planning
and operation. This more objective and transparent approach is characterized by a nat-
ural disposition towards an increase in non asset-based investments. For this transition,
regulatory mechanisms will transition from input-based regulatory mechanisms (emphasis
primarily on CAPEX) towards output-based regulatory mechanisms (performance driven
which forms part of operation and maintenance). It follows that for such output-based
regulatory mechanisms, the revenue of DSO’s should be formulated such that it reflects
both what customers value most in combination with desirable energy and environmental
policy outcomes.

48
4.1.3 Social
It is widely accepted now that energy is considered central to modern life and social inclu-
sion. As consequence, consumers play an increasingly active role within the clean energy
transition. The Energy union, who has the primary prerogative of help providing secure,
affordable and clean energy for EU citizens, has subsequently put consumers at the heart
of all evolving energy union strategies.

On average, 200 million households in EU spends 6% of their disposable income on en-

ergy whereas low-income families spend closer to 9% of their disposable income on energy.
This increase of 50%, as consequence of the clean energy transition, has been reported for
total expenditure on energy for households across EU and it is widely accepted now that
the energy transition cannot be separated from socio-economic considerations (EU Com-
mission, 2019). To effectively address socio-economic concerns, the Clean energy for all
Europeans package (CEP) (EU Commission, 2019) has introduced eight additional laws
to the Energy Union Strategy (Commission, 2015a) that primarily promote considerable
benefits to EU citizens. A main priority, among other, is to tackle energy poverty and
protect vulnerable consumers. From a holistic perspective, it is mandated that consumers
should be better informed on their energy usage with transparent energy bills and more
understandable price contracts. Consumers have the right to request a smart meter and
should have access to certified price comparison tools that will allow them to compare
energy suppliers and switch, if desirable. In addition, it should be easier to invest in
renewable energy resources (i.e., installing roof-top solar panels); or, join energy commu-
nities where energy resources are pooled together to unlock social benefits. The latter
implies that DSO’s need to accommodate decentralized production of energy, opposed to
the more traditional centralized model of energy generation and distribution.

The REPowerEU plan (EU Commision, 2022c) ambitiously promotes the adoption of
solar energy as part of the clean energy mix, to displace the dependency on fossil fuel.
DSO’s procure 34% of their flexibility services from industrial and commercial energy
generation customers, however, the potential of the residential sector is largely untapped
(Meletiou et al., 2023). To unlock socio-economic benefits for EU citizens, it is anticipated
that the REPowerEU plan will stimulate the adoption of local solar energy generation at
residential level. In context of the Energy Efficiency Directive (EED) (Directive, 2012),
incentivized self-consumption of locally generated energy (i.e., via solar energy) will fore-
most protect EU citizens against the volatility of fossil fuel prices and in addition unlock
socio-economic benefits when enabling citizens to actively participate in flexible programs
offered to DSO’s.

49
 Deploying rooftop solar energy provides a pragmatic solution to enable EU citizens to
become active participants in the energy transition. The main barriers that prevent the
participation of EU citizens are attributed to the distribution charges and network tariffs
as currently implemented by DSO’s. The National Regulatory Authorities (NRAs) could
consider possible cost reductions stemming from the reduced use of the network. However,
the latter gives rise to social problems (energy poverty) where cost-reflective tariffs should
not lead to discrimination against to consumers that do not have the capability of self-
consumption.

4.1.4 Technological
The clean energy transition involves a comprehensive overhaul of the EU energy sector
which will incorporate substantial digitalisation of the electricity grid. Digitalisation in
this context should, among other objectives, promote energy and resource efficiency, de-
carbonization, electrification, sector integration and decentralization of the energy system.

The EU Green Deal (Deal, 2020) emphasizes the criticality of digital technologies serv-
ing as enablers for reaching the sustainability goals associated with the green transition.
Digital technologies that can potentially accelerate proposed legislative policies used to
support the green transition include, but not limited to, artificial intelligence, 5G, cloud
and edge computing and internet of things. It is projected that a substantial part of
the anticipated EUR 584 billion investment costs, associated with the green transition,
will be accrued due to digitalisation of the distribution grid between 2020 and 2030. To
such an extend, the European Commission has consequently proposed an increase in the
budget for research in innovation (to almost EURO 100 billion) under Horizon Europe for
the period 2021-2027 (EU Commission, 2019). The EU commission has signed a letter
of intent, via the newly established EU DSO Entity expert group, to start research and
development on a digital twin of the EU-electricity wide grid. This digital twin will be
realized via five areas of innovation which include (EU Commision, 2022b): (i) observabil-
ity and controllability; (ii) efficient infrastructure and network planning; (iii) operations
and simulations for a more resilient grid; (iv) active system management and forecasting
in support of flexibility and demand response; and (v) data exchange between TSO’s and
DSO’s.

The European Commission conducts regular quantitative impact assessment studies

along with policy packages to assess which scenarios will contribute towards decarboniza-
tion targets declared by the EU. The Energy Roadmap 2050 are one such a scenario which
is build around four key technological developments: (i) energy efficiency; (ii) renewable
energy, (iii) nuclear energy; and (iv) carbon capture and storage (Hainsch et al., 2022).

50
Of the aforementioned technology drivers, (i), (ii) and (iv) will have a significant impact
on how DSO’s operate and manage the distribution of energy.

With the emphasis of European citizens at the core of the Energy Union, energy effi-
ciency is of particular importance since it is a key element in cutting consumer bills. Smart
technologies for the grid and home owners will enable consumers to become active partic-
ipants in the energy sector. This will enable the aforementioned to actively manage their
consumption, participate in demand response programs and more effectively matching
consumption with local generation promoting to energy efficiency (Commission, 2015b).

It has been reported that renewables are the cornerstone of emission reduction in the
energy sector (Hainsch et al., 2022). Whereas larger scale wind and solar farms have to
date generated most of the renewable energy; the activation and participation of con-
sumers (also producing their own energy) and local energy communities, by means of
ongoing disruption incentivized innovation, will increasingly accelerate distributed renew-
able energy generation.

In context of carbon capture and storage, Electrical Vehicles (EV)’s will increasingly
play a fundamental role to intermediate distributed energy storage. It has been reported
that short-term grid storage demands can be met as early as 2030 across most regions
when end-of-life EV batteries are deployed in a circular economy as secondary storage (Xu
et al., 2023). In addition, innovation in the field of Vehicle to Grid (V2G) technologies will
enable bidirectional energy flow between the power grid and the batteries of connected
EV’s. V2G technologies will activate 21%-26% of global theoretical battery capacity which
could be available for auxiliary grid services by 2050 (Xu et al., 2023).

4.1.5 Environmental
Europa’s agenda for sustainable growth is stipulated in the the European Green Deal
(Deal, 2020). The new Circular Economy Action Plan (CEAP) is among the key enablers
defined for sustainable growth.

In this policy framework, empowering energy consumers, and providing them with
cost saving opportunities, is considered a key enabler for promoting sustainable growth.
The latter will, among other, contribute towards energy efficiency, which in context of
the Energy Efficiency Directive (EED) (Directive, 2012), is tightly coupled with circular
economy principles (COM, 2020).

The construction and building industry has a significant impact for many sectors in

51
the economy, including the energy sector. The built environment accounts for nearly
50% of all extracted material. The construction sector is also responsible for 35% of
EU’s total waste generation (COM, 2020). As part of the strategy for sustainable growth
within the construction and building industry; planned long-term electrical grid upgrades
or reinforcements conducted by DSO’s on a granular basis, needs to be weighted against
promoting initiatives to reduce (COM, 2020): (i) soil sealing; (ii) rehabilitate abandoned
or contaminated brownfields; and (iii) increase the safe, sustainable and circular use of
excavated soils.

The adoption of the REPowerEU plan (EU Commision, 2022c) will require that utility
scale projects will increasingly face competing uses of land and public acceptance chal-
lenges. Possible viable scenarios are where agricultural use of land can be combined with
solar generation in so-called agrivoltaics. In such a case the latter can simultaneously
contribute to crop protection and yield stabilization (Giri and Mohanty, 2022).

4.1.6 Legal
In 2019, the European Union (EU)’s has completely overhauled its energy policy frame-
work by adopting a Clean Energy for all Europeans Package (CEP) (EU Commission,
2019). This package aimed at moving away from fossil fuels towards a clean energy mix.
The proposed legislative package, in support of the EU’s Paris Agreement commitments,
encompasses a legislative framework for reducing greenhouse gas emissions claimed for be-
ing the direct cause to climate change and marked a significant step towards implementing
the energy union strategy(Commission, 2015a). The energy union strategy is primarily
concerned with building an energy union, comprise of five dimensions, which promote
secure, sustainable, competitive and affordable energy to EU energy end-consumers. Fol-
lowing on the energy union strategy, the CEP consequently consists of eight additional
laws which, among other, will bring foremost considerable benefits to customers, the en-
vironment and the economy, in general.

To transition away from fossil fuels, EU legislation in the Renewable Energy Direc-
tive (RED2, 2018) necessitates clean energy cooperation across EU countries with the
primary goal of at least reaching a renewable energy target uptake of 32% by 2030. The
EU Parliament and the Council have, in addition, reached a provisional agreement to
amend this renewable directive with an adjusted target uptake of 42.5% by 2030 (Press
corner, n.d.). The renewable directive legislates that European member states must facil-
itate the development of renewable energy communities. To such an extent, DSO’s have
the prerogative to cooperate with such renewable energy communities in the context of
energy transfers within renewable energy communities. The participation of renewable

52
energy communities must be accessible to all consumers promoting to both social and
economic welfare. DSO’s must in addition promote non-discriminatory treatment to end-
consumers and producers within renewable energy communities which include transparent
cost-reflective network charges as developed by the national regulation authorities.

The Energy Efficiency Directive (EED) (Directive, 2012) aims at maximizing grid and
infrastructure energy efficiency by means of promoting demand response programs. In
such demand response programs, the aim is to incentivize DSO’s to implement demand
response programs that utilize distributed co-generation in aim of deferring grid upgrades
or reinforcements for increased capacity. To such an extent, DSO’s are tasked with the
responsibility for distributing energy from high-efficient co-generation units, or guarantee
them access to the grid and give priority to dispatch. Co-generation promotes energy
efficiency due to the close proximity of consumption. It follows that the EED foresee a
move away from traditional volume-based models (focus on measuring energy consump-
tion based on the quantity or volume of energy used) towards quality and efficiency based
models (also known as performance-based models which focus on improving the quality
and efficiency of energy usage rather than solely reducing the volume of energy consumed).
It is foreseen that energy efficiency criteria will be build into the design of new network
tariffs which can subsequently be used by DSO’s to activate demand response services
from flexible consumers.

The EED (Directive, 2012) emphasizes how demand response programs can facilitate
increased energy efficiency for DSO’s. The latter in context of migrating from volume-
based towards quality and efficiency based operational and energy management models,
the desire may be for DSO’s to procure and invest in their own storage and generation
units to accommodate the intermittency of energy generation during the integration of
renewable energy resources. This is thoroughly addressed in the EU electricity directive
(Union, 2019). Foremost, DSO’s must draft specifications at national level how flexible
demand response services will be procured. These specifications will allow the effective
and non-discriminatory participation of all market participants. As discussed in Section
4.1.4, EV’s connected to the grid can meet short-term storage demands as early as 2030.
The integration of electro-mobility into the electricity network, by means of dedicated
charging points, is addressed by Directive (2012). It is emphasized that DSO’s shall not
own, develop, manage or operate charging points for EV’s. The exception to the rule is
if third parties cannot provide the infrastructure and connection points at a reasonable
cost in a timely manner. DSO’s to conduct public consultation at least every five years
to assess the potential and interest of thirds parties to operate such infrastructure.

In response to the global market disruption caused by the Russian invasion of Ukraine,

53
the European Commission has adopted the REPowerEU plan which, among other, pro-
motes energy efficiency, renewable energy integration and diversification of energy gener-
ation. This plan will significantly increase the transformation and developments required
by DSO’s which will expand on: (i) the level of smart meter deployment; (ii) flexibility
procurement mechanisms; and (iii) digitalisation of DSO’s across Europe (Meletiou et al.,
2023).

4.2 Micro environment SWOT analysis

In context of Section 4.1, we proceed accessing the micro environment with associated
internal and external components that effects the energy sector. With the focus on DSO’s,
the micro environment will subsequently be analysed for factors defined in the Strengths
and Weaknesses, and Opportunities and Threats (SWOT) framework(Terrados et al.,
2007).

For internal indicators, strengths are variables that promote underlying sustainable
business drivers whereas weaknesses reduce productivity, effectiveness (managing energy
efficiently) and, in general, the competitive advantage. External indicators differentiate
between opportunities that can contribute towards growth whereas threats may aggravate
unsystematic risk1 as induced by the energy transition. (Kapassa et al., 2021).

4.2.1 Strengths
Smart metering is considered as one of the key fundamental enablers for unlocking compet-
itiveness and environmental sustainability of the energy markets. With energy customers
being at the core of generated European policies on energy and climate; smart metering
has become the preferential agent to improve the level of service provided to the customer
of DSO’s.

Smart metering has subsequently been addressed in the Directive on common rules for
the internal market in electricity (Union, 2019). Key concerns, legislated in the aforemen-
tioned directive, is that of interoperability of the smart meter (ability to communicate
and exchange information seamlessly across different systems and platforms) and that
operation should respect rules on data protection as addressed in (Union, 2019). Smart
meters designed for net metering enables bi-directional energy flow measurements which
is useful for determining energy consumption and generation separately. The latter is of
paramount importance to activate the flexibility of consumers in the energy sector.

1
an unsystematic risk is a risk that is unique to a specific organization or industry

54
 It has been reported that 89% of DSO’s have installed bi-directional smart meters
(Meletiou et al., 2023) which puts them in a very favourable position to promote initiatives
addressed in the Energy Efficiency Directive (Directive, 2012). DSO’s can utilize the
installed infrastructure of smart meters to manage distribution grid assets and its hosting
capacity more efficiently.

4.2.2 Weaknesses
The efficient integration and decentralization of solar energy (in particular)EU Commi-
sion (2022c) and renewable energy (in general) faces adoption barriers in respect to grid
expansion capabilities and certification of grid connections. The efficient integration of
decentralized renewable energy resources will necessitate significant adaptation to distri-
bution networks where it is unclear how policy risks, costs, and benefits are defined and
redistributed (Savini and Giezen, 2020). To enable higher system performance (energy
efficiency from a DSO’s perspective) and optimally utilize flexibility as offered by active
consumers, DSO’s need to incur significant digitization investments such as smart grids.

The International Energy Agency (IEA) warns that grid investments have stagnated
and falls short of what is needed to host the increasing electrification of several industries.
DSO’s lack the resources and investment incentives to upgrade the grid with sufficient
hosting capacity that will suffice future needs. The transportation industries, with the
large scale penetration of EV’s, presents a large untapped resource which can improve
grid operation and promote energy efficiency via an strong growth of smart charging ser-
vices and tariffs (Burger and Hildermeier, n.d.). The electricity demand caused by the
penetration of EV’s may be manageable on a power transmission system level but will,
however, pose challenges for local distribution grids. Despite the flexibility potential of
EV’s, 13 of 139 surveyed smart services does not reflect local grid conditions as received
from DSO’s Burger et al. (n.d.).

The European energy system is gradually transformed from traditional centric markets
into distributed customer-driven digitalized systems. The distributed nature of integrated
renewable resources in the grid, in addition to procuring and utilizing distributed flexi-
bility mechanisms, necessitates that DSO’s have develop capabilities for monitoring and
control to manage energy more efficiently. Although nearly 100% of high/medium volt-
age substations are remotely controlled, medium/low voltage substations at the residential
and urban level currently only has 20%-40% remote control capabilities.

The most important key performance indices used at European level to assess DSO’s
reliability are the System Average Interruption Duration Index (SAIDI) and the System

55
Average Interruption Frequency Index (SAIFI). These measures, communicated per an-
nual basis, indicate the average duration and number of supply interruptions to consumers
endure. Despite the importance of these measures, (Meletiou et al., 2023) reports that
24% of DSO’s included in their survey do not monitor for SAIDI and SAIFI per voltage
level which is considered a barrier to better network monitoring.

The sustainable procurement of distributed flexibility by DSO’s is of paramount im-

portance to, among other, secure regional electricity security (Meletiou et al., 2023). Reg-
ulatory incentives within Member States are used to procure flexibility and is currently
predominantly supportive of industrial and commercial customers. These same incentives
are not well developed for residential customers, hence de-incentivise these customers from
participating and offering their flexibility in aid of DSO’s. Although commercial energy
retailers are increasingly adopting the role of aggregated energy management facilitators
(enabling residential consumers to become active energy participants), failure to address
barriers that exists in the context of regulatory incentives may be detrimental to promote
regional electricity security.

4.2.3 Opportunities
From the CEP legislative framework (EU Commission, 2019), energy performance in
buildings are one of the key concern areas since it contributes towards approximately
40% of energy consumption and 36% of CO2 emissions in the EU. In this context, the En-
ergy Performance in Building Directive (Parliament, 2018) promotes smart-ready systems
and digital solutions within the built environment which include high-capacity commu-
nication networks for smart-homes and well-connected energy communities, smart grids
and advanced metering infrastructure. The digitalisation of the energy sector presents
several opportunities for DSO’s and energy end-consumers, alike. In the former, DSO’s
will retain more accurate information on consumption patterns and load demands which
will enable them to operate and manage the grid more effectively. DSO’s, in addition,
need to procure flexibility services to support local and system-wide flexibility needs. In
the former, DSO’s utilize local flexibility to address fluctuating system demands, increas-
ingly aggravated by the integration of intermitted energy sources such as renewable energy
resources. On a system-wide level, DSO’s need to assist Transmission System Operators
(TSO)’s in facilitating member state energy balancing. To such an extent, smart-homes
could facilitate different flexibility services to DSO’s which will fulfil a part of the flexi-
bility needs of DSO’s (Khajeh et al., 2022).

To integrate renewable resources into the EU energy mix, DSO’s need to incorpo-
rate demand response programs which can facilitate the intermittent energy production

56
from renewables. A key enabler for such demand response programs are providing energy
consumers access to price signals via supply contracts that reward flexible consumption.
Decentralized generation with incentivized (via supply contracts) self-consumption with
the option of selling surplus locally generated energy back to the grid, can help DSO’s in:
(i) reducing grid losses and congestion which are often associated with distributing energy
from some centralized point of origin to end-consumers; (ii) DSO’s can save in long-term
network costs by deferring grid infrastructure upgrades.

The wide adoption and installation of smart meters by DSO’s (89% (Meletiou et al.,
2023)) has opened new opportunities to improve on the level of service to end-customers.
Exploitation of this opportunity will enable new dynamic tariffs, adopted in demand re-
sponse designs, which will facilitate managing grid constraints and integrating renewables.
Demand response programs, in addition, will allow DSO’s to manage peak-load crisis and
decrease the risk of blackouts (Meletiou et al., 2023).

In the wake of 2022 geopolitical developments, DSO’s are considered as the real back-
bone of the energy transition where they hold the key to unlock and integrate 70% of
installed renewable energy resource capacity in the grid (Meletiou et al., 2023).

Smart meters empower consumers to become active participants in the energy transi-
tion by monitoring and controlling their consumption. To date, the vast majority (95%) of
DSO’s surveyed in (Meletiou et al., 2023) have already started with the roll-out of smart
meters which could serve as the backbone to measure and report accurate on SAIDI and
SAIFI key performance indices, used to report the reliability of DSO’s. For smart meters
that can serve bi-directional energy flow measurements, these can be utilized by DSO’s
for grid management tasks (determining grid hosting capacity), grid control tasks (de-
termine operational capacity) and for distributed planning. Data obtained from smart
meters can also be used by DSO’s and retailers alike to gain a better overview on load
models of their customer and consumption behaviour which can facilitate the design of
new dynamic tariffs that facilitate demand response program designs.

The Clean for Energy Package for all Europeans (CEP) (EU Commission, 2019) defines
the collective role of energy consumers within citizen energy communities and renewable
energy communities. Within these communities, with support of the Electricity Directive
(Union, 2019), energy consumers are encouraged to become active participants within
these communities either by generating, consuming or selling electricity or providing flex-
ibility services through demand response programs and storage. To date, 38% of DSO’s,
surveyed in (Meletiou et al., 2023) reports the existence of such communities, however
consider the size of these energy communities to be insignificant in terms of customers

57
and energy consumption to be of any immediate benefit to the DSO. The continuous
roll-out of smart meters by DSO’s, coupled with innovation within the energy sector
and energy solutions offered by energy retailers will strengthen the role and formation
of citizen energy communities and renewable energy communities. These communities
could potentially support DSO’s in efficiently procuring distributed flexibility of energy
resources and consequently play a supplementary role in sustaining the abilities of DSO’s
for effective monitoring and control of the distribution grid.

4.2.4 Threats
The digitalization of the energy sector brings forth many opportunities for various mar-
ket participants including DSO’s but, in addition, introduces several threats. Integrating
renewable energy resources in the energy mix implies that DSO’s now need to accommo-
date intermittent energy production. The traditional operational model where generation
follows consumption (increasing or decreasing centralized power generation) is turned on
its head, and instead, consumption now need to accommodate (or follow) irregular power
generation.

It has been noted how energy consumers should become part of the energy transi-
tion by activating their participation. Promoting self-consumption for those consumers
that can produce their own energy (or participate in the local energy communities) may
threaten the traditional source of revenue streams for DSO’s. The largest portion of
DSO’s revenue is generated from volumetric energy usage of end-consumers. Profits from
these revenues are used to maintain and upgrade existing grid infrastructure. It is evi-
dent that here DSO’s face the challenge of reduced profitability margins, which if tried to
be recovered from those users who are grid connected, may pose socio-economic problems.

DSO’s are exposed to an increase in data through the digitalization of the energy
sector. The risk of utilizing metering-data in a non-transparent and non-discriminatory
manner for potential commercial benefit may transpire. It may transpire that DSO’s
looses their neutral market facilitation role (Commission, 2015b). In addition, DSO’s
have to be extra vigilant in their data management practices in context of consumer
protection needs. In particular, DSO’s need to promote non-discriminatory data cus-
todianship that minimizes the exploitation of energy arbitrage via commercial benefits
obtained from exploiting behavioral biases of consumers.

An aftermath of unparalleled incentivized innovation has led to severe price reductions

of EV’s and solar technology. Incentivising energy consumers to become increasingly ac-
tive and participate in the green transition, globally there is observed an uptake in EV’s

58
due to the electrification of the transport sector. In addition, with dynamic price con-
tracts, consumers install their own local roof-top solar solutions to increase their energy
efficiency and decrease their CO2 footprint by optimizing self-consumption. A threat of
DSO’s are how to manage an increase in EV’s and solar panels connected to the grid.
DSO’s concern is with quality of power and management of congestion and peak-loads.
Dynamic price signals may now create the problem that EV’s may charge at similar time
instants, causing undesirable peak loads; or, selling surplus of energy produced from solar
panels back to the grid which may cause reverse power flows resulting in undesirable volt-
age levels. The traditional grid expansion is not a solution for DSO’s as it is: (i) too slow
compared to the increase of PV and EV connected resources; (ii) expanding the grid is
not efficient since the problems shifts from average increase in load management to that
of managing peak-loads.

Currently, DSO’s are a regulated monopoly, who by discretion of the regulator, earn
revenues for regulatory periods for four to five years. Revenues are generated by means of
distribution charges (rates charged to end consumers). Regulated distribution charges
are structured as connection charges being once off and use-of-system (or customer)
charges which can be proportional to energy load demands and contributions to peak
loads. Use-of-system charges are either based on energy consumption (volumetric) or on
contracted/measured power (capacity based tariffs). A majority portion (69% household
consumers; 54% small industrial consumers; 58% large industrial consumers) of DSO rev-
enues are driven by volumetric tariffs which is also most comprehensible for end-users. In
context of the Energy Efficiency Directive (Directive, 2012), the move away from volume-
based models towards quality and efficiency based models will result in an increase in
self-reliant consumers who produce and consume their own energy prior to importing
from the grid. This may consequently negatively impact DSO’s the revenue streams of
DSO’s driven by volumetric network tariffs.

The Electricity Directive (Union, 2019) makes provision for DSO’s to refuse new grid
access if it has insufficient capacity to host additional energy consumers. The latter leave
potential new energy consumers with the only option of investing in privately owned en-
ergy production resources to serve their own intermediate needs.

As pointed out in Union (2019), European member states may decide to grand lo-
cal citizen energy communities (local energy communities that produce and self-consume
their energy) the right to manage local distribution networks in the area of operation.
DSO’s may face the threat of losing potential future customers due to the lack of neces-
sary grid upgrades and investments needed to increase grid capacity to host additional
energy demand. Such additional load may be caused by the rapid deployment of charging

59
points installed for the large scale electrification of the transport industry (i.e., Electrical
Vehicles (EV)’s).

In Europe, efficiency benchmarking is increasingly applied to formulate regulatory

schemes used to incentivize DSO’s. The latter involves assessing the cost efficiency of in-
dividual DSO’s2 which is compared against other DSO’s to define justified levels of oper-
ating costs. DSO’s are compensated for opportunity cost of capital through the Weighted
Average Cost of Capital (WACC). The exposure to fluctuating inflation implies DSO’s
are increasingly exposed to increased levels of cost of capital due to increasing interest
rates. This may hinder their ability to invest in network assets and grid modernization
which may contribute to increasing costs associated with operation and maintenance.
This inevitably will lead to poor performance on efficiency benchmarking.

2
DSO costs accrued for regular maintenance and operation (OPEX) needed to deliver certain services

60
 PRIMO-F dimensions
SWOT Dimensions People Resources Innovation Marketing Operations Scalability
Strengths
ˆ well established ˆ have an efficient ˆ DSO’s promote the ˆ being the backbone to ˆ nearly 50% DSO ˆ solar-power has the
processes and procedures organizational structure participation of energy the energy transition, surveyed has 90% smart ability of scalability can
with strong experience for maintenance and end-consumers by smart DSO’s can formulate a metering deployed can be integrated
in managing and operation, with metering strong value proposition ˆ 32% of DSO’s use DR, efficiently on the
operating a energy from governmental and ˆ DSO’s largest key and branding strategy, DRM, DSF primarily to distribution level via
a centralized perspective regional suppliers, that investors in technology promoting green energy alleviate constrained active prosumers
is the backbone of the to increase operational via their distributed networks
green energy transition flexibility through customer base
enhanced monitoring
and control

Weaknesses
ˆ historical success and ˆ one third of EU grids ˆ lack the organizational ˆ historically a grid centric ˆ distribution is currently ˆ distribution of energy
natural monopoly of already 40 years old and capabilities and perspective with no operated from a from a centralized
DSO’s has created a will reach 50% in 2030 resources to drive incentives to orientate centralized perspective perspective is not
strong organizational ˆ high initial capital costs research and marketing incentives and will increasingly scalable w.r.t
culture which may cause for upgrading the grid development with main towards a user-centric become distributed maintenance and
cognitive dissonance and not sustainable for focus on maintenance market ˆ distributions grids over operation given RES
ˆ recruiting and retaining the rate of RES and operation sized for capacity and integration and active
specialized talent may penetration ˆ constrain the roll-out of not focussed on prosumers
be challenging small-scale DER efficiency ˆ network reinforcement
ˆ training and installations (i.e., ˆ distribution grids sized not scalable for
development costs can rooftop solar panels) due and reinforced based for peak-loads caused by
be high to unattractive grid peak-load demands uncoordinated EV
tariffs and grid capacity ˆ 57% of DSO’s affirms no charging or PV
constraints DR, DSM, DSF are in integration
operation

Table 4.1: A SWOT analysis (strengths and weaknesses) reviewed against the adapted PRIMO-F framework (assess scalability instead of finance)

SWOT Dimensions Political
Opportunities
ˆ aggregated energy
management facilitators
can help procuring
flexibility
ˆ smart homes could
full-fill large part of
flexibility needs
PESTEL dimensions
Economic Social Technological Environmental Legal
ˆ can deter grid expansion ˆ procure flexibility from ˆ improve energy efficiency ˆ could promote the ˆ energy efficiency
by utilizing demand active prosumers by improved monitoring; circular economy by directive incentivize
response and incentivize ˆ create green job smart metering provide means of energy demand response
flexible consumption opportunities during rich data for monitoring efficiency programs from
digitalization efforts ˆ could combine distributed co-generation
which have a strong agricultural land with
correlation with circular solar farms where the
economic practices former can protect crops
ˆ reduce the footprint of
large scale RES projects
by activating small-scale
DER’s of active
prosumers

Threats
ˆ large scale mandatory ˆ efficiency benchmarking ˆ promoting active
PV rollout for all new may be detrimental to
residential units by 2029 smaller DSO’s ability to
ˆ unsustainable increase revenue
procurement of ˆ the transition from
flexibility may threaten CAPEX to TOPEX ˆ low-income households
regional electricity regulatory mechanisms,
security in aim of promoting
ˆ uncertainty in policy and objective value as
redistribution of costs perceived by customers
and benefits in context ˆ grid investments have
of RES integration stagnated and
ˆ regulatory incentives a insufficient for future
barrier to procure grid needs
flexibility from ˆ promoting
residential sector self-consumption of
prosumers may reduce
revenues driven by
traditional volumetric
tariffs
ˆ cost-benefit analysis ˆ potential conflict can ˆ distributed RES uptake
prosumers increase challenge sustainability arise from using land for threatens the QOS
complexity of grid for small DSO’s commissioning large ˆ energy efficiency
operation and ˆ EV and PV penetration green field renewable directive may threaten
maintenance cause over/under voltage projects (wind and solar smaller DSO’s by means
issues farms). of regulatory tariffs
spend more of their ˆ smart metering and
income on energy with digitization cause GDPA
less resources available concerns
for investment in energy ˆ lack of interoperability
efficiency measures. and uniformity of
Green initiatives can standards and IT
aggravate wealth solutions threaten
disparity among EU adoption of smart
citizens. solutions needed for
energy coordination
ˆ insufficient SAIDI and
SAIFI metrics on
network monitoring

Table 4.2: A SWOT analysis (opportunities and threats) reviewed against the PESTEL framework
Chapter 5

A Qualitative Assessment

The quantitative environmental analysis, concluded in Chapter 4, revealed several cate-

gories of interest in the context of the green energy transition, and implications thereof
on Distributed System Operators (DSO)’s.

For this part of the research, we have identified seven experts with various professional
backgrounds, listed in Table A.1. Each expert was selected based on his/her tenure record,
area of expertise and industry in aim of defining an expert panel that can contribute with
a wide range of opinions.

Based on the experts’ background, area of expertise and interest shown during the
initial email correspondence; three questions were formulated drawing inspiration from the
conclusions made in Chapter 4. Since the interviews progressed in an iterative manner; we
have refined the respective questions with inputs obtained from those interviewed prior.
The conducted interview questions with an executive summary on the discussion that
followed is provided in Appendix A.

5.1 Discussion on Emerged Themes

Seven experts have been interviewed using the Delphi method. Using the respective re-
sponses, we have applied thematic analysis in aim of identifying emerging thematic areas.
To such an extent, we have managed to identify six areas. These thematic areas consist of
several concepts which has been mapped on the Cynefin framework (Kurtz and Snowden,
2003), as illustrated by Figure 5.1, which assist with casting the respective themes, with
their underlying concepts, in appropriate relation to each other. The emerged themes
with their respective concepts, and placement within the Cynefin framework in Figure
5.1, will be discussed next in reference to Figure 2.2.
5.1.1 Technology and Innovation
Innovation from a user centric perspective strongly support and depend on smart meter
roll-out policies.

There is a strong consensus among those participants who support data-driven solu-
tions for the energy sector that policies, which promote further smart-meter roll out, is
the preferred vehicle that aught to be used for sustainable investments in research and de-
velopment. Their arguments, in support of this strategy, underlines the relevance of core
elements in EU policies that targets competitiveness and environmental sustainability of
energy markets (Meletiou et al., 2023). This type of innovation resolves around energy
end-consumers and how to enable them to become active participants in the green energy
transition. The latter is of primary concern when consulting objectives stipulated in the
Clean Energy for all Europeans Package (CEP) (EU Commission, 2019) which advocates
for the prominence and centrality of energy consumers in all EU policies. The policy of
smart-meter roll-out is enthusiastically supported by DSO with 95% of those that have
participated in the survey of Meletiou et al. (2023) have started with implementing a
smart-meter roll-out program. From an organizational perspective, the roll-out and man-
agement of smart-meters is associated with a complex en-devour that necessitate taking
into concern data management concerns that is compliant with General Data Protection
Regulation (GDPR). Apart from the latter, managing large quantities of data that is
streamed from distributed energy resources implies DSO’s need to heavily invest in IT
infrastructure and resources.

Standardization can help achieving scale and reduce uncertainty.

There is a strong consensus among the participants that the energy sector drastically
needs to converge on some uniform standards and interoperability. Currently the energy
sector is proliferated with numerous solutions, operational philosophies and distributed
energy resources (DER)’s all operating on various standards and communication pro-
tocols. The latter implies it becomes increasingly complex for DSO’s to navigate and
combine services and products from various energy retailers that can procure flexibility
from aggregated resources. Inevitably, this implies the active participation of energy end-
consumers is delayed and the potential unlocking of social welfare benefits associated with
the green energy transition is diminished. It has been concluded that standardization and
interoperability will lead to leveraging dormant flexibility of DER’s at scale which will
consequently enable DSO’s to procure sought after auxiliary services in support of local
distribution grid infrastructure. What makes this complex from an organizational per-
spective is that resolving standardization and interoperability challenges would require

64
a close collaboration and knowledge sharing between DSO’s and industrial technology
providers where the latter actors are primarily driving innovation. The EU commission is
committed to driving innovation and research in the energy sector where the commission
has allocated almost EUR 100 billion under the Horizon Europe research initiative (EU
Commission, 2019). It remains however a complex en-devour how DSO’s could tap into
this funding opportunity to drive standardization and interoperability in collaboration
with industry.

Dynamic operational envelopes support to integrate RES. Need strong smart meter
roll-out policies.

It has been argued that dynamic operational envelopes (DOE) will become the pri-
mary tool for managing a rapidly evolving energy system. DOE’s will allow DSO’s to
use the distribution grid infrastructure most efficiently and manage network congestion
caused by the integration of renewable energy resources (RES)’s. The implementation of
DOE’s, however, diverge significantly from traditional energy markets and its operation.
From an organizational perspective this complex en-devour nears the domain of disorder
in the Cynefin framework in the sense that relevant governance and regulatory frameworks
need to be in place to support this transition. In addition, it remains a complex task for
DSO’s how to apply DOE’s in a way that maximize energy end-consumer benefits in a
transparent manner. The success of DOE’s, to a large extend, depends also on having a
strong smart-meter roll-out policy with very high levels of penetration and rich data mea-
surements. The latter may be a point of contention for most DSO’s, if driven internally,
since to achieve it would require significant IT resources which in the current market is
very scarce and expensive.

Innovation driven from a consumer centric perspective key to drive change in green
energy transition.

The Clean Energy for all Europeans Package (CEP) (EU Commission, 2019) has put
the energy end-consumer at the center of EU policies concerned with the clean energy
transition. The proliferation and disruption of various technological solutions driven by in-
dustrial technology providers, in response to the green energy transition, create a chaotic
environment for DSO’s to operate in. These technological solutions could potentially
ameliorate many challenges of DSO’s concerned with grid infrastructure management
and operation, but at the same time derail traditional operational procedures and pose
severe challenges to be overcome. A strong sense of orientation needs to be established
here by transformational leadership that can embrace the technological disruption, driven
from a consumer-centric perspective, and leverage it to the benefit of DSO’s. This theme

65
is consider chaotic as it is driven by disruptive technological trends that evolves along
lines of very complex user behavior that in itself can be irrational at times.

Standardization and interoperability is a barrier to affordable access to markets from

small-scale prosumers.

It has been argued that the lack of standardization and interoperability is a major
barrier for incentivizing energy end-consumers to become active participants in the green
energy transition. The lack of standardization and interoperability implies that the mar-
ket access cost are exorbitantly expensive for small-scale DER owners. These costs, when
combined with the bureaucracy of integrating and levering DER’s in support of local grid
infrastructure, de-incentivize small-scale DER owners from leveraging their flexibility at
scale to resolve pertinent challenges associated with the energy transition. From an orga-
nizational perspective, this theme is considered chaotic due to the symbiotic relationship
that exists between small-scale DER’s, at scale, and standardization and interoperability.
The interdependence creates a grid-lock situation and can only be resolved with strong
transformational leadership that prioritize the incentivization of small-scale DER’s in
aim of foremost reducing energy market access costs. In parallel to the incentivization
of small-scale DER’s, DSO’s need to collaborate with industry to resolve standardization
and interoperability challenges in a timely and cost-effective manner such that small-scale
DER’s can be integrated and utilized at scale.

Innovation from a grid/infrastructure centric perspective focuses primarily on a digital

twin for EU electricity network.

There is strong advocacy for the development of a digital twin of EU grid infras-
tructure. Motivation for this is observed from the letter of intent signed between the
EU commission and DSO entity (EU Commision, 2022b), and those participants with a
strong DSO’s relation. It’s not surprising that strong advocates for this theme is highly
biased towards the traditional status-quo of how DSO’s manage and operate existing grid
infrastructure whereas strong opposition is driven primarily by proponents of consumer
centric solutions. It has been concluded that neither a pure digital twin (model based)
solution, nor a pure smart-meter roll-out policy, should be the de-facto solution. Instead,
organizational capabilities needs to transitioned from a knowable domain (concerned with
grid infrastructure and modeling) towards a more chaotic domain that entail energy end-
consumers with related innovation, who are seen as the key in resolving challenges that
will emerge during the energy transition. This theme is a classical example where DSO’s,
as an organization, need to embrace limited levels of chaos in aim of evolving in a sus-
tainable manner. This will necessitate breaking away from the known procedures and

66
mindsets and may imply initial resistance.

5.1.2 Political and Environmental

Political and environmental pressure to integrate more distributed renewable energy
resources.

It is widely accepted that the low voltage distribution network managed by DSO’s is
the primary means by which distributed renewable energy resources (RES)’s can be inte-
grated into the energy sector (Meletiou et al., 2023). In addition to this, there is a strong
political will, globally, to reduce carbon emissions by promoting an increased rate uptake
of renewable green energy technologies. Pressure from both political and environmental
proponents that incentivize an increased rate of innovation within the clean energy sector
implies that DSO’s need to operate and manage a grid infrastructure that is more subject
to the intermittency and chaotic nature of wind and sun which are the primary drivers for
solar and wind energy generation sources. DSO’s are entering unchartered waters where
existing grid infrastructure should be utilized in a way contrary to its original design pur-
poses. It has been concluded from the discussion with the participants that for DSO’s to
transition from a chaotic to a complex domain for this theme, it necessitates that DSO’s
foremost need to adopt a user-centric strategy opposed to the historical infrastructure
centric strategy. In the former strategy, DSO’s can start ameliorating some of the chaotic
challenges indirectly caused by political and environmental lobbying and subsequently
start focusing on the complex, but manageable, challenges of user-centric strategies.

5.1.3 Corporate governance and Culture

Data driven smart meter solutions introduce governance issues and data security
overhead.

Despite a strong consensus among DSO’s to support policies for smart meter roll-out
(Meletiou et al., 2023), smart-meters are predominantly used by DSO’s for billing purposes
and the data is not available in the public domain which prevent innovation. A primary
concern is the complex nature of managing the large quantity of personal data of en-
ergy end-consumers while not infringing on General Data Protection Regulation (GDPR)
rights. Some solutions exist, such as Elhub (Elhub, 2023) in Norway, which expose data
for market actors, however, participants in the Delphi study have noted that the quality
and resolution of the provided data is a fraction of the data one should be able to access
on the smart-meters. Instead, what one is observing is that the market is proliferated
with technology providers, who through innovative digital solutions, gain access to smart
meter data via their own hardware. To some extent, the later ameliorate the governance

67
and data security issues of DSO’s however in the aftermath create secondary complex
problems which again should be resolved by DSO’s. In context of the Cynefin framework,
DSO’s are promoting policies without taking ownership or leveraging the full potential of
these policies due to the complex nature of managing it.

Political landscape, concerned with environmental impact, changes very fast. Reactive
response from DSO’s and regulators contribute towards energy poverty.

Pressure from both politicians and environmentalists, in context of global warming,

has led to an increase in shifting away from fossil fuels and faster transition towards renew-
able energy sources. This increased pace of transition implies that the traditional means of
operating and managing the distribution grid is challenged and cause unanticipated prob-
lems. It has been observed and agreed among the participants that DSO’s, in general,
adopts an reactive approach in solving emerging challenges. One example is the introduc-
tion of tiered grid tariffs in Norway (NVE, 2023) which places customers in different price
brackets (tariffs) based on their highest historical three hour average consumption. This
has lead to an outcry from public where they are of opinion they are unfairly penalized
even when there is sufficient capacity in the distribution grid. Another example from the
participants is the case where the integration of roof top solar panels with subsequent
production are curtailed in aim of not exporting energy into the grid which exceeds local
capacity constraints. Also in this case, there was discontent from the public who stated
the enforced measures reduces the return of investment for installing and utilizing the full
capacity of their roof top solar panels. From an organizational perspective, this theme
is an exploratory phase and need to be managed with strong transformational leadership
that can regain orientation as soon as possible. Tentative solutions that emerge form the
chaotic domain creates complex repercussions and one can anticipate DSO’s may move
from the complex domain back towards the chaotic domain in the Cynefin framework,
based on the proposed solutions. Solutions that are inadequate often contribute towards
energy poverty which is counterproductive to the prerogatives as stipulated in the Energy
Union Strategy (Commission, 2015a).

Accountability and responsibility calls for a balance between energy efficiency and quality
and regional energy security.

The responsibilities of DSO’s, in general, has always been well defined in terms of oper-
ating and managing the distribution grid infrastructure in such a way to ensure long term
security of energy supply with a certain quality, as stipulated by the regulatory authori-
ties. The ongoing emergence of new policies during the green energy transition blurs the
boundary of responsibility that DSO’s need to accommodate and outsource to third par-

68
ties. One of the main challenges from an organizational perspective is transitioning from
a infrastructure centric to a customer centric perspective, and from the latter, rediscover
and redefine their accountability and responsibilities. Within the Cynefin framework,
DSO’s finds themselves in chaotic exploratory phase where transformational leadership is
required to establish orientation. To increase the effectiveness of transformational lead-
ership, in context of transitioning towards a customer centric perspective, it has been
suggested that increasing the beneficiary contact may improve the quality of transforma-
tional leadership (Grant, 2012). In this regard, increasing beneficiary contact implies that
DSO’s need to orientate themselves more directly towards energy end-consumers and start
promoting business strategies that contributes towards tangible value as perceived from
a customers perspective. Fulfilling this mandate will also strengthen DSO’s position in
terms of transitioning to new regulatory mechanisms that incorporate total expenditure
(TOPEX) which include OPEX (Baker, 2020).

Corporate cultural shift from grid/infrastructure centric to end-consumer centric.

Energy end-consumers, in the context of the Clean Energy for all Europeans Package
(CEP) (EU Commission, 2019), will increasingly play a pivotal role in the green energy
transition. In the wake of 2022 geopolitical developments, DSO’s are considered as the
real backbone of the energy transition where they hold the key to unlock and integrate
70% of installed renewable energy resource capacity in the grid (Meletiou et al., 2023).
From these conclusions, it is natural to inferr that DSO’s need to transition from a grid
centric perspective towards a customer centric outlook. What remains a complex task (in
the Cynefin framework) is in defining such a transition. Most participants are of opinion
that customer facing roles will increasingly fall on the shoulders of third party technology
providers and energy retailers who faces energy end-consumers directly. A challenge with
this approach (in context of the previous emerged theme) is that of reduced, or indirect,
beneficiary contact, which will diminish the effectiveness of transformational leadership
in setting orientation. It is perceived among the participants that the reduced beneficiary
contact, due to reduced affect of beneficiary contact may imply DSO’s harboring close
to disorder in the Cynefin framework. To reduce the emergence of disorder during this
complex transition, it has been suggested that DSO’s take on the role of some of the func-
tions, primarily associated with third party technology providers and energy retailers, in
aim of fostering a customer centric culture that promotes beneficiary contact.

Agile strategic partnerships required for responding fast to grid demands and technology
disruption.

It has been argued by the participants, innovation will be initiated from a bottom-up

69
approach driven by consumer behavior and technological trends. This innovation will
resolve around massive deployment of distributed energy resources (DER)’s and be con-
cerned with activating and leveraging of dormant flexibility for some monetary benefit.
Flexibility can, among other, be leveraged from these assets to support grid operation,
however, according to the EU Directive Union (2019), DSO’s are not allowed to own, nor
operate any DER’s which implies their dependence on third party technology providers to
do this on their behalf. What makes this chaotic to manage, from a DSO’s perspective, is
foremost the interaction with various third party technology providers and coordination
among them, when DSO’s desire to procure various auxiliary services from them. This
theme is considered chaotic as long as DSO’s doesn’t have a central actor or strategic
partner who can interact with various third party technology providers and coordinate
interaction among them.

Innovation initiatives resolves around domain strengths and not pursuing the most
promising investments.

DSO’s have processes and procedures in place to operate and manage the grid most
efficiently based on a historical narrative which dictates that energy always flow in one
direction from some central production facility. Even though the landscape is chang-
ing rapidly, it has been observed via the panel discussion; DSO’s harbor in the known
knowledge domain, anchored on historical successes. This mindset is also applied dur-
ing innovation where the participants states that DSO’s will first or foremost default
new research and innovation activities to promote a continuation on a path that validate
previous operational narratives. Even though DSO’s admit the need to evolve the meth-
ods of operation and thinking, the most common response to actual change is the lack
of resources to managed just basic tasks of operation and maintenance. In addition to
this, their conservative nature implies any disruptive innovation pushed from industry is
most often rejected or misunderstood. In the Cynefin framework, this is a clear example
where DSO’s are strongly averse to approach the edge-of-chaos as this may destroy safe
ideologies and assumptions. A large culprit to this can be narrow-minded transactional
leadership styles who, in the known domain, is primarily focused on efficiency and opti-
mizing existing processes. Currently, it has been observed that DSO’s are willing to move
over the shallow river towards the knowable domain (see Figure 2.2) in their attempt to
embrace changes inflicted on them due to the green transition, however, avoid chaos at
any cost.

Need to develop new organizational capabilities to support the green transition.

One strong theme that emerged from the participants is that DSO’s need to acquire

70
new capabilities to manage change in the energy transition. Some argued that some minor
DSO’s will need to merge in aim of justifying procuring such resources where other has
motivated acquiring such capabilities via third party technology providers. Within the
Cynefin framework, this challenge of change, that necessitates acquiring new capabilities,
can be resolved by applying a reductionist approach, hence this theme residing within the
knowable domain. Strategies adopted by DSO’s strongly support spinning out indepen-
dent organizations from the existing ones (see Aneo (Aneo, 2023) as an example who spun
out of TrønderEnergi). The challenge here is to develop new processes and values and
not default towards very strong cultural biases of the parent company (Christensen and
Overdorf, 2000) which will reduce the competitive advantage offered by new resources.

5.1.4 Legislation
Legislation incentivize creating of financial mechanisms to support small-scale prosumers
and innovation.

The participants reason that legislation need to be further adapted to support the
emerging role of small-scale distributed asset resource (DER) assets and create financial
mechanisms that drive innovation. Financial mechanisms in support of this should also
be utilized to ameliorate the problem of energy poverty where every EU energy consumer
should be able to participate in the energy transition. It is argued that as for independent
power producers (IPP), (such as wind turbine original equipment manufacturers (OEM))
have been incentivized to develop and deploy green technology; so must small-scale DER
owners be incentivized. One such a program that has seen wide support in Norway is
the Enova (2023) support package which provide support up to NOK 32500 per customer
for the installation of new solar roof-tops. The large EV penetration in Norway is also
due to similar incentives (tax rebates) offered to owners in supporting initiatives of the
green transition. This theme is seen to fall within the knowable domain of the Cynefin
framework and can be resolved via a reductionist approach. Structured incentives could
be used to mature complex challenges by developing new processes and procedures in
mitigating emerging issues.

5.1.5 Regulatory bodies

Regulatory focus need to shift from large independent power producers to small-scale
prosumers and is barrier for DSO embracing change.

It has been argued by the participants that a major barrier in existing legislation is the
fact that most regulations are in support of large independent power producers (IPP).
Implications are that small-scale distributed energy resource (DER) owners are disin-

71
franchised from becoming active participants in the green energy transition. From an
organizational perspective, this theme is classified as complex / knowable in the Cynefin
framework. Applying a reductionist approach, DSO’s should leverage knowledge obtained
from integrating IPP and aim at generalizing this to small scale prosumers. What remains
a challenge, however, is the fact that DSO responds to regulatory initiatives in a reactive
manner and is not so much concerned with forming new regulation policies. This theme
therefore has an element of complexity to it where DSO’s aught to engage with regulatory
bodies in a collaborate manner in aim of formulating regulation that will incentivize DSO’s
sufficiently in aim of meeting the EU targets that has the energy end-consumer at its core.

Regulatory mechanisms are key to initiate change in the green energy transition.

Through the panel discussion, it has become apparent how change in DSO’s can, in
principle, be initiated by appropriate regulatory mechanisms. A major obstacle for DSO’s
are how to navigate and interpret these regulatory mechanisms in way that is sustainable
for current business models. It has been noted how the change in regulatory models can
fundamentally challenge how revenue streams are generated for DSO’s which can jeopar-
dize future sustainability if not managed appropriately. In this case DSO’s that operate
in a knowable area of the Cynefin framework resides in close proximity to disorder, and it
is anticipate that small changes in regulatory mechanisms can abruptly transition DSO’s
into a domain of chaos. On the other hand, it has been observed that appropriate reg-
ulatory mechanisms can support the adoption of new disruptive innovation, driven from
a energy end-consumer, bottom-up perspective, which inevitably support and ensure the
sustainability of DSO’s operational longevity. In the latter, DSO’s can transition from a
known to a knowable area within the Cynefin framework.

Regulation mechanisms calls for more efficient energy management with quality and
value centered towards energy end-customer.

The distribution grid has been designed for accommodating peak load’s. Monitoring
these peak loads are the means by which DSO’s can signal forthcoming grid reinforcements
and motivate for new investments. New regulatory mechanisms will challenge is business
model where it will require that the electrical grid need to be operated in a more efficient
manner. That is, new regulatory mechanisms will necessitate higher utilization rates of
existing grid capacity and reduce cost recovery mechanisms for new grid infrastructure.
The latter will require a fundamental shift in how to operate and manage the grid and
will push DSO’s into a chaotic region of operation. In the Cynefin framework, this theme
resides deep within the known area which is anchored there due to a strong organizational
culture and established processes and procedures. It has been noted that change in this

72
regard will be most challenging as it will require a new vision that necessitate long time
committed efforts towards a direction that will expose the business to increasing levels of
chaos.

5.1.6 Education
Education of DSO’s in how to communicate grid support auxiliary needs in a fair and
transparent manner.

From the EU Directive Union (2019), it has been emphatically stated that DSO’s
cannot own or operate any energy storage or production facilities to be used for grid
operational and management tasks. It follows that DSO’s need to procure such services
from third party partners. It has been highlighted in the panel discussions that DSO’s
need to be educated in how to communicate their needs in a timely and transparent man-
ner such that the applicable industrial partners can bid on required services. This theme
also resides with the need that DSO’s have to transition from a grid-centric perspective
towards a consumer-centric perspective (and in this case strategic partner). This theme
of education of DSO’s reside in the complex domain of the Cynefin framework since it
challenges the ideological outlook of DSO’s. Where DSO’s have historically resolved in-
ternal grid-centric challenges from within, they now need to learn a new cultural language
of formulating and expressing their needs in a way that is transparent and attractive for
external partners to respond on.

Education of end-consumers to promote transparency on energy usage and impact of

incentives.

The Clean Energy for all Europeans Package (CEP) (EU Commission, 2019) empha-
sizes the centrality of energy end-consumers in the green energy transition. The afore-
mentioned are the largest beneficiaries of adopted legislation and will also be penalized
most severely when exposed to intermittent and volatile energy prices which can lead to
large scale energy poverty. This theme resides in the knowable domain of the Cynefin
framework and change should be approached from a reductionist approach where DSO’s
educate and communicate on energy hygiene. To some extent, the education of energy
end-consumers is implicitly mandated by EU legislation which calls for transparent and
easy to understand invoicing of electrical usage. In addition to this, consumers should
be educated on how they can become participants of then green energy transition and
benefit from this. This onus of educating the energy consumer, fortunately, not only falls
on DSO’s alone, but should also be shouldered by their strategic partners who aggregate
small-scale DER’s at scale. This theme also resonates with that of responsibility and
accountability. It has been noted that DSO’s do not want to take on the responsibility of

73
advising the public on complex subscription tariffs, even when such promotes increased
social welfare and can support many regulatory mechanisms enforced on DSO’s. Adopt-
ing a more customer-centric perspective, the pedagogical component should become more
palatable and natural for DSO’s.

74
75

Figure 5.1: Emergence of themes ordered within the Cynefin framework

Chapter 6

Conclusion

Efforts to curb the emerging crisis of climate change depend to a large extent on the
effective decarbonization of the energy sector, which entails significant efforts in electrifi-
cation. Electrification of the energy sector implies transitioning away from processes and
technologies heavily dependent on fossil fuels towards their green energy equivalents. The
former is also more formally associated with the green energy transition.

In the energy sector, two stakeholders have emerged as key contributors to promoting
initiatives concerning the green energy transition. The first key party is the distributed
system operators (DSO)’s who are widely perceived as the backbone of the green energy
transition (Meletiou et al., 2023). Their primary responsibility lies in distributing energy
to end-consumers, and increasingly, they facilitate the integration of distributed renew-
able energy resources (RES). The other key party is the energy end-consumers’, who,
through disruptions in technological breakthroughs and innovation in the energy sector,
have subsequently become active participants in the green energy transition. These energy
consumers become active participants (or prosumers when they consume and produce)
by leveraging their owned distributed energy resources (DER)’s such as battery storage
units, heat pumps, electric vehicles, and rooftop solar panels. This allows them to exploit
energy prices when low and provide auxiliary services to the grid for compensation when
prices are high. It has been argued that the integration of small-scale DER’s of energy
end-consumers will significantly contribute to the decentralization of the energy sector
(Cooper, 2023), subsequently promoting the green energy transition.

DSO’s have historically distributed energy to passive rate-paying energy consumers.

However, consumers can now produce their own energy locally, supply surplus production
to the distribution grid, or store it locally for use when energy prices are high. This
shift in behavioral consumption patterns among energy consumers is becoming increas-
ingly pervasive in the energy sector, due to strong support and incentives from the EU

76
Commission in terms of supporting legislation and regulation. Consequently, DSO’s are
facing formidable challenges where their historical means of operating and managing the
distribution grid are disrupted.

This thesis investigated the sources of disruption that DSO’s will need to adapt to if
they are to survive the changing environmental landscape. The first prominent conclu-
sion emphasized the need for DSO’s to transition their vision and mission from a grid
infrastructure-centric perspective towards a more energy end-consumer-centric perspec-
tive. From a PESTEL analysis outlined in Table 4.2, it has become apparent that most
disruption revolves around energy end-consumers. Whether it is technological disruption,
leveraged by consumers to lower their energy costs, or environmental and political lobbying
proposing initiatives with the consumer at the center of policy formulation, it is clear that
managing the energy resources of consumers is of primary concern for DSO’s operational
and energy management prerogatives. In light of external and internal environmental
factors, the historical success of DSO’s in operating and managing energy has left them
with distinct strengths but also certain weaknesses. The latter needs to be addressed sys-
tematically if DSO’s want to overcome potential threats and utilize opportunities offered
by a strong growth of prosumers, as outlined in the SWOT analysis discussed in Table 4.2.

Through an expert panel discussion using the Delphi method, thematic analysis has re-
vealed several emerging themes that DSO’s should contemplate when commencing change
initiatives, as discussed in Section 5.1. One interesting theme that emerged among the
participants was that of education. This education theme concerns both DSO’s and en-
ergy end-consumers and can be summarized as the pedagogical training needed for DSO’s
to fully embrace an end-consumer-centric vision and mission. The Cynefin framework,
illustrated in Figure 5.1, concludes this thesis with a thematic map of emerging themes
and their relation to each other. This framework can be used as a starting point to con-
sider those themes and how to incorporate them into change initiatives.

This thesis has provided an initial ground analysis of factors that need to be considered
to address change in DSO’s. These factors have not individually been extensively covered,
but from the thematic analysis presented in the Cynefin framework in Figure 5.1, future
work could revisit environmental factors and conduct a more thorough analysis. The
Delphi method, although providing extremely insightful discussions, should be conducted
with a slightly larger panel of experts over a longer period of time. It was concluded that
seven participants gave good and rich views on various important points and was sufficient
to identify emerging themes and some form of consensus. The quality of these results,
however, can dramatically be improved with a larger cohort and subsequent follow-up
sessions. Last, but not least, as Michelle Obama quoted: ”Change happens one person

77
at a time”. Future work should focus on selecting one theme of concern and formulate a
change management strategy based on this. Of interest would be to determine if themes
can indeed evolve across boundaries in the Cynefin context and if this transition reflects
in adapting processes, procedures, and organizational culture.

78
Appendix A

Expert panel interview results

Participant Region Title Tenure Industry

1 Denmark, EU Principal 30 years Industrial IT
2 Austria, EU CTO 10 years Industrial IT
3 Sweden, EU Consultant 10 years Professional
4 Australia CEO 12 years Technology
5 Australia CTO 4 years Research
6 Norway Scientist 6 years Research
7 Belgium, EU Product Manager 5 years Industrial IT

Table A.1: Expert panel selected for Delphi interview rounds

A.1 Participant 1
Question 1: The EU commission has signed a letter of intent with DSO Entity to support
research and development initiatives concerned with the development of a digital twin of
the entire EU-electricity grid. The aim is to coordinate investments to foster the digitalisa-
tion of the energy system. In literature, it has however been argued that the relative small
amount of transmission network models implies manageable network inventories whereas
it is inconceivable to have similar inventories for the low voltage distribution networks
(Lucas, 2018). What is you assessment on the allocation of EU funding for supporting
such an initiative?

It’s clear that there is a growing interest in the digitalization of the electricity grid,
and the initiative to create a digital twin of the entire EU-electricity grid is a significant
step in that direction. The EU commission’s decision to sign a letter of intent with the
DSO Entity to support research and development in this area is a positive development.
This initiative has the potential to bring numerous benefits to the energy system and pave
the way for more efficient grid management, improved reliability, and better integration
of renewable energy sources. In terms of funding allocation, it’s crucial to ensure that the

79
investment is made wisely and efficiently. Developing a digital twin of such a complex and
extensive system will require substantial financial resources. Therefore, the allocation of
EU funding for this initiative should be carefully planned and monitored to ensure that it’s
used effectively. It’s essential to have clear objectives and performance indicators to mea-
sure the impact of the investment and to ensure that the desired outcomes are achieved.
Additionally, collaboration between different stakeholders, including DSOs, TSOs, tech-
nology providers, and regulatory bodies, will be key to the success of this initiative. It’s
a significant undertaking that requires a coordinated effort among various players in the
energy sector. Proper governance and cooperation will help in ensuring that the digital
twin project reaches its full potential. It’s also important to take into account the dif-
ferences between transmission and distribution networks, as mentioned in the literature.
While creating a digital twin for transmission networks may be manageable due to their
relatively smaller size, the same approach may not be feasible for low voltage distribution
networks, which are more extensive and diverse. Therefore, the funding allocation should
consider these distinctions and prioritize areas where the impact will be most significant.
In conclusion, the allocation of EU funding for the development of a digital twin of the
EU-electricity grid is a positive step, but it should be accompanied by effective planning,
monitoring, and collaboration among stakeholders to ensure its success. The allocation of
resources should be strategic and consider the unique challenges posed by different parts
of the grid, particularly the low voltage distribution networks.

Question 2: The EU utilize 2400 distribution system operators (DSO)’s to redis-

tribute 2700 TWh electricity to almost 260 million customers, operating and managing
nearly 10 million km of power lines (Lucas, 2018). It has been argued that smaller DSO’s
business viability are threatened. It is anticipated that some form of consolidation or merg-
ing of DSO’s are required due to lack of resources in support of ongoing and disruptive
digitization efforts in the energy sector. Is the latter inevitable, or could you seen potential
third parties such as technology providers and energy retailers provide services for critical
functional segments of the DSO’s?

The future of Distribution System Operators (DSOs) in the rapidly evolving energy
landscape is a complex and multifaceted issue, influenced by factors such as scale, re-
sources, and the role of third-party providers. In Europe, the energy sector faces signif-
icant changes with the drive towards digitization, including the development of digital
twins and data-driven operations. These initiatives are resource-intensive and require
substantial expertise, making larger DSOs better positioned to invest in and manage such
digital projects due to their scale and financial capabilities. However, smaller DSOs may
find it challenging to keep pace with the fast-changing energy landscape. They often lack
the financial resources and technical expertise required for implementing and maintaining

80
digital solutions, putting their long-term viability at risk. As the energy sector becomes
more digitized, the need for advanced data analytics, predictive modeling, and real-time
monitoring becomes increasingly vital. Smaller DSOs may struggle to access and afford
these critical capabilities, leading to concerns about their competitiveness and sustain-
ability in a rapidly changing environment. To address these challenges, smaller DSOs
are exploring various options. One potential avenue is seeking partnerships or services
from third-party providers. Technology companies and energy retailers are well-placed to
offer essential components of DSO operations, such as data management and advanced
analytics. These partnerships could help smaller DSOs access the digital capabilities they
need without the burden of developing and maintaining these capabilities in-house. Ulti-
mately, the future of DSOs and the role of third-party providers will depend on the ability
of smaller DSOs to adapt and leverage digital solutions to meet the evolving needs of the
energy sector. Collaboration, both among DSOs and with third-party providers, may
be a key strategy to navigate this transition successfully. As Europe’s energy landscape
continues to evolve, balancing the interests of DSOs with the broader goal of serving en-
ergy consumers becomes increasingly critical. While the digitization of the energy sector
offers opportunities for more efficient and sustainable energy management, it also raises
questions about data security, consumer privacy, and the role of DSOs in ensuring a re-
liable and flexible energy supply. These issues highlight the need for careful regulation
and a coordinated approach to shaping the future of the energy sector, where consumers
are at the center of the transformation. In conclusion, the digital transformation of the
energy sector presents both challenges and opportunities for DSOs. Larger DSOs are
better positioned to invest in and manage digital initiatives, while smaller DSOs may
need to explore partnerships with third-party providers to access essential capabilities.
Collaboration, regulation, and a consumer-centric approach will be essential in shaping
the future of DSOs in a rapidly changing energy landscape.

Question 3: Is has been argued that DSO’s are the backbone to the green energy
transition due to their inherent capability of integrating distributed renewable energy re-
sources (Meletiou et al., 2023). It has further more been stated that energy consumers
should be the center concern when decisions are taken at the Energy Union level (EU
Commission, 2019). Lastly, it is accepted that regulatory mechanisms are the primary
vehicle to drive innovation, crucial during the energy transition for sustainable quality of
service, cost efficiency and security of supply. Appropriate regulatory mechanisms, among
other, will enable DSO’s to develop or utilize market-based solutions to procure, schedule
and dispatch the necessary connected resources in order to manage the constraints and
maintain network security. To such an extent, it is argued that regulation need to shift
from input-based regulation focusing on investments (grid reinforcements) to output based
regulation which is performance or efficiency of cost and energy driven. Performance or

81
efficiency can be assessed in terms of value perceived from a customer centric perspective
which among other include customer service, quality of supply etc. Could you comment
on how you see regulatory mechanisms can be adapted to support both small and large
DSO’s alike?

Distribution System Operators (DSOs) are regarded as the linchpin of the green energy
transition due to their innate ability to facilitate the integration of distributed renewable
energy resources. Their role is pivotal in ensuring that renewable energy sources are ef-
fectively integrated into the grid, especially as the energy landscape becomes increasingly
decentralized. DSOs are also critical for maintaining network security, particularly as the
energy system becomes more complex and interconnected. An additional point of focus
is on the importance of prioritizing energy consumers. The Energy Union emphasizes
the centrality of consumers in decision-making processes. This is essential as the energy
transition requires a strong emphasis on delivering a high-quality service, cost efficiency,
and maintaining the security of energy supply. Consequently, consumers should have
access to options that not only reduce their energy expenses but also enhance the qual-
ity of their energy supply. Regulatory mechanisms are a key driver for innovation and
are instrumental in enabling DSOs to adapt to the changing energy landscape. A shift
from input-based regulation, which primarily concentrates on grid investments, to output-
based regulation has been proposed. The latter approach emphasizes performance and
cost efficiency. DSOs are encouraged to explore market-based solutions that enable them
to efficiently procure, schedule, and dispatch resources. This shift aligns with the goal
of enhancing the perceived value for consumers, which includes factors such as customer
service and the quality of energy supply. To support both small and large DSOs, regula-
tory mechanisms must adapt to these evolving dynamics. Regulations should incentivize
investments in digital technologies and promote efficiency while upholding quality and
security standards. Flexibility is recognized as a utility, and regulations should incen-
tivize consumers and DSOs based on grid status and the effective utilization of flexibility
resources. In conclusion, flexible and consumer-centric regulatory mechanisms are neces-
sary to support DSOs in their vital role during the green energy transition. As the energy
landscape continues to evolve, these regulatory changes will be pivotal in ensuring the ef-
ficient integration of renewable energy sources, cost-effective operations, and an improved
energy experience for consumers.

82
A.2 Participant 2
Question 1: The Clean Energy for All Europeans Energy Package places energy con-
sumers, particularly households, at the center of the Energy Union, allowing them to
actively engage in the clean energy transition (European Commission, 2019). A recent
survey conducted by ENTSOE indicated that small distributed energy resources (DERs)
might face obstacles when participating individually in existing energy and system services
markets due to technical pre-qualification requirements (Validzic, 2017). It is anticipated
that commercial aggregators and intermediary platforms could provide the means by which
DERs gain access to existing energy markets. With the potential role of commercial plat-
forms in enabling small-scale prosumers to participate in energy markets, I am interested
in hearing your perspective on how we can address energy poverty for those who lack ac-
cess to such commercial platforms and the resources required to fulfill the flexibility needs
these platforms seek to procure.

The discussion with our expert reveals valuable insights into the complex interplay
between DERs, energy markets, and social aspects. While the primary focus of commer-
cial platforms like the one discussed is on delivering technical solutions for optimizing
energy systems, the impact on social aspects, particularly energy poverty, is recognized
as a consequential outcome. The expert points out that flexibility, a key component of
DERs and energy systems, holds the potential to affect energy prices. By enhancing flexi-
bility in the system, it’s possible to reduce price fluctuations, which, in turn, can alleviate
energy poverty. The ability to shift consumption to align with pricing fluctuations can
benefit both the environment and consumers. However, the discussion also highlights the
challenge of integrating DERs at scale. While DERs offer benefits in terms of energy
efficiency and environmental impact, there is an underlying requirement for significant
investments in technologies like electric vehicles and home batteries to realize these ad-
vantages. This raises questions about who should bear these costs and how to bridge
the gap for those who cannot afford such investments. The conversation delves into the
concept of a threshold for energy use, where basic needs must be met before individuals
can consider energy efficiency and environmental concerns. This poses a dilemma in ad-
dressing energy poverty while encouraging energy efficiency.

Question 2: When aggregating small-scale DERs, it’s important to consider the bar-
riers within energy and system service markets. One notable challenge is the issue of
insufficient scale, which can result in proportionally high entry and transaction costs for
small-scale DERs. What barriers would you consider essential to overcome to increase
the market participation of small-scale DER’s?

83
 To enable the broader market participation of small-scale DERs, we must first tackle
the critical barriers that impede their integration. One essential barrier is regulatory and
market access. The current regulatory frameworks are often tailored to large, central-
ized energy systems, making it complex for small-scale DERs to navigate the regulatory
landscape. To foster their participation, regulations should be updated to provide more
straightforward guidelines for DER integration. This includes streamlining the permitting
process and ensuring fair compensation for DER owners. Furthermore, the lack of stan-
dardized communication protocols and interoperability is another key challenge. DERs
are diverse and come in various forms, from solar panels and wind turbines to electric
vehicles and energy storage systems. For these resources to work together efficiently, in-
dustry standards and communication protocols must be established to ensure seamless
integration into the energy grid. Interoperability between different DER types and man-
ufacturers can reduce costs and complexity while enhancing the overall reliability of the
grid. Data access and cybersecurity are also essential considerations. Small-scale DERs
can generate vast amounts of data, which, when properly harnessed, can optimize grid
operations. However, data access should be secure, and privacy concerns must be ad-
dressed. Adequate cybersecurity measures are crucial to protect against potential cyber
threats and data breaches, which could undermine the trust and integrity of the grid. Fi-
nancing options are a significant barrier that deserves attention. Many small-scale DER
projects face challenges in securing the necessary capital for installation and maintenance.
Establishing favorable financing mechanisms, such as low-interest loans, grants, or subsi-
dies, can incentivize investments in small-scale DERs. Financial incentives can lower the
upfront costs and provide attractive returns, making them a more appealing option for
consumers. Finally, public awareness and education play a crucial role. Many consumers
may not be aware of the benefits of small-scale DERs or may not fully understand how
they work. Robust public awareness campaigns and educational initiatives can help con-
sumers make informed decisions about adopting these technologies. Increased knowledge
about the advantages of DERs can stimulate demand and promote their broader integra-
tion.

Question 3: When aggregating DERs from household prosumers, participation incen-

tives can be weak due to the incremental nature of revenue streams, coupled with penalty
arrangements for non-delivery. Non-delivery, often influenced by uncertain human behav-
ior, adds to the existing uncertainty stemming from the intermittency of renewables. A
key question is whether, at scale, there will be enough DER density and capacity to pro-
vide significant value for bidding purposes. Additionally, will the momentary incentives
be sufficient to ensure a high return on investment for DER owners?

Participation incentives are often weakened due to the incremental nature of rev-

84
enue streams in DER aggregation projects. These small, sporadic gains may not offer
a compelling reason for prosumers to get involved. To tackle this issue, a fundamental
redesign of incentives is necessary, encompassing both financial and non-financial benefits.
This could include more attractive feed-in tariffs, performance-based payments, or non-
monetary rewards tied to sustainability and environmental responsibility. Additionally,
penalty arrangements for non-delivery in DER projects can act as a deterrent. Striking the
right balance between accountability and encouraging participation is essential. Penalties
should be structured fairly, ensuring they do not disproportionately burden small-scale
prosumers. The uncertainty brought about by human behavior and the intermittency of
renewable energy sources further complicates the landscape. Unpredictable behavioral
patterns and fluctuations in renewable energy production can disrupt expected outcomes.
To mitigate these uncertainties, robust forecasting models and adaptable systems must be
developed. One central question revolves around whether aggregating DERs at scale can
generate substantial value for energy markets. The effectiveness of momentary incentives
is another critical aspect—ensuring that the rewards offered are sufficient to drive a high
ROI for DER owners.

A.3 Participant 3
Question 1: Distributed System Operators (DSOs) are perceived as the backbone of the
clean energy transition (Meletiou et al., 2023). This is due to their inherent ability to
facilitate the large-scale integration of distributed energy resources. In a recent article
(Cooper, 2023), it has further been argued that the decentralization of energy resources
will lead to a shift towards small-scale renewable power sources close to where they are
consumed. However, it was pointed out in a recent survey by ENTSO-E that small-scale
DERs (Distributed Energy Resources) may be precluded from participating on an individ-
ual basis in existing energy and system services markets due to technical pre-qualification
requirements and unfavorable downside risks of non-delivery (Economics, 2021). It has
been argued that DSOs may be more concerned with the security of supply and the quality
of service; therefore, they may not be very enthusiastic about embracing the flexibility po-
tential offered by small-scale DERs. What are your thoughts on how DSOs could support
the decentralization of the energy system, and what, in your estimation, are the barriers
that need to be overcome?

DSO’s play a crucial role in the energy transition, aiming to integrate distributed en-
ergy resources (DERs) into the grid. The transition is driven by the need for sustainability
and a shift toward small-scale renewable power sources such as rooftop solar panels and

85
electric vehicle (EV) charging. DSO’s are seen as key players in making this transition
successful. One major issue is the lack of standardization in the early stages of DER
integration. The absence of standardized practices makes access to the market expensive,
especially for smaller players, which ultimately hinders participation and investment in
flexible resources. The need for standardization is emphasized to drive down access costs
and enable mass participation in energy markets. Furthermore, DSO’s are encouraged
to shift their mindset and become more service-oriented rather than focusing solely on
traditional infrastructure investment, like copper and aluminum. This shift is necessary
to accommodate the growing demand for distributed energy resources and local flexibility.
DSO’s are advised to explore providing services to local energy communities and creat-
ing income streams from local networks. In terms of regulatory support, it is suggested
that the regulator can play a role in driving the change in incentives and re-educating
DSO’s about the need for customer-centricity and efficiency. The importance of bringing
regulators, large and small DSOs, and stakeholders together to facilitate standardization
processes and reduce access costs is highlighted. DSO’s are pivotal to the decentralization
of the energy system, but they must adapt to new roles, prioritize standardization, and
shift their focus to service-oriented approaches. Overcoming the barriers of standardiza-
tion and mindset change will be essential for DSO’s to succeed in the evolving energy
landscape. Collaboration among stakeholders and regulatory support are seen as key fac-
tors in this transformation.

Question 2: Norway has recently announced new legislation that will allow local
energy communities to buy and sell energy within an energy community (og energide-
partementet, 2023). This legislation became effective on October 1, 2023, and is expected
to relieve consumers from grid tariffs and the volatility of energy prices. Additionally,
the Energy Efficiency Directive (Directive, 2012) proposed a desire to transition from
volume-based tariff models to quality and efficiency-based models. Currently, the majority
of DSO revenues, with 69% coming from household consumers, 54% from small industrial
consumers, and 58% from large industrial consumers, are driven by volumetric-based tar-
iffs (energy consumption), followed by capacity-based tariffs. Given these major threats
to their traditional revenue streams, I would like to hear your thoughts on the economic
sustainability of DSOs and what measures you believe they can take to adapt to this threat.

The discussion on economic sustainability for Distributed System Operators (DSO’s)

centers on the challenges they face, particularly threats to their traditional revenue
streams. These threats are linked to the need for standardization in the integration of
distributed energy resources (DER’s) and the transition towards service-oriented models.
One key issue raised is the lack of standardization in the early stages of DER integration,
leading to high access costs to energy markets. This lack of standardization serves as a

86
barrier for smaller players in the energy sector, hindering their participation and invest-
ment in flexible resources. Standardization is suggested as a critical solution to drive down
access costs and enable broader participation in energy markets. The need for DSO’s to
shift their focus from traditional infrastructure investment, like copper and aluminum, to
a more service-oriented approach is emphasized. This shift is essential to accommodate
the growing demand for DER’s and local flexibility. DSOs are encouraged to explore
income streams from local networks and to provide services to local energy communities.
Furthermore, regulatory support plays a crucial role in addressing these challenges. Reg-
ulatory changes are needed to incentivize a shift from infrastructure-based certification
schemes to those that reward customer-centricity and efficiency. The discussion highlights
the importance of bringing together regulators, DSO’s, and stakeholders to facilitate stan-
dardization processes and reduce access costs. In summary, the economic sustainability of
DSO’s is at risk due to the changing energy landscape and the need to adapt to new roles
and practices. To address these threats, DSO’s should prioritize standardization, embrace
service-oriented models, and collaborate with regulators and stakeholders. These mea-
sures are critical for their long-term sustainability and success in an evolving energy sector.

Question 3: Responsibilities are a central concern for socio-economic and environ-

mental policies because they form the foundation of regulatory frameworks for utility ser-
vices (Savini and Giezen, 2020). It is argued that one should examine how responsibilities
are negotiated and contested during policy-making since issues of responsibility often be-
come apparent only after policies have already been formulated. The issue of responsibility
may surface when there is contention about who should bear the political, legal, or economic
costs of environmental and utility governance. To facilitate the integration of small-scale
DERs in support of the green energy transition, there is a need to incentivize prosumers
with transparent and favorable subscription tariffs. However, it is precisely in this con-
text that DSOs have expressed their reluctance to adopt increasingly complex subscription
tariffs, as it implies the responsibility of explaining them to end-consumers. Moreover,
their perceived core responsibility lies in ensuring the security of supply, which they aim
to achieve through traditional means like copper and aluminum, as opposed to procuring
flexibility, even at the cost of energy inefficiency. This misplaced responsibility may prove
detrimental in the long term for DSOs when efficiency benchmarks are adopted for reg-
ulatory purposes. Currently, transition managers reduce their responsibilities by dividing
tasks, and politicians tend to avoid responsibility to keep political conflicts latent. In the
energy sector, how do you think one should engage with the topic of responsibility, and at
what level (EU policy-making, regulators, government)?

The issue of responsibility within the energy sector poses significant challenges, par-
ticularly in the context of Distributed System Operators (DSOs) and the adoption of

87
efficiency benchmarks for regulatory purposes. The overarching problem stems from the
fragmentation of responsibilities, which leads to a lack of accountability. Transition man-
agers often divest themselves of responsibility by segregating tasks, while politicians may
shy away from confronting the consequences of certain decisions to maintain political
peace. This fragmentation, in the context of DSOs, means that navigating the intricate
landscape of renewable energy integration and grid stability becomes a complex and chal-
lenging endeavor. It’s crucial to acknowledge the interplay between efficiency targets and
the allocation of responsibilities. Thus, addressing the misplaced responsibility in the
energy sector requires a multi-pronged approach. Engagement at various levels, from EU
policy-making to regulators and government bodies, is essential. For starters, EU pol-
icymakers must recognize the significance of clearly defined responsibilities in achieving
energy efficiency goals. Regulators should be instrumental in establishing mechanisms to
incentivize efficient practices and reallocate responsibilities where necessary. Furthermore,
government bodies play a pivotal role in bridging the gap between policy and execution,
ensuring that regulatory measures effectively promote accountability throughout the en-
ergy value chain. In conclusion, misplaced responsibility can hinder the efficiency and
effectiveness of DSOs and, by extension, the energy sector as a whole. Addressing this
issue necessitates a comprehensive approach involving EU policy-making, regulatory bod-
ies, and government agencies. By fostering greater accountability and clearly defined
responsibilities, the energy sector can better navigate the challenges of renewable energy
integration and grid stability while working towards a more sustainable future.

A.4 Participants 4 and 5

Question 1: The EU commission has signed a letter of intent with DSO Entity to sup-
port research and development initiatives concerned with the development of a digital twin
of the entire EU-electricity grid. The aim is to coordinate investments to foster the digi-
talisation of the energy system. In literature, it has however been argued that the relative
small amount of transmission network models implies manageable network inventories
whereas it is inconceivable to have similar inventories for the low voltage distribution
networks (Lucas, 2018). I am a skeptic on the value proposition of a digital twin, espe-
cially targeting the LV distribution network, however, I have had discussions with those
strongly advocating for this approach and say it should be the major priority of concern
and investment for DSO’s when concerned with digitalisation efforts during the clean en-
ergy transition. Would you rather advocate a stronger policy on smart meter roll-out and
communication infrastructure opposed to developing a digital twin?

88
 Advocating for a stronger policy on smart meter deployment and communication in-
frastructure comes with several key advantages. Smart meters are essential tools for
achieving greater grid awareness and efficiency. They provide real-time data on energy
consumption and can facilitate demand-side management, ultimately reducing the need
for grid expansion and reinforcement through copper and aluminum. Smart meters also
empower consumers by offering insights into their energy usage, enabling them to make
informed decisions to reduce their carbon footprint and lower energy costs. By promoting
energy efficiency and enabling dynamic pricing models, smart meters can contribute to a
more sustainable and consumer-centric energy system. Furthermore, a robust communi-
cation infrastructure is indispensable for ensuring the effective operation of smart meters.
It enables secure, real-time data exchange between energy providers and consumers, en-
hancing the reliability and resilience of the grid. On the other hand, the development of
a digital twin for the energy system holds significant promise, particularly for long-term
planning and optimization. A digital twin is essentially a virtual representation of the
physical grid, allowing for advanced simulations, scenario testing, and predictive analytics.
It can be a valuable tool for understanding the grid’s behavior under various conditions
and making informed decisions about infrastructure investments. However, the imple-
mentation of a digital twin demands a high level of data accuracy, which may only be
achieved with extensive smart meter penetration. Until a critical mass of smart meters is
in place, the accuracy of the digital twin may be limited, making it less effective in its pre-
dictive capabilities. Advocating for one approach over the other is not necessarily the best
strategy. The energy sector should consider a balanced approach, where the development
of a digital twin is coupled with an accelerated smart meter roll-out and communication
infrastructure enhancement. Smart meters provide the real-time data necessary for the
accuracy of a digital twin, while the digital twin, in turn, offers a comprehensive tool
for long-term planning and optimizing grid performance. Moreover, policymakers should
work closely with industry stakeholders to ensure that these technologies are integrated
efficiently and cohesively. The synergy between smart meters and a digital twin can ad-
dress the dynamic challenges of the energy transition while simultaneously ensuring grid
awareness and cost-effectiveness. The right balance between these approaches will be the
key to a successful and sustainable energy system.

Question 2: Solutions that can orchestrate small-scale Distributed Energy Resources

(DER) systems at scale, while retaining grid awareness, could be of interest in the green
energy transition. This will necessitate an inbound, bottom-up philosophy where one aims
to orchestrate the aggregation of various DER portfolios with the aim of delivering grid-
aware services at the low voltage (LV) distribution grid. A significant threat to Distribution
System Operators (DSOs) that should be addressed is supporting them with sustainable
procurement of flexibility to guarantee regional electricity supply. The latter can only be

89
accomplished if one could implement a near-optimal orchestration scheme for DERs. Aus-
tralia has recently adopted dynamic operational envelopes (DOEs) within their legislation
to regulate DERs with flexible bounds. How can dynamic operational envelopes (DOEs)
address the problem of procuring flexibility for DSOs, and do you consider this solution
highly relevant for the European Union (EU) as well?

DOEs are a mechanism that enables the efficient utilization of DERs while ensuring
grid reliability. By calculating the dynamic operational envelope, it allows for maximiz-
ing the capacity of renewable resources. This approach is particularly appealing because
it aligns with the goal of optimizing energy efficiency by leveraging the full potential of
DERs. It’s important to note that DOEs don’t just serve DSOs but also offer opportuni-
ties for flexibility subscribers and retailers to optimize their assets and contribute to grid
stability. One significant concern for DSOs in the green energy transition is the need for
sustainable procurement of flexibility to ensure regional electricity supply. Historically,
DSOs have relied on static limits to manage grid constraints, which can be overly cautious
and limit the potential of renewable resources. DOEs provide a solution that allows for a
more granular and flexible approach, enabling DERs to operate closer to their maximum
capacity without compromising grid integrity. This addresses the challenge of procuring
flexibility and enhances grid stability. Moreover, DOEs offer a standardized approach
that facilitates coordination between various stakeholders, such as retailers and flexibility
service providers. It simplifies the communication of operational limits and capabilities
across the grid. This not only benefits DSOs but also empowers flexibility subscribers
and retailers to make more informed decisions on energy production and consumption. In
terms of the EU, the relevance of DOEs is significant. The EU has been actively promot-
ing green energy and reducing carbon emissions, and the efficient integration of DERs is
a central element of this endeavor. DOEs can offer a standardized framework for man-
aging DERs at scale, ensuring grid-awareness, and facilitating sustainable procurement
of flexibility. While challenges exist, such as the need for improved electrical models and
communication infrastructure, the principles of DOEs are adaptable to the EU context.
Dynamic operational envelopes are a promising solution to address the challenges of or-
chestrating DER systems at scale, ensuring grid awareness, and procuring flexibility for
DSOs. This approach has the potential to revolutionize the way we manage and optimize
energy resources, and its relevance extends beyond Australia, making it a valuable concept
for the EU as it continues its green energy transition. The key lies in a collaborative effort
among stakeholders to implement DOEs effectively, thereby advancing the sustainability
and efficiency of the energy sector.

Question 3: Dynamic Operation Envelopes are considered an emerging feature of the

electricity system (ARENA, 2023). In the EU, the Energy Efficiency Directive suggests

90
moving away from using volumetric-based tariffs for regulation and instead aims to utilize
quality and energy efficiency-based models. Quality-based models in this context emphasize
value optimization from a user-centric perspective, and energy efficiency is perceived as
how DSOs can rely more on procuring demand-side flexibility to manage grid operational
requirements, as opposed to relying on more copper and aluminum for grid reinforcement.
DSOs in the EU, however, are hesitant to adopt complex subscription tariffs due to the
increased responsibility of explaining them to end-consumers in a transparent manner. Re-
garding the adoption of DOE, I am curious about how sustainable it would be for smaller
DSOs to support this feature in the EU, and how regulation tariffs are reflected in the
DOEs and communicated to end-consumers.

The dynamic operational envelopes (DOEs) are indeed an emerging feature in the
electricity system, representing a significant shift from traditional approaches. In the Eu-
ropean Union (EU), the Energy Efficiency Directive is advocating for a transition away
from volumetric-based tariffs toward quality and energy efficiency-based models. These
quality-based models emphasize optimizing value from a user-centric perspective, while
energy efficiency underscores the importance of procuring demand-side flexibility to man-
age grid operations, reducing the need for grid infrastructure reinforcement. However,
DSOs in the EU are facing challenges in adopting complex subscription tariffs associ-
ated with DOEs. They are concerned about the increased responsibility of transparently
explaining these tariffs to end-consumers. This hesitancy stems from the complexity of
new tariff structures and the need for clear communication. Regarding the sustainability
of smaller DSOs in the EU supporting the adoption of DOEs, several factors must be
considered. The transition to DOEs will require a shift in regulatory frameworks, invest-
ment in new technologies, and potentially new communication strategies. Smaller DSOs
may face additional challenges due to limited resources and expertise. Regulation tariffs
play a crucial role in DOEs. They influence how pricing mechanisms are structured and
communicated to end-consumers. While DOEs offer more flexibility, they also require
a reevaluation of pricing structures. DOEs can be a valuable tool for enhancing the ef-
ficiency of energy usage. By expanding the operational envelope, pricing mechanisms
can incentivize users to stay within defined limits. In practice, the adoption of DOEs
can facilitate greater flexibility and value for both consumers and DSOs. For example,
consumers can be given choices in tariff structures, allowing them to optimize their en-
ergy consumption and cost. Smaller DSOs will need to work with regulatory authorities
to design tariffs and pricing structures that align with the capabilities of DOEs while
ensuring consumer understanding. Additionally, as electric vehicles (EVs) become more
widespread, the principles of DOEs can be applied to address congestion and operational
challenges. DSOs can adjust import limits within the dynamic operational envelope to
encourage efficient energy usage. The future of DOEs in the EU will depend on the

91
collaboration between regulatory authorities, DSOs, and other stakeholders. While the
transition to DOEs poses challenges, it also offers an opportunity to enhance energy ef-
ficiency and consumer empowerment. As the EU moves toward these innovative models,
clear communication, education, and adaptability will be key to its success.

A.5 Participant 6
Question 1: It is the opinion that to truly support grid-aware DER integration, it ne-
cessitates the orchestration and incentivization of end energy consumers starting from a
bottom-up approach. Non-legislative EU initiatives to support the clean energy transition
in the context of the Clean Energy for All Europeans package stipulate measures to define
and better monitor energy poverty. It seems that the most pragmatic way to tackle energy
poverty is to support the increase of energy efficiency. Furthermore, it can be argued that
the optimal orchestration of DERs is required to promote such energy efficiency, which
calls for mechanisms unlocking demand-side flexibility. Unlocking such demand flexibility
will imply one needs to incentivize prosumers with price signals that support behavioral
change. Although I believe in the concepts around flexibility in energy markets, from a
pragmatic view, I was wondering about your thoughts regarding reflectivity and fairness
as discussed in your paper and thoughts on socio-economic aspects.

The prevailing perspective suggests that this necessitates a bottom-up approach that
focuses on orchestrating and incentivizing end energy consumers. The European Union
has initiated non-legislative measures to aid the clean energy transition through the Clean
Energy for All Europeans package, particularly in the context of defining and monitoring
energy poverty. One pragmatic solution to address energy poverty is to enhance energy
efficiency. The optimization of DERs plays a crucial role in promoting such efficiency,
requiring the implementation of mechanisms to unlock demand-side flexibility. Unlocking
this flexibility involves incentivizing prosumers through price signals to induce behavioral
changes. Though the concept of flexibility in energy markets holds promise, a pragmatic
view raises concerns about reflectivity and fairness. The challenge lies in determining
what is considered fair in tariff mechanisms due to their subjective nature, potentially
causing complex mechanisms to falter. One of the key objectives of the Clean Energy
for All Europeans Package is to empower consumers with transparent energy bills and
comprehensible price contracts, emphasizing the importance of consumer awareness. A
pivotal question emerges: should the responsibility of advising customers on subscription
levels for novel tariffs rest with flexibility service providers, DER aggregators, and energy
communities, or should regulators primarily design tariffs for DSOs to enforce? This de-

92
cision embodies the distinction between a top-down, regulatory-driven approach and a
bottom-up approach predicated on behavioral change. In a pragmatic perspective, the
pursuit of greater energy efficiency and poverty alleviation necessitates a holistic consid-
eration of socio-economic aspects. It is imperative to strike a balance between achieving
economic efficiency through cost-effective pricing and addressing social inequalities. The
cost drivers underpinning tariff design are pivotal, with the investment costs in grid infras-
tructure playing a significant role. Moreover, the recovery of costs and the means by which
regulatory bodies incentivize or adapt recovery structures introduce a layer of complexity,
suggesting the need for a reevaluation of regulatory practices. Another point of interest
revolves around orchestrating assets at the neighborhood level, considering the diverse
sources of DERs. Capacity subscription tariffs, with their potential for stable cost recov-
ery, are considered in contrast to traditional volumetric tariffs. Notably, the majority of
DSO revenues are still linked to volumetric tariffs, which remain the most understandable
for end consumers. The Energy Efficiency Directive seeks to move away from volumetric
models, emphasizing the need for transformation. The challenge of achieving grid-aware
DER integration while addressing energy poverty and ensuring fairness is multifaceted.
It calls for a delicate balance between cost-effective tariff design, regulatory adaptation,
and a reimagining of the energy landscape, marked by increased transparency, consumer
empowerment, and the promotion of energy efficiency.

Question 2: It is argued that capacity subscription tariffs provide stable cost recov-
eries and are fairer than volumetric flat tariffs. However, it is stated that the majority
portion of DSO revenues is driven by volumetric tariffs, which are also most comprehensi-
ble for end consumers. The Energy Efficiency Directive (Directive, 2012), however, aims
to move away from volume-based models towards quality (as perceived from the consumer’s
perspective) and efficiency models. It is the opinion that the transition towards efficiency
models could potentially involve adapting existing volumetric grid tariffs by incorporating
grid-aware incentivized discounts on top of volumetric grid tariffs. This, among other
things, could promote the more efficient utilization and support of the grid infrastructure.
What are your thoughts on capacity tariff mechanisms that will support the Energy Effi-
ciency Directive, and how could this be perceived in the context of volumetric tariffs used
for regulation?

In the debate over tariff mechanisms and their impact on grid integration and energy
efficiency, several key considerations emerge. The discussion centered on the potential
shift from traditional volumetric tariffs to capacity subscription tariffs in support of the
Energy Efficiency Directive, which aims to move toward quality and efficiency models from
the consumer’s perspective. Capacity subscription tariffs are argued to offer stable cost
recoveries and fairness compared to volumetric flat tariffs. However, the majority of Dis-

93
tribution System Operator (DSO) revenues are still driven by volumetric tariffs, which are
also more comprehensible to end consumers. This raises questions about how to transition
to more efficient models while ensuring consumer understanding. The transition toward
efficiency models could involve adapting existing volumetric grid tariffs by incorporating
grid-aware incentivized discounts. This approach aims to promote more efficient utiliza-
tion of the grid infrastructure. The question at hand is whether this transition aligns
with the Energy Efficiency Directive and how it fits into the context of traditional volu-
metric tariffs used for regulation. One line of thought suggests that capacity mechanisms
could support the directive’s objectives by creating a local flexibility market. This market
would allow small asset owners to offer their capacity and receive fair prices, facilitating
the optimization of grid resources. However, the challenge lies in distinguishing between
explicit and implicit flexibility price signals, as well as addressing potential conflicts be-
tween different pricing mechanisms. In response, it is recognized that the current system
is inefficient and fragmented. The existence of multiple, sometimes conflicting, price sig-
nals can lead to unintended consequences, such as penalties for those contributing to peak
loads. The conversation calls for a more streamlined and coordinated approach to pricing
mechanisms. In conclusion, the debate over tariff mechanisms in the context of the Energy
Efficiency Directive underscores the need for a coherent and consumer-friendly transition
toward efficiency models. Achieving this requires a delicate balance between capacity
subscription tariffs and traditional volumetric tariffs while addressing the complexities of
pricing mechanisms and their potential conflicts. The ultimate goal is to promote energy
efficiency, reduce energy poverty, and create a fair and effective grid integration system
that benefits both consumers and the energy market as a whole.

Question 3: DSOs in Norway may be reluctant to adopt capacity subscription tariffs

as they do not want the responsibility of advising their customers on subscription levels.
Even though the goal of the tariff is to provide an incentive to reduce peak loads and re-
distribute the welfare distribution, the subjective nature of defining what is fair and its
interpretation makes any complex tariff mechanisms likely to fail. One of the preroga-
tives of the Clean Energy for All Europeans Package (CEP) (EU Commission, 2019) is
that consumers should be better informed about their energy usage with transparent energy
bills and more understandable price contracts. The question is whether flexibility service
providers and aggregators of DERs in energy communities and neighborhoods should take
on the role of advising customers on subscription levels for more unconventional tariffs.
In other words, should it be the primary responsibility of regulators to design tariffs that
DSOs should enforce to achieve higher levels of energy efficiency (which, to me, is a top-
down approach – an old mindset), or should energy efficiency be driven from a bottom-up
perspective through the realization of behavioral change?

94
 The discussion regarding the adoption of capacity subscription tariffs by Distribution
System Operators (DSOs) in Norway brings up several important considerations. The
primary concern appears to be the reluctance of DSOs to take on the responsibility of ad-
vising their customers on subscription levels. Capacity subscription tariffs aim to provide
incentives to reduce peak loads and redistribute welfare distribution. However, the sub-
jective nature of defining what is ”fair” and the potential for complex tariff mechanisms
to be misunderstood are legitimate challenges. One argument suggests that DSOs may
not be the ideal entities to handle these complexities and customer advisory responsibil-
ities, given their traditional roles. The Clean Energy for All Europeans Package (CEP)
emphasizes the need for consumers to be better informed about their energy usage, with
transparent energy bills and understandable price contracts. In this context, the ques-
tion arises whether flexibility service providers and aggregators of Distributed Energy
Resources (DERs) in energy communities and neighborhoods should take on the role of
advising customers on subscription levels for unconventional tariffs. This question touches
upon the broader issue of where the responsibility for achieving higher energy efficiency
lies. Should it be a top-down approach driven by regulators who design tariffs for DSOs to
enforce? Or should energy efficiency be approached from a bottom-up perspective, aiming
to drive behavioral change among consumers? The conversation highlights an interesting
dynamic. DSOs are often risk-averse, and they may prioritize security of supply over
economically rational decisions. Additionally, they have concerns about their reputation,
which can be closely tied to maintaining a high level of service reliability. While there is
no definitive answer to whether flexibility service providers and aggregators should assume
the role of advising customers, it’s evident that an innovative approach is required. A
bottom-up approach that combines transparency in tariff communication, consumer ed-
ucation, and the incentive for change, along with regulatory incentives, could be a more
holistic solution. The adoption of capacity subscription tariffs in Norway, and similar con-
texts, is a complex challenge. It demands a balance between the responsibilities of various
stakeholders. A successful transition to more efficient and sustainable energy practices
will likely require the collaboration of DSOs, regulators, and innovative service providers
who can effectively advise and engage customers in promoting behavioral change for the
greater goal of energy efficiency. The emphasis should be on creating transparent, effi-
cient, and understandable energy tariffs, ultimately benefitting both consumers and the
energy market.

95
A.6 Participant 7
Question 1: One of the non-legislative EU initiatives described in the Clean Energy for
all Europeans Package (EU Commission, 2019) is the tackling of energy poverty, and it
is argued that the most pragmatic way to achieve this is by promoting energy efficiency.
One could argue that this is accomplished when one can optimally match energy supply
and demand, utilizing maximum grid capacity, and deterring costly grid reinforcement
investments. In the context of the green energy transition, the energy sector is turned on
its head, where demand needs to follow supply. This brings me to the question: What is
your outlook on addressing energy poverty when it seems that those who can shift their
energy demand to match supply will receive incentivized energy prices, while those who do
not have the means will have to settle for higher energy prices, thereby exacerbating the
energy poverty gap?

This dilemma underscores a fundamental challenge of the energy transition. Achiev-

ing the necessary demand-supply alignment is essential for efficient and sustainable en-
ergy systems, but it requires active engagement from consumers. The EU’s approach
is to incentivize energy efficiency, thus encouraging consumers to make real-time deci-
sions about when and how they consume energy. To optimize this transition, two main
strategies are evident. The first involves leveraging grid models to assess available grid
capacity, taking a model-centric approach. The second strategy relies on smart meter
data and a data-driven approach to make informed decisions. Furthermore, the EU is
exploring the development of a digital twin for the entire EU grid, a forward-thinking
initiative (EU Commission, 2019). The challenge arises in facilitating these strategies on
a large scale. For many, adapting to new consumption patterns, particularly during peak
demand hours when energy prices may surge, necessitates a level of digitalization and
real-time decision-making that isn’t universally accessible. While it’s clear that digital-
ization and grid optimization have the potential to alleviate energy poverty, the pace at
which this transformation can occur remains uncertain. One aspect worth exploring is
regulatory support. Regulatory authorities can either facilitate or hinder these strategies.
For instance, if regulators advocate for an accelerated rollout of smart meters, better
communication infrastructure, and standardization of communication protocols and stan-
dards, it could significantly expedite the transition. On the other hand, overly complex
regulations or slow decision-making may hinder progress. Additionally, there’s an ed-
ucational component to consider. Consumers need to understand how to navigate the
changing energy landscape, make informed choices about their energy usage, and, where
possible, automate processes for greater efficiency. However, this educational aspect is
complex, as consumers may not always have the time or willingness to engage deeply
in the intricacies of energy management. Addressing energy poverty within the context

96
of the green energy transition is a multifaceted challenge. While optimizing the align-
ment of supply and demand through digitalization and grid optimization is a promising
strategy, it requires regulatory support, consumer education, and a collective effort to
bridge the energy poverty gap. The outlook depends on how effectively these elements
can be harmonized to create an equitable and sustainable energy future for all Europeans.

Question 2: One of the major barriers for DSOs (Distribution System Operators)
in procuring demand-side flexibility, instead of opting for costly grid reinforcements, is
the uncertainty associated with sustainable procurement of demand-side flexibility. It is a
reasonable concern for them, given their mandate to ensure regional electricity security.
In a recent article (Cooper, 2023), it has been further argued that the decentralization of
energy resources will lead to a shift towards small-scale renewable power sources located
close to where they are consumed. However, a recent survey by ENTSO-E pointed out that
small-scale DERs (Distributed Energy Resources) may be excluded from participating in-
dividually in existing energy and system services markets due to technical pre-qualification
requirements and unfavorable downside risks related to non-delivery (Economics, 2021).
What do you consider to be the major barrier to activating demand-side flexibility for
small-scale DERs, such that, at scale, the uncertainty in procuring flexibility from small-
scale DERs is sufficiently reduced for DSOs?

The challenge of procuring demand-side flexibility from small-scale Distributed Energy

Resources (DERs) is a multifaceted issue that involves addressing uncertainties, technical
qualifications, and the willingness of DER owners to participate. Distribution System
Operators (DSOs) face significant hurdles in navigating these complexities. One of the
central concerns is the uncertainty associated with procuring flexibility from small-scale
DERs. The fear of the unknown plays a pivotal role in DSOs’ reluctance to fully embrace
demand-side flexibility. This is a reasonable concern, especially given their mandate to
ensure regional electricity security. The transition to a more decentralized energy system,
with a focus on small-scale renewable power sources located closer to consumption points,
is considered a strategic move in the energy sector. To address this complex problem, it is
essential to explore strategies for reducing uncertainty and promoting participation from
small-scale DER owners. One potential solution involves establishing clear and standard-
ized technical qualification requirements and facilitating communication between DERs
and DSOs. The regulatory authorities can play a pivotal role in setting the framework for
these standards and ensuring that penalties for non-compliance are fair and reasonable.
Furthermore, the concept of scale is essential in reducing uncertainty. DSOs need a crit-
ical mass of small-scale DERs to be confident in their ability to provide flexibility when
needed. One approach is to incentivize DER owners to participate in flexibility programs.
Incentives can include reduced energy costs, revenue-sharing mechanisms, or other finan-

97
cial benefits that encourage active involvement. Additionally, aggregators could play a
significant role in facilitating the procurement of demand-side flexibility from small-scale
DERs. Aggregators can pool resources and manage the complexities of participation in
energy markets, effectively reducing the burden on individual DER owners. The success
of demand-side flexibility in small-scale DERs also depends on communication and edu-
cation. DER owners need to understand the benefits of participation and how to make
their assets available for flexibility purposes. It is crucial to communicate this informa-
tion clearly, making it accessible to a broader audience. Regulatory support is paramount
in addressing these barriers. Regulatory bodies should promote a fair and transparent
environment for demand-side flexibility, ensuring that both DSOs and DER owners are
adequately incentivized and protected. In conclusion, the major barrier to activating
demand-side flexibility from small-scale DERs lies in reducing uncertainty, standardiz-
ing technical qualifications, and incentivizing participation. The transition to a more
decentralized energy system presents numerous challenges, but with the right regulatory
framework, incentives, and education, it is possible to unlock the potential of small-scale
DERs and enhance the flexibility of the energy grid, ultimately benefiting both DSOs and
consumers.

Question 3: Matching demand and supply is required to integrate more renewables,

but the former has to be subject to available grid capacity. To determine grid capacity,
focusing now only on the low voltage distribution grid, one can evaluate the available ca-
pacity from a model-centric approach using grid models; or from a data-driven approach
relying on smart meter data. The DSO entity has signed a letter of intent with the EU
commission on developing a digital twin for the entire EU grid. Others propose an in-
creased rate at which meters ought to be rolled out with more support from regulatory
authorities and call for improved communication infrastructure and standardization and
interoperability of communication protocols and standards. What would you deem the most
appropriate route to take that will facilitate matching demands with supply subject to grid
constraints? Could you see regulatory barriers that hinder or can support either of these
routes?

The central challenge lies in determining what constitutes a sufficient scale of procur-
ing flexibility from these small-scale DERs to reduce uncertainty to an acceptable level.
Small-scale DERs, which are likely to be increasingly decentralized and closer to the point
of consumption, present an attractive opportunity for enhancing grid flexibility. However,
these resources are often precluded from participating individually in existing energy and
system services markets. Technical pre-qualification requirements and the downside risks
associated with non-delivery create a dilemma for both the DER owners and the DSOs.
One potential solution is to establish a minimum threshold for scale, below which the

98
procurement of flexibility is deemed too uncertain. DSOs may want assurance that the
collective capacity of these small-scale DERs is sufficient to provide the necessary grid
support reliably. This could involve aggregators, who pool these resources, ensuring that
the aggregated capacity meets specific criteria, reducing the risk associated with indi-
vidual participation. Furthermore, creating mechanisms for reserve markets or capacity
purchase programs could help mitigate uncertainty. DSOs can enter agreements with
DER aggregators or owners to procure reserve capacity, which acts as a safety net during
times of increased demand or unforeseen disruptions. These contracts can have prede-
fined penalties and incentives to motivate reliable performance. Such backup mechanisms
can help balance the grid while providing assurance to DSOs. Regulatory bodies play a
pivotal role in this transition. In Australia, for instance, regulatory mandates force DSOs
to implement dynamic operational envelopes and curtailment strategies to manage PV
penetration effectively. By enacting similar regulations or mandates within the European
energy market, regulatory bodies can drive the implementation of these solutions. This
would empower DSOs to confidently engage with small-scale DERs without facing exces-
sive uncertainty. Education and communication are equally crucial. End consumers, DER
owners, and aggregators need to understand and embrace the benefits of participating in
grid support services. Regulatory bodies and DSOs can help by providing transparent
and easily understandable pricing models and information. Public awareness campaigns
and incentives for small-scale DER owners to participate can also facilitate this process.
The major barrier to activating demand-side flexibility for small-scale DERs is the un-
certainty surrounding their participation and individual contributions to the grid. The
key to overcoming this challenge is to establish clear standards, regulatory mandates, and
backup mechanisms, encouraging participation and providing DSOs with the necessary
assurance. This transition also requires an educational effort to ensure that all stakehold-
ers understand the potential benefits and how to navigate the changing energy landscape
effectively. With these elements in place, small-scale DERs can contribute significantly
to grid flexibility and the overall sustainability of the energy system.

99
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