Universidad Pontificia Comillas. Madrid (España)
03 de julio de 2026
Resumen:
The electricity distribution network faces significant operational and planning challenges due to the increasing electrification and the rapid adoption of distributed energy resources. The increasing penetration of intermittent renewable generation and the electrification of energy uses are driving peak load closer to network capacity limits, and some European countries are already experiencing limitations in their distribution network’s hosting capacity. Distribution system operators (DSOs) must simultaneously enable fast connections for new users while preserving cost efficiency. This creates a fundamental tradeoff. Reinforcing the grid accelerates connections but requires large, irreversible investments made years in advance that may result in stranded assets if expected load growth does not materialize. The large demand uncertainty that DSOs are facing exacerbates this trade-off, and there is a risk that grid investments will become underutilized and permanently locked into tariffs. Conversely, delaying investment risks congestion, connection delays, and quality-of-service degradation. At the same time, distributed energy resources enable flexibility1 solutions that can temporarily shave the peak load in critical hours, temporarily deferring the need for network reinforcement. This raises a first central question: how should distribution network planning evolve to manage uncertainty while efficiently combining grid reinforcement and flexibility solutions?
Most existing planning approaches rely on fixed investment decisions and simplified representations of uncertainty. This thesis presents a methodology for determining investment timing using a stochastic optimization framework grounded in real options theory, resulting in adaptable plans. Network investment and flexibility reserve2 decisions are defined through trigger-based decision rules that respond to realized peakload outcomes, resulting in adaptable plans rather than the traditional fixed-decision approach. Uncertainty is modeled using multi-scenario demand trajectories aligned with industry planning practice. The results show that adaptable planning strategies consistently outperform fixed plans. Grid reinforcements are optimally deferred or anticipated depending on demand evolution, reducing unnecessary investments while maintaining the ability to connect new users. These adaptable plans, in combination with flexibility solutions, provide significant economic efficiency.
Electricity distribution operates as a natural monopoly and is therefore subject to economic regulation. DSOs respond rationally to the incentives embedded in remuneration schemes when choosing between operational solutions and capital investments. This introduces a second key question: whether existing DSO regulatory frameworks provide efficient incentives when flexibility competes with grid reinforcement. This thesis performs a quantitative assessment of distribution company incentives under three stylized remuneration schemes: cost-of-service regulation, revenue-cap regulation with profit sharing, and a total expenditure (TOTEX) approach with a fixed capitalization rate. Each scheme is embedded in a profit-maximizing planning model and benchmarked against the minimum system cost solution. The results show that the cost-of-service regulation creates a strong CAPEX bias and systematic overinvestment. Revenue-cap regulation yields the most efficient outcomes, with cost deviations below four percent compared to the minimum system cost benchmark. The TOTEX approach, contrary to the prevailing view among regulators, does not provide incentive neutrality; instead, it introduces a structural OPEX bias, leading to less efficient outcomes than the revenue cap with profit-sharing. Furthermore, the TOTEX approach increases the complexity of the regulatory framework, so this thesis does not recommend it; instead, the revenue cap with profitsharing is recommended as it represents a much more reasonable approach given the results of the quantitative assessment.
Electricity distribution regulatory frameworks tend to evolve gradually and differ substantially across jurisdictions. This is why a set of regulatory recommendations cannot be implemented immediately, and we need tailored recommendations that prioritize the most important and impactful aspects. This leads to a third question on how to reform remuneration schemes in a way that is both impactful and feasible. This thesis presents a roadmap for reforming electricity distribution remuneration schemes in the context of decarbonization. The roadmap is designed in sequential and prioritized phases and is grounded in observed regulatory practice. The first recommendation of the roadmap is to move away from hybrid and cost-of-service models toward ex-ante revenue-cap regulation with profit sharing. It then emphasizes the need to decouple baseline revenues from forward-looking investment plans to limit the firm's strategic behavior under uncertainty. Baseline revenues should rely on benchmarking and historical costs, complemented by ex-post adjustment mechanisms as investment needs materialize. Afterward, enabling adaptable planning can bring additional significant efficiencies. Finally, a mechanism for achieving OPEX/CAPEX incentive neutrality based on establishing different incentive rates for OPEX and CAPEX is presented, which constitutes the last priority of the roadmap, as the revenue-cap regulation with profitsharing showed a small CAPEX bias. The roadmap is validated using representative European regulatory experiences.
In conclusion, the thesis demonstrates that the current uncertainty faced by DSOs, along with the availability of flexibility solutions to complement irreversible investments, fundamentally changes efficient distribution network planning. Flexibility can defer grid reinforcement and enable faster connections, but only under adaptable planning frameworks can its full potential be exploited. Regulatory incentives critically shape DSO behavior and system outcomes. Revenue-cap regulation with profit sharing best aligns incentives with system efficiency, while TOTEX approaches with a fixed capitalization rate introduce significant distortions. Together, in the actual context of decarbonization, the proposed planning methodology and regulatory roadmap provide a coherent foundation for integrating DERs, managing uncertainty, and controlling long-term network costs.
Resumen divulgativo:
En un contexto de electrificación de la economía y de incertidumbre sobre el crecimiento de la demanda, la tesis compara esquemas de remuneración de la distribución eléctrica y propone una hoja de ruta regulatoria para incentivar el uso eficiente de la flexibilidad en la planificación de la red.
Descriptores: Planificación, Otras, Distribución de la Energía, Monopolio y Competencia
Palabras clave: Electricity distribution remuneration, network regulation, Capital expenditure bias, Flexibility, Neutral incentives, Investment under uncertainty, real options
Cita:
M.A. Ruiz, "Electricity Distribution Remuneration Schemes for Promoting Efficient Network Planning: Unlocking the Value of Flexibility Solutions", Tesis Doctoral, Universidad Pontificia Comillas, Madrid, España, 2026.
