May 7 Council WP on Financial Services: E.DSO calls for recognition of DSOs in sustainable finance

E.DSO opens the debate on the role of DSOs in the Taxonomy proposal repeating that distribution grids are essential for the Energy Transition

Meeting the goals put forward by the Paris Agreement will require enormous investments in new and clean technologies. To show the way for investors, the European Commission has proposed an Action Plan for Sustainable Finance, providing a framework for classifying the environmental sustainability of investments. E.DSO welcomes the initiative but is cautious that the framework could end up distorting the valuation of vital elements in the energy system.

The proposal put forward six environmentally sustainable objectives together with a list of different activities which contribute to their achievement. Among the activities listed as contributing to mitigation of climate change is generation of renewable energy followed by a brief reference to grid reinforcements. However, electricity grid operation and electricity generation differ notably from each other. One deals with electrification of the economy and the other with electricity sources, both vital for the energy transition in each their way.

Representing the leading European electricity distribution system operators (DSOs), E.DSO is committed developing a carbon-neutral, electrified, renewable energy-based society. The European DSOs currently connect about 90% of renewable energy in Europe. They pave the way for contributions of active consumers and enable the electrification of the economy. This growing portfolio of tasks bears witness to the indispensable role of DSOs for the facilitation of the energy transition as well as to significant investment needs.

However, subject to regulation, the role of the DSOs is also to be a neutral market facilitator. As a result, DSOs must not discriminate against any electricity provider, regardless of which sources they use for their electricity production. In the context of the framework put forward in the Taxonomy proposal, this means that investment in DSOs might not seem as environmentally sustainable as e.g. a wind farm, albeit both are vital for the continued decarbonisation.

In a letter sent to the Brussels-based financial services and energy attachés of the EU member states, E.DSO suggested that the electricity networks should be listed in a separate article in the Taxonomy Directive. This would avoid the awkward comparison and potential distortion of investments among vital parts in the energy system.

The modification suggested by the DSOs has already been picked up by several of the targeted stakeholders, and E.DSO expects to continue the debate in the coming weeks. Later this summer E.DSO will present a ‘Smart and Sustainable Distribution Grid Charter” reiterating its commitment to develop a sustainable energy system.