ACER’s new report, “Managing the ramp-up of electricity distribution investments to better serve grid users,” examines the growing need for accelerated investment in electricity distribution grids, emphasizing the role of distribution system operators (DSOs) in ensuring reliable and high-quality services in the context of the energy transition. It analyzes how regulatory frameworks can support the effective targeting of investments without compromising their sustainability and fairness. The report offers guidance to regulators, legislators, and operators for better management of the sector’s growing investment needs

Distribution networks are undergoing a major transformation that will help achieve the EU’s decarbonization targets by 2050. Significant investment in the grids is absolutely essential to keep pace with the accelerated electrification and growth in renewable energy generation. EU legislation assigns new roles to distribution network operators, such as active system operators, market facilitators, datahubs, and  innovation catalysts.

The growth in investment in electricity distribution networks in Europe is already evident. Compared to 2021, annual investments in distribution networks increased by over 50% in 2024 and are expected to double (compared to 2021) by 2027, reaching nearly €47 billion. Bulgarian DSOs succeeded in increasing investments by 28% in 2024 compared to 2021, according to the report, despite operating in a regulatory environment that is considerably less favorable than that of their EU peers.

Europe is making uneven progress in the digitalization and modernization of electricity grids through technological innovation and the deployment of flexibility via demand response, as noted in ACER’s 2025 reports on barriers to flexibility, retail market monitoring, and tariff practices. These approaches complement traditional grid expansion and are crucial for reducing price volatility, better integrating renewable energy sources, and enhancing cost efficiency and system resilience.

With rising investments and uneven progress in adopting new solutions, are DSOs prepared to deliver high quality services to all customers?

In Europe, the sector is highly diverse-2,674 operators in 28 countries serve customer groups of varying sizes, ranging from individual users to nearly 40 million. To ensure equal access to high-quality and cost-effective distribution services for all customers, distribution system operators must have the necessary resources to address their evolving responsibilities in various areas:

• Distribution system operators must have robust grid planning, translating uncertain long-term needs into concrete projects that deliver the highest public value. However, nearly two-thirds of all DSOs in the EU are exempt from the obligation to prepare a network development plan, and even when they do prepare such plans, synergies are often not exploited through a comprehensive approach to planning;
• Distribution system operators should seek flexible solutions when they are more efficient as an alternative to building new networks, given that local markets for system operation services are still in their infancy in most Member States, and network service tariffs do not offer time-of-use pricing in every third Member State
• The digitalization of distribution grids must be accelerated so that DSOs can integrate flexibility resources more effectively, strengthen system resilience, and provide detailed data for accurate assessment of consumption and network needs. Despite significant progress in the deployment of smart meters, with penetration rates exceeding 80% in most EU Member States, the rate remains below 30% in six Member States.
• The resilience of critical energy infrastructure and services-this includes improving the management of cybersecurity risks and identifying risks to cross-border electricity flows. The physical security of the electricity grid is also important.

These responsibilities require new tools, new specialized skills, and greater coordination efforts. Ensuring that all European distribution system operators have sufficient resources to provide high-quality services may prove to be a challenge.

Preparing Distribution System Operators for the Future

The size of the distribution system operator should facilitate effective investment in the electricity transmission network and other distribution services. According to ACER, customers are better protected when served by large DSOs, as certain provisions regarding new responsibilities often apply only to them.

There is broad consensus among industry stakeholders that regulations should not focus solely on reducing costs (efficiency of investments in the electricity grid), but also on promoting high-value solutions -whether grid-related or not-that most effectively meet the system’s needs. Reducing the bias toward capital expenditures (CAPEX), which still exists in some countries, is key to improving regulatory regimes.

Strict cost constraints should not hinder the effective investments needed to bring about the energy transition everywhere. They can also hinder or distort investment by shifting the risks of uncontrollable cost increases onto distribution grid operators without offering adequate compensation.

Broad consensus on the challenges, limited and uneven progress in regulatory innovation

As the distribution network evolves, regulatory frameworks must adapt. Without regular assessments of the methodologies used to determine distribution system operators’ revenues and incentive schemes, there is a risk of “navigating blindly” through the energy transition.

National regulatory authorities (NRAs) propose various practices to prepare distribution network operators for their growing role in the energy transition. The ACER report presents best practices from different countries that illustrate possible approaches in this regard.
The report formulates recommendations for legislators, regulators, and operators on how to manage the growing investments in distribution networks more effectively to better serve consumers. NRAs should take these into account when determining or approving distribution revenue methodologies.
National legislation must guarantee the independence of regulators overseeing the activities of distribution network operators. Their authority to determine operators’ revenues independently-without interference from political bodies or other entities-should be safeguarded. Cost or revenue caps imposed by law run counter to this principle and may be inconsistent with EU law.

It is extremely important for NRAs to place a strong emphasis on effective communication regarding revenue-setting reforms, as early stakeholder engagement is key to securing acceptance of the new practices.

More information about recommendations and cases are avalable in the report: Managing the ramp-up of electricity distribution investments to better serve grid users