Natural Monopoly

An industry where the most efficient market structure is a single provider, because the cost of infrastructure makes duplication wasteful. Both Electric Power Transmission and Electric Power Distribution are natural monopolies — it makes no sense to build competing sets of power lines to the same customers.

Why it matters for flexibility

The natural monopoly status of networks is what creates the regulatory architecture around Flexibility:

1. Regulated monopoly → unbundling — because networks are monopolies, they were separated (unbundled) from competitive activities (generation, retail) during the liberalization of electricity markets in the 1990s
2. DSO as neutral facilitator — the Clean Energy Package requires DSOs to act as neutral market facilitators (Directive Art. 31(5)) precisely because they are monopolies with potential conflicts of interest
3. Storage ownership ban — DSOs cannot own Energy Storage (Directive Art. 36) because a monopoly network operator owning flexible assets could distort competitive Flexibility Markets
4. Revenue regulation — network operators earn regulated returns, not market profits. This shapes how DSOs value flexibility: as a cost-efficient alternative to grid reinforcement, not as a profit opportunity

The Transmission System Operator role is similarly constrained — Svenska kraftnät is a state-owned enterprise with regulated responsibilities, not a market participant.

Swedish context

In Sweden, the electricity market was deregulated in 1996. The grid (both transmission and distribution) remained regulated monopolies under Ei (Energimarknadsinspektionen) oversight, while generation and retail became competitive. This structure directly determines who procures Flexibility and how: DSOs procure local flexibility through regulated processes (Villkorade Avtal, Flexibility Markets), while market participants compete to provide it.

(Source - Electric power distribution (Wikipedia), Source - Electric power transmission (Wikipedia))