Small DSO Capacity — The Binding Constraint on Swedish Flexibility Policy
The EU’s flexibility regulatory architecture — DNDP, FNA, NC DR — is a data pipeline. DNDPs produce raw flexibility need data; the FNA aggregates it into a national picture; the NC DR uses it to calibrate market design. The pipeline is only as strong as its weakest link. Sweden has 155 DSOs. Six of them are sophisticated actors with dedicated flex teams, running live markets, and producing detailed DNDPs. The other 149 are mostly small municipal utilities whose staff have other jobs. The binding constraint on Swedish flexibility policy is not regulatory ambition or platform technology. It is organizational capacity in the long tail.
The shape of the population
Ei’s synthesis of the first DNDP cycle categorizes Swedish DSOs by size (Source - Ei PM2025-03 DNDP Sammanställning (2025)):
| Category | Customers | Number of companies | Customers served |
|---|---|---|---|
| Large | >100,000 | 6 | 3,432,500 (~60%) |
| Medium | 10,000–100,000 | 70 | 1,884,400 (~33%) |
| Small | <10,000 | 61 | 318,300 (~6%) |
| Production networks | — | 15 | ~1,500 |
The six large DSOs — Vattenfall Eldistribution, E.ON Energidistribution, Ellevio, Göteborg Energi Nät, and two others — serve around 60% of Swedish customers. The remaining 131 companies serve 40%. In terms of grid length and geographic extent, that ratio inverts: the long tail covers most of Sweden’s territory, including the rural and peri-urban areas where renewable generation connections are fastest-growing and grid constraints are most likely to be seasonal and localized.
Flex market activity tracks the company size distribution almost perfectly. 100% of large DSOs use flexibility services today. About 20% of medium-sized DSOs do. For small DSOs, the figure is around 10% — and these are mostly villkorade avtal or informal bilateral agreements, not structured market procurement. Only ~15% of all DSOs are considering creating or participating in a formal Flexibility Market (Source - Ei PM2025-03 DNDP Sammanställning (2025)). Sweden = the only Nordic country with permanent distribution-level flex markets (Source - Nordic Energy Research 2025-03 Current Utilisation of Flexibility in the Nordics) — but that distinction rests almost entirely on what E.ON and Göteborg Energi are doing.
The capacity deficit
Survey data makes the gap concrete. A 50-DSO survey conducted for Energiforsk 2026:1157 found:
- 32% of DSOs lack a documented forecasting methodology
- 40% lack documented power templates
- 36% do not validate their forecasts systematically against actuals
- Only 19% do continuous validation
(Source - Energiforsk 2026-1157 Nationell Metod Effekt och Kapacitetsprognoser (2026))
A parallel study drawing on UK and Portuguese DSO interviews found that approximately 1 FTE per 40,000–80,000 grid connections is required for DNDP production and maintenance — even in countries with mature DNDP practice and purpose-built tooling (Source - Energiforsk 2024-1043 DNDP Analys och Flexibilitet (2024)). For a medium-sized Swedish DSO with 50,000 connections, that means roughly one person. For a small DSO with 8,000 connections, it means a fraction of someone’s time — typically someone who also handles other grid operations. Excel dominates the workflow across all geographies and company sizes; purpose-built tooling is the exception.
A qualitative study of eight Swedish DSOs confirmed the picture from a different angle: many lack data-driven forecasting models entirely, and when asked what they want, the consistent answer is holistic end-to-end solutions — not methodology guidance, but someone else to do it (Source - Energiforsk 2026-1168 AI-modeller Prognostisering Efterfrågan El (2026)). That framing reveals something important about organizational reality: the constraint is not access to methods but capacity to apply them.
The reasons DSOs give for not using flexibility alternatives to grid investment are equally revealing. PM2025:03 records: no need assessed, flex can’t replace certain investments, lack of analysis capacity, insufficient competence (Source - Ei PM2025-03 DNDP Sammanställning (2025)). The last two are organizational constraints, not market or regulatory ones.
The compliance stack
Three mandates have landed on all 155 DSOs in rapid succession:
1. DNDP (EIFS 2024:1) — Submit by 31 December 2024; mandatory biennial from now. Requires capacity forecasting, flex need quantification in MW, investment planning, and six-week public consultation. Done: 152 of 155 submitted by January 2025. But Ei explicitly acknowledges that the submissions are not comparable: different reference years, different coincidence factor assumptions, some reporting accumulated totals and others annual increments, no standardized data format. The mandate was met; the data quality is variable.
2. FNA (ACER Decision 05-2025) — DSO submissions due April 7, 2026; national report due July 25, 2026. Requires structured flexibility need quantification to FNAM standards, barrier analysis across six categories, and Tabell 15 data in a defined format. This is a higher analytical bar than DNDP: the FNAM methodology is specific, the barrier categories require qualitative assessment, and the data must be aggregable across DSOs by Svk and Ei.
3. NC DR — T&C process to be designed within 12 months of entry into force (expected 2026–2027). Every DSO with a local services market obligation under the NC DR must participate in the national Terms & Conditions process. Ei has explicitly flagged Sweden’s “large number of small and medium-sized DSOs” as the primary design challenge for this process (Source - Ei NC DR Förberedelser (2025)).
The three mandates compound sequentially. DNDP data feeds FNA; FNA shapes NC DR T&C design. A DSO that cannot produce reliable DNDP flex need quantification contributes noise to the FNA aggregate. A DSO with no experience of flex need analysis has little constructive input to NC DR T&C discussions about local services market design.
Why this blocks flex development
The capacity problem interacts with the revenue cap problem to produce a particularly stubborn equilibrium. Intäktsreglering is ranked the single largest structural barrier to flex market development by far — 38 points out of ~250 barriers catalogued, first place by a large margin (Source - FlexAbility Delrapport 5 (2025)). The TOTEX reform in RP5 (2028–2031) is designed to fix the CAPEX bias by making DSOs indifferent between capital and operational expenditure solutions (lösningsneutralitet). But RP5 doesn’t begin until 2028, and even with better incentives, a DSO with no flex methodology, no vendor relationships, and no staff capacity is poorly placed to change its procurement behavior.
The geographic concentration of existing flex activity means that the case for flexibility as a system solution is built almost entirely on evidence from large DSOs with atypical internal capacity. When E.ON runs 12 SWITCH markets and Göteborg Energi runs Effekthandel Väst, it looks as if Swedish DSOs have embraced flex markets. But this reflects the behavior of 6 companies out of 155. The remaining 149 represent a large portion of the geographic grid, including the rural and semi-urban areas where EV charging growth is fastest, renewable generation connections are most active, and local congestion is most likely to be addressed — for now — by waiting for someone to build more cable.
Possible structural responses
Derogations and exemptions: The NC DR draft allows derogations from market-based flex requirements where it is not cost-effective. Small DSOs with low load density and no viable FSP base can plausibly argue for derogation. This is the path of least resistance for the smallest networks — but it institutionalizes a two-tier system in which the geographic and organizational periphery of the Swedish grid remains outside the flex architecture indefinitely.
Shared services and common infrastructure: The most promising response. Energiforsk 2026:1157 Phase 2 will develop a shared forecasting data platform based on national data sources and a standardized methodology — modeled on the Netherlands capacity map (Netbeheer Nederland/TenneT, jointly maintained, monthly updates) and Norway’s wattapp.no (built in eight weeks, shared data structure). If Ei secures bemyndigande for structured DNDP data reporting, a common digital pipeline becomes feasible: DSOs contribute structured data to a central platform rather than producing standalone Excel-based plans. Energiföretagen Sverige already coordinates DSOs through AG Helhet Flex and AG Kapacitetsprognoser — the governance infrastructure for shared services exists at least in outline.
Digital connecting SO: The EU DSO Entity’s Expert Group on Distributed Flexibility recommends (recommendation A5) a digital connecting SO concept — a licensed entity that provides the digital interface between flexible customers and the grid, handling metering, baseline calculation, and dispatch signals independently of which DSO owns the physical network (Source - DSO Entity Distributed Flexibility Practices (2026)). This would allow small DSOs to fulfill their neutral-facilitator obligations without building internal digital capacity. It is a medium-term structural idea rather than a near-term solution, and it raises new questions about accountability and data access.
Consolidation: The Swedish DSO sector is slowly consolidating, driven by regulatory complexity and capital requirements. The cumulative compliance burden of DNDP + FNA + NC DR may accelerate this among the smallest operators. But consolidation is constrained by municipal ownership structures and political attachment to local grid control; it is slow and does not solve the near-term compliance timeline.
The structural implication
Ei is aware of the problem. The bemyndigande proposal, the DNDP map tool, the early study on NC DR process design for a multi-DSO environment, the Energiforsk methodology program — these are all responses to the same diagnosis. But they are infrastructure-building measures that take years to deliver. The FNA 2026 is the first real stress test: by July 25, 2026, Sweden must produce a national flexibility need report aggregated from the contributions of 155 DSOs of wildly varying analytical capacity.
Whether that report will be reliable enough to serve as the foundation for NC DR T&C design — and whether the NC DR T&C process can be designed so that small DSOs can participate meaningfully rather than being represented by large DSOs through Energiföretagen — are open questions. The answers will be visible in the FNA 2026 output and in how Ei structures the NC DR T&C process in 2026–2027.
The deeper question is what the regulatory pipeline produces if the weakest links don’t strengthen. A DNDP-FNA-NC DR architecture built on thin or inconsistent data from 149 of 155 DSOs is not worthless — the large DSOs that dominate by customer count provide the bulk of the signal. But it systematically underrepresents the geographic periphery of the grid, the areas where rural electrification and renewable connection are most active, and the areas where flex market development is most absent. Policy designed on that data will tend to optimize for the conditions of large urban and peri-urban DSOs, not the long tail.