In large parts of the Netherlands, the grid is full. Not theoretically strained but structurally congested, in ways that physical expansion cannot resolve within reasonable timeframes. Permitting takes years. Labour is scarce. Capital requirements keep rising. And meanwhile, electric vehicles, heat pumps, solar generation, and industrial electrification keep adding load. This is the moment that changes what a DSO is.
Historically, distribution system operators built and maintained infrastructure. Pricing was a regulatory exercise, a cost allocation methodology, reviewed periodically, designed mainly for compliance. However, in the light of the changes mentioned above, pricing is becoming something far more consequential: a coordination mechanism for scarce network capacity.
Not commercial pricing, infrastructure coordination
It is worth being precise about what DSO pricing is, because the temptation to import frameworks from commercial sectors is misleading. In practice, DSO pricing encompasses the design of tariffs, congestion incentives, flexibility payments, capacity reservation mechanisms, and other economic signals that influence how scarce network capacity is used. DSOs do not price to maximise revenue. Their ambition is to shape behaviour: encouraging demand shifting, incentivising flexibility, and signalling where investment in decentralised assets creates genuine system value.
The right comparators are infrastructure coordinators like the Dutch rail asset owner and infrastructure manager ProRail and Amsterdam airport Schiphol: regulated monopolies allocating scarce capacity efficiently, transparently, and in the public interest. Schiphol differentiates landing charges by time slot and emissions profile, not to extract value but to steer behaviour within a regulated framework. ProRail applies mark-ups on track access charges to steer operator behaviour on noise, emissions, and punctuality. In both cases, pricing acts as a coordination mechanism rather than a profit engine. The same principle increasingly applies to electricity networks. Unlike airports or rail networks, however, electricity networks must coordinate millions of decentralised decisions in near real time, making the design of effective pricing signals considerably more complex.
It is equally important to be clear about what DSO pricing is not: it cannot monetise scarcity, substitute for network investment, or bypass governance and audit requirements. Every pricing decision must be non-discriminatory, transparent, and defensible to regulators, customers and society. The objective is not to capture value from congestion but to manage scarce capacity in a way that supports an efficient, reliable and affordable energy system.
What effective pricing requires
Incentivising flexibility products by pricing means reflecting scarcity across time, location, and capacity simultaneously. A kilowatt-hour of flexibility during an evening peak in a congested substation area is worth substantially more than the same kilowatt-hour on a low demand weekend day in an unconstrained network. Pricing that cannot make that distinction will either over-compensate or under-incentivise and, in both cases, distort investment and operational decisions.
The challenge is that these dimensions do not exist in isolation. Network constraints, customer behaviour, technology capabilities, regulatory requirements, and investment alternatives all interact. A pricing decision that appears optimal from one perspective can create unintended consequences elsewhere in the system. Effective pricing therefore requires a holistic view of both the physical network and the market participants operating within it.
It also means understanding that price signals only work when participants have the ability to respond. A household without a smart EV charger cannot shift load. A factory without battery storage or process flexibility may face significant operational costs to react to variable prices. Pricing and product design therefore cannot be treated as separate disciplines; they must evolve together.
Finally, pricing capability is not about pursuing precision but about building robustness. Regulatory frameworks will evolve, technology costs will shift, and customer behaviour will inevitably surprise. The value of a well-built pricing capability lies not in optimising against a single projected future, but in performing reliably across a range of futures that might occur, with governance structures that allow recalibration as evidence accumulates.
The capability gap is a strategic risk
Building a pricing capability requires dedicated expertise across economics, data science, regulation, and market design supported by clear governance on who decides what. This is not back-office work but a core task.
Dutch DSOs are currently managing congestion through a combination of infrastructure investment, connection refusals, and early-stage flexibility products. Long-term infrastructure expansion will remain indispensable; ultimately, the energy transition cannot be delivered without significant investment in the physical network. However, infrastructure project takes years to plan and deliver while congestion challenges are already here. Pricing and flexibility mechanisms are among the few levers that can be developed and deployed on much shorter time scales.
The strategic value of pricing extends beyond managing today’s constraints. Clear and credible price signals influence where market participants choose to invest in batteries, flexible demand, energy management systems, and other decentralised resources. The earlier those signals emerge, the more likely private investment will develop in locations and applications that create value for the electricity system. Delayed or weak signals increase the risk that flexibility assets are deployed where they offer limited network benefit, creating inefficiencies that can persist for many years.
The organisations that invest deliberately in pricing capability will be better positioned not only to manage congestion in the short term, but also to shape a more efficient and flexible energy system over the long term. Pricing will not replace infrastructure investment, but it may become one of the most effective tools available for bridging the gap between today’s constraints and tomorrow’s network.