Gas distribution system operators (DSOs) have historically played a key role in economic development, contributing to both industrial growth and improved quality of life for households. However, the current need to balance the demands of the energy transition while maintaining resilience, competitiveness, affordability, and security of supply puts mounting pressure on DSOs. They must, at the same time, navigate complex internal and external forces within their operating environment, including an aging network, regulatory constraints, and evolving customer expectations.
While these challenges may be formidable, they open the door to transformation, presenting unique opportunities for DSOs. Capturing them, however, will require a rethink of current operating models, including embracing an effective capital expenditure (capex) machine, building a digital network, ensuring efficient operations with new capabilities centered around customers, and driving multidimensional growth. If DSOs can achieve this transformation, our analysis suggests that operating cost efficiency could increase by up to 30 percent.
Drawing on insights from our work with leading companies in the industry, we explore the forces reshaping the sector and how DSOs can update their operational approach in response.
Forces are impacting gas distribution infrastructure, necessitating a change in the operating model
Both internal and external forces are putting pressure on DSOs to adapt to shifting circumstances and rethink their operating models (Exhibit 1).
Internal forces
Internal pressures from networks within the operating environment are affecting DSOs’ operations.
Technological evolution of the network: Gas distribution is constantly evolving to improve performance and align with the energy transition, including the introduction of new energy vectors such as biomethane. However, this technological evolution has implications for DSOs, requiring larger investments in innovation and digitalization, and increasing the complexity in capex deployment management. To overcome these challenges and capture additional opportunities, DSOs could update their operating models by integrating and digitalizing the end-to-end capex deployment cycle.
Variation in network density and shape: Changing customer habits and the push for cleaner energy are affecting gas distribution, with some households disconnecting from the gas system in favor of electrification, and others requiring network expansion. This variation can lead to tariff and revenue challenges or the need for network redesign and infrastructure optimization, especially when delivery points are spread over larger distances.
Progressive aging of the network: Aging network infrastructure leads to increased maintenance and replacement costs for DSOs, as well as higher ecosystem safety and reliability risks. To overcome this challenge, DSOs can adopt a late-life approach to grid management (for example, procurement standardization).
External forces
In addition, various complex external forces are influencing DSOs, forcing them to adapt to changing circumstances.
Tension between convergence and interference of utilities: Overlapping operations and shared infrastructure across different utility sectors have various impacts: higher complexity in infrastructure management, especially in congested urban locations; increased risk of damage and safety concerns; and regulatory and permitting challenges. Operators can update their operating model to improve their capillary knowledge of the network for faster intervention and improved interactions with other stakeholders. Developing a digital twin, among other solutions, can support such goals.
Customer preference for digital channels: Customers increasingly expect digital channels for seamless service and engagement, requiring DSOs to invest in and upgrade digital offerings and platforms.
Tighter regulatory requirements: Regulations and incentives are becoming stricter in terms of carbon neutrality, requiring DSOs to structurally monitor and lower their methane emissions and increase their efficiency.1 Solutions such as advanced leak detection technology are increasingly necessary for DSOs to reduce emissions and monitor results.
Four key pillars shape the operating model of the future
Clearly, DSOs face a complex operating environment with increasing challenges. But they can stay competitive and succeed in this market context by rethinking their existing operating model around four key pillars: a fast and effective capex machine; a digital, resilient, and sustainable network; efficient operations with customer centricity; and multidimensional growth (Exhibit 2).
For each pillar, the historical ways of operating will need to change to make way for the target operating model of the future.
1. Fast and effective capex machine: From a long-term, predictable capex plan to dynamic and fast-paced management
Most DSOs still rely on a capex management operating model designed for long-term planning and deployment. This approach typically operates on a ten-year planning cycle, is updated annually, and does not account for the rapidly changing market context or real-time data from the field that is available in today’s environment. This traditional model worked well in the past when the network infrastructure was relatively new, a single type of energy vector was used, and construction and maintenance were relatively uncomplicated.
However, to thrive in the new environment—characterized by variation in network density and shape, rapid technological evolution, the need to introduce new energy vectors in the distribution infrastructure, and the shift from gas to power—DSOs can transition to a dynamic and responsive capex management operating model, supported by AI-based tools (see sidebars “Digitalizing end-to-end capex deployment and embracing a capex monitoring console” and “How leading European DSOs achieved excellence in remote worksite supervision”). This could allow operators to be more flexible and quickly adapt to major disruptions, such as the COVID-19 pandemic, or embrace new energy vectors, including biomethane.
2. A digital, resilient, and sustainable network: From manual and reactive to automated and responsive
DSOs currently use a largely manual, labor-intensive, and event-driven network management model that lacks real-time asset visibility, which results in reactive maintenance, time-consuming site visits, and inefficient resources allocation.2 Leak detection, for example, is mostly scheduled based on regulatory mandates and not actual network health status. The leak detection process is often slow, covers only parts of the network, and relies on low-sensitivity detectors, resulting not only in suboptimal leak detection but also in missed opportunities to collect useful information about the network’s condition.
Utilizing a fully digitalized and automated operating model for network management can help DSOs drastically reduce inefficiency and improve their sustainability goals (see sidebar “Creating a fully digitalized network of assets”). By using sensors and actuators across all network assets (including city gates, pressure reduction plants, and pipelines), operators can collect and transmit real-time data to a central control room, enabling remote monitoring and control, with limited on-site intervention.
Leak detection has a further advantage: It can become a valuable source of information as advanced gas leak detection systems provide data-driven insights and targeted network health status checks, offering an integrated view on sustainability KPIs (see sidebar “Embracing advanced leak detection technology”).
Digitalizing and automating network operations also creates opportunities for M&A among DSOs, even if they are not in close geographical proximity to one another.
We recently spoke to Paolo Gallo, CEO of Italgas Group, who leads the company’s innovation and digital transformation in Europe. Italgas has already updated its operating model and digitalized its entire gas system. Gallo told us about the advantages of doing so: “We digitized our gas distribution network, making it smart, connected, and fully responsive. This gave us real-time visibility, predictive insights, and a level of operational agility that changed the game. The efficiency gains weren’t marginal—they were exponential.”
We digitized our gas distribution network, making it smart, connected, and fully responsive. This gave us real-time visibility, predictive insights, and a level of operational agility that changed the game. The efficiency gains weren’t marginal—they were exponential.
3. Efficient operations with customer centricity: From static to innovative and adaptable
Most operators still rely on rigid organizational structures that ignore evolving workforce skills, changing network characteristics, and rapid market and technology developments. To stay ahead, operators can adopt a more agile model that takes a flexible approach to the sizing and the geographical distribution of poles and technical units to reflect network aging, asset-specific requirements, and isochronous curves that mirror the latest delivery points’ distribution.
DSOs can address their talent strategy, too. Tomorrow’s workforce will need to be more flexible and equipped with the right skills to support a digitalized, data-driven distribution network. This calls for reskilling programs and investment in high-value roles such as field technicians with advanced digital competencies.
Traditional boundaries between in-house and outsourced activities can also be rethought. Beyond standard cost-benefit analyses, DSOs can explore innovative collaboration models—such as offering services to peer operators—to unlock new revenue streams and operational synergies.
Once the workforce is equipped with the right skills to support business priorities, the DSO needs to optimize workforce scheduling. Some operators are already shifting from day-ahead, static planning and are embracing AI-based, real-time models. These models rethink how field activities are prioritized and assigned, transforming scheduling from a manual task into a strategic capability. The AI system evaluates and prioritizes field interventions—ranging from customer appointments and maintenance work to network patrols and administrative duties. The goal is to maximize time and cost efficiency by ensuring every technician’s schedule is fully optimized, and to increase customer satisfaction by enabling customers to pick their preferred appointment date and time.
Once work orders are prioritized, they are automatically generated and assigned to the most suitable technician with the correct skill sets, appropriate availability, and geolocation, ensuring that each task is handled by the right person at the right time with minimal travel and downtime. Each technician receives a personalized, fully optimized agenda every morning via their tablet, enabling them to focus on execution, not coordination. These schedules are dynamic and adjusted in real time through a continuous feedback loop that responds to delays, cancellations, or unexpected emergencies.
Some DSOs are already using gen AI to improve efficiency. A large southern European DSO, for example, has identified over 100 AI and gen AI use cases, several of which have already been implemented, including smart maintenance models to detect critical network sections and allow for remote monitoring of construction sites. The DSO has designed a robust pipeline of gen AI applications, ready for development. This spans procurement processes and negotiation, project design and scheduling, and claims handling and automated quotation processing.
Customer-facing processes, in particular, show high potential for gen AI applications. A leading northern European DSO has built and launched agentic gen AI to improve contracting process optimization. The DSO uses it to generate and validate general, commercial, and technical description documents for projects, including evaluating clients’ requirements and creating lists of proposed technical adjustments matched with an action item agenda for the operations team. The agentic gen AI application has halved the validation time for engineers and the number of iterations per document.
When talking to Paolo Gallo about these processes, he told us, “For any organization embarking on this journey, my advice is clear: Start with the organization pillar. That means ensuring leadership alignment, strengthening internal communication, simplifying processes, and above all, investing in talent. Bring your people with you. Make them coauthors of the transformation.”
For any organization embarking on this journey, my advice is clear: start with the organization pillar. That means ensuring leadership alignment, strengthening internal communication, simplifying processes, and above all, investing in talent. Bring your people with you. Make them coauthors of the transformation.
4. Multidimensional growth: From a vertical view to new possibilities
Currently, most DSOs focus primarily on optimizing gas distribution within their networks, potentially closing them off to other opportunities. Broadening their thinking can help DSOs expand into new geographies or adjacent markets.
To unlock new expansion opportunities, DSOs can transition to a diversified operating model that enables easier M&A processes, allowing them to consolidate operations within a single country or across borders.
Our research shows that leading operators also strengthen their presence in adjacent markets by offering energy services, energy efficiency solutions, and smart devices. Diversifying into managing other utilities, such as water distribution, can also open new opportunities and revenue streams.
Transforming the operating model can unlock significant value
DSOs have a unique opportunity to emerge as key players in the energy transition—but only if they are willing to evolve their operating models. Our analysis of major global markets reveals that some DSOs are already establishing themselves as first movers, initiating significant organizational and operational transformation.
To test this perspective, we developed an economic simulation to model a potential future profit-and-loss statement for a DSO. The results suggest a possible 30 percent improvement in operating cost efficiency (Exhibit 3). The construction and renovation offers the greatest savings potential, making up 30 to 40 percent of current costs, while optimizing headquarters and back-office processes account for the smallest potential savings, though still comprise 10 to 15 percent of the total potential impact.
The context in which DSOs operate is changing rapidly and is full of complexity. However, it is also ripe with opportunity for those that are willing to reimagine their operating model for the future.
By transforming how capex is deployed, embracing network digitalization, and making operations more efficient and customer-focused, as well as thinking more broadly about sources of growth, DSOs can turn today’s challenges into their competitive advantage. Some of the leading players globally are already showing how it can be done.
