To understand the challenges electricity networks face to support the energy transition, look no further than Germany.

The country is Europe’s largest economy and energy market. It is also, by far, Europe's largest emitter of greenhouse gas emissions, despite its early leadership in wind and solar and has set the ambitious goal of sourcing 80 percent of its power from renewables by 2030 and 100 percent by 2035. It reached 59 percent in 2024.

Germany’s electricity grid, considered among the most reliable in the world, is the cornerstone of its economy - tasked, increasingly, with connecting generation, largely concentrated in the North, with industry’s demand centers in the West and South.

In recent years, however, its grid has been put under significant strain, encapsulating the new challenges facing the energy grid, from energy-hungry data centers to electric vehicles.

New Demands Put the Grid Under Pressure

A walk through the streets of any German small town will show numerous photovoltaic panels covering the roofs, a representation of how fast solar generation has spread across households and businesses. Heat pumps and electric vehicles are adding new kinds of demand at the edge of the grid, pushing local distribution networks to manage loads they were never designed to handle.

In 2022, section 14a of the German Energy Industry Act explicitly addresses the need to integrate these controllable devices. Overall, government estimates are that the total electricity consumption should grow by more than 25% by 2030 compared to 2023, as a result of the growing electrification of transportation and heating. The grid must also adapt to two-way energy flows as households and businesses are no longer only passive consumers but also producers.

The result is a grid that must handle more connections, greater volatility and higher peaks, all without compromising reliability.

That is the role of Distribution System Operators (DSOs), the entities that manage local electricity networks and ensure reliable delivery to homes, businesses and public services. DSOs have been described as “the backbone of the energy transition” for their role in linking renewable generation with everyday demand and enabling a more decentralised system.

Decentralisation and its Discontents

That’s the ambition. Modernising the grid, however, has faced a challenge that is unusually pronounced in Germany: fragmentation. Reflecting the country’s political decentralisation, Germany has more than 800 DSOs, ranging from large regional companies to small municipal networks.

By comparison, some European countries such as Ireland or Greece have a single DSO. France and Italy are also highly concentrated, with one dominant operator managing more than 80 percent of distributed power alongside a few smaller networks.

Germany’s fragmentation has advantages and drawbacks. It keeps utilities close to their communities, but it also leads to duplicated systems, uneven investment capacity and slower adoption of digital tools. This has slowed progress in areas such as smart meters — where Germany lags behind most of Europe — and in the grid expansion and storage investments needed to balance variable renewable generation.

Fragmentation is not the only factor: Incentives also play a role, especially amid rising compliance and regulatory costs. Like most of Europe, German DSOs operate under incentive regulation (Anreizregulierung), which caps revenue based on periodic cost reviews. Despite revisions, the framework creates side effects, discouraging anticipatory upgrades and “soft” investments such as digitisation if they do not directly improve availability or carry risk.

More recently, added cybersecurity requirements, including the NIS2 directive, have further complicated operations, adding a de facto “compliance tax” to digitalisation.

The State of DSO Digitisation

Germany’s Bundesnetzagentur, the federal regulator for energy, acknowledges that “rapid progress is needed” in the digitalisation of distribution networks, as well as the significant challenges posed by fragmentation.

For most German DSOs, digitalisation remains at an early stage. The standard tool is the geographic information system (GIS), which provides a static map of grid infrastructure. These systems help operators record asset locations and plan maintenance but offer little real-time insight. Network views are still largely descriptive, rather than analytical or predictive. This limits the ability to assess how distributed energy resources such as photovoltaics, electric vehicles, and heat pumps affect local grids under shifting conditions.

The technology base is fragmented. While some DSOs test digital monitoring of substations or advanced metering, there is no consistent integration of data across assets and domains. Forecasting of demand, simulation of stress scenarios and system-wide coordination are constrained by the absence of shared standards and interoperable platforms.

As a general consequence, DSOs often lack real-time visibility of their networks, interoperability across IT and OT systems is weak, and sharing data with TSOs is cumbersome. This hampers outage management, complicates planning and undermines the ability to absorb more renewable capacity.

Digital Twins as Pillars of an Interconnected Grid

On the other hand, pilots show signs of progress. E.ON has announced having developed a digital twin covering over a third of Germany’s distribution grid—processing data from some 55 million network elements.

In a recent joint report, interprofessional association DSO Entity and ENTSO-E highlights the role of such digital twins as the  “recommended solution” to “enable improved monitoring, prediction, and decision-making across the lifecycle of grid assets, from development and planning to operational monitoring and scenario simulation”.

Digital twins promise to overcome the limitations of static models: precise forecasting by incorporating weather and consumption patterns, monitoring of ancillary services, identification of vulnerabilities and joint resilience assessment across operators. As the report notes, digital twins could provide the “glue” enabling DSOs, TSOs, and new energy devices to interact effectively. In practice, they represent the shift from static network maps to living models that support planning, operation and long-term optimisation.

The maturity of a digital twin (DT) develops in stages, from simple concepts to fully autonomous optimisation. Early phases involve creating a basic model and descriptive representations, while mid-stages connect to real-time data and provide diagnostics and predictive analysis. At the most advanced stage, the DT can autonomously adjust, trigger maintenance and directly control the asset.

A System of Systems

This trend towards digitisation is also a trend towards interoperability: The goal is not to create 800 closed ecosystems that cannot communicate, but to facilitate exchange of information, most notably with the transmission system operator (TSO) that connects the DSOs to the power plant.

This exchange of information would serve their common needs - for example, anticipating the effect of weather patterns - and common goals of optimising grid operations, managing peak demand, and ensuring overall power system resilience.

But that requires overcoming several challenges including, in the words of the joint report of DSO entity and ENTSOE, the fact that “present DSO and TSO systems were not designed in terms of interoperability.” Addressing this issue often involves phasing out legacy software for a unified solution.

Take the example of Bayernwerk. As Bavaria’s largest distribution operator, it manages an electricity network of 188,000 km and a gas grid of 6,000 km, serving over 2 million customers. The company emerged from the merger of five utilities, each with its own GIS. This meant six incompatible systems of uneven data quality.

Bayernwerk addressed the problem by consolidating everything into a unified platform, Hexagon’s NetWorks web GIS, which has been live since September 1, 2025. Through a browser-based thin client, all 1,500 users across 19 regions can access the central network and geospatial information system, which runs on a single database with no redundancies.

The evolution supports the needed evolution to Germany’s grid. First, it lays the groundwork for a digital twin that can support autonomous operations. And, beyond day-to-day efficiency gains, the system underpins renewable integration, with 265,000 PV systems already feeding into the grid. 

A Test Case That Matters Around the World

Germany’s push to digitise and modernise across a fragmented ecosystem is watched all over Europe

Germany’s pressures are not unique: Europe’s electricity infrastructure is under growing stress. Spain and Portugal’s recent blackout has recently drawn media attention to the fragility of power networks, just as Netherlands has had to ration power after accelerating electrification. And, around the world, the rapid growth of EVs, heat pumps and renewables will require the grid to adapt and DSOs to improve their load management and outage handling practices.

Germany therefore serves as a test case. Its fragmentation is unusual, but its digitisation challenges are not.

In a recent global survey by Hexagon, 67% of power executives said their organisations still rely on paper-based processes, with one in five (22%) describing this use as constant. 78% reported a strong or severe impact on operations from poor data integration and connectivity, and 69% pointed to legacy software and aging infrastructure. Only 22% of executives reported the continuous use of a digital twin, lagging sectors like oil and gas or manufacturing.

In other words, Germany’s distribution problems may be sharpened by its fragmented market, but they are far from unique. If the country succeeds in modernising, digitising and federating distribution around digital twins, its example will echo worldwide.