The energy sector is undergoing a structural transition due to the increasing share of Distributed Renewable Energy Sources. One of the main stakeholders is the Distribution System Operator (DSO) because of the massive investments that are needed at DSO level. Despite the urgency, studies show a declining DSO investment effort indicating that barriers exist that hamper innovative investments by DSOs. The goal of this article is to explain the link between innovation, investments and the regulatory framework. Relevant financial, structural and behavioral barriers are discussed and their underlying dimensions are clarified. Suggestions are made how the regulatory framework could support DSOs innovative behavior and resulting investment decisions. This study supports the view that the regulatory framework is able to facilitate innovation by using an integrated approach combining both financial and non-financial measures.
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