Another opportunity to play in the sandbox - Ofgem publishes guidance to support innovation

United Kingdom

On Monday 20 July Ofgem, the energy regulator, Ofgem, published guidance on its Energy Regulation Sandbox Service (the “Sandbox”). The Sandbox is a service that enables innovators to try out new ideas with guidance and support from Ofgem and industry bodies. The changes that Ofgem have announced in relation to the Sandbox have widened its remit and provided more flexibility to innovators.

The Sandbox helps innovators trial or bring to market new products, services, business models and methodologies without some of the usual rules applying. The Service is available to start-ups, new entrants, established sector players, public or third sector bodies.

The Sandbox works through four primary tools:

  1. Bespoke guidance on interpreting regulations and how they might apply to an innovator’s specific trial circumstances;
  2. Comfort about Ofgem’s approach to compliance and enforcement for the purposes of a trial;
  3. Confirmation that a proposition is permissible; and
  4. Formal relief (a derogation) from a specific rule (from a licence or code) that an innovator is not able to comply with.

Full details of the Sandbox and information on how to apply can be found on the Ofgem website. Ofgem has also published guidance titled Energy Regulation Sandbox: Guidance for Innovators.

Changes to the Sandbox Service and consultation on the supply licence

The most significant change to the Sandbox is that rather than having to meet strict window-based deadlines as in the original Sandbox service, innovators can now access the service and submit applications at any time. Ofgem have also now included the ability for innovators to receive feedback instead of or in advance of Sandbox support where necessary.

Following feedback from innovators on the previous Sandbox service, Ofgem recognised that many of the barriers that innovators encountered resided in the detailed codes owned and operated by industry. Two of the electricity codes, the Balancing and Settlement Code (the “BSC”) and the Distribution Connection Use of System Agreement (the “DCUSA”), have responded to this and developed sandbox derogation capabilities for pre-commercial trials. There is more detailed information set out in the BSC Sandbox Procedure and the DCUSA Sandbox Procedure. Other code administrators are considering Sandbox flexibilities and Ofgem will update their resources as new codes are finalised.

Ofgem want to enable innovation by improving the services that they offer, and for that reason on the same day the new guidance on the Sandbox was published Ofgem also announced a consultation relating to extending the number of rules in the supply licence that it can derogate from (the “Consultation”). The Consultation seeks industry views on which supply licence conditions it can provide relief from, as well as the circumstances in which it can grant supply licenses for specific geographic areas or premises types. The consultation period ends on 12 October 2020.

Background

Previous projects that have taken part in the Sandbox have involved a wide range of technologies and new and innovative solutions. Some projects have aimed to allow domestic customers to benefit more directly from the environmental and financial benefits of renewable energy. Others have trialled arrangements allowing consumers with small-scale generation such as solar panels to sell excess electricity in the marketplace. The Sandbox proved to be a popular way for innovators to engage with Ofgem, and for Ofgem to support trials and identify rules which pose regulatory barriers to new products, services and business models.

Following the popularity of the service as well as feedback from innovators who have participated in these windows over the last several years, Ofgem has decided to expand the range of tools available and design the Sandbox to be open rather than having time-limited application windows.

Concluding Comments

The energy system and how we use it is changing, and COVID-19 has also resulted in changing consumer demand patterns that have given us an insight into what a low-carbon future might look like. As such, now is an ideal time for Ofgem to launch this new and updated Sandbox service supporting innovation in the industry.

In Ofgem’s Decarbonisation Action Plan published earlier this year they stated that they would “support innovation and experimentation, particularly in the retail market, to create low carbon products and services that will directly benefit consumers”. In order to achieve the country’s net-zero ambitions Ofgem recognises that we must innovate in the ways we produce, transport, manage and consume energy. Part of this transition will require innovation in new products services, processes, market actors and business models and flexibility in regulation to enable innovation to proceed. The review of the Sandbox aims to assist and encourage innovation in this respect and help Great Britain’s drive towards net-zero.

For more information on other developing policy points in relation to the UK Government’s aims to achieving net-zero, CMS have published a number of articles in relation to this topic.