Stakeholders have raised concerns over Ofgem’s proposed role in running the Future Regulation Sandbox (FRS) mooted by the regulator last year.
Setting out its proposals in a call for input in November, Ofgem said the FRS would be used to test and trial changes to energy regulations ahead of full adoption and collect evidence to inform difficult policy decisions.
The regulator said the scheme would build upon, and be in addition to, the existing Energy Regulation Sandbox, which allows innovators to secure specific derogations from energy regulations to trial new products and services or launch them into the market.
Ofgem said industry parties would be able to propose ideas, but trials would be initiated and led by itself.
Summarising responses to the call for input, Ofgem said there were “mixed views” on this proposed “regulator-led” approach. Some stakeholders saw benefits such as: the greater weight of insights generated by trials; the neutralisation of tensions from conflicting interests; and an increased chance of regulatory change.
However, other respondents raised concerns over Ofgem stepping into a trial design role, saying industry parties are best placed to suggest and trial solutions; a centralised approach risks overlooking changes that may lie in the details of rules; and that there is a risk-averse attitude within Ofgem and other bodies overseeing rules.
Nevertheless, Ofgem said there was a “strong call” from stakeholders for it to help focus idea generation, for example, by signalling whether there are any particular policy areas they are looking to address through a trial. Some worried that “using a bottom-up approach to create a long list of ideas may result in missing out on the most impactful and strategic ideas.”
A minority said that an independent reviewer would be best placed to sift through applications, citing concerns that Ofgem may have “too narrow a view”.
Ofgem said a lack of funding was “the most cited potential barrier to participation in trials, with many highlighting that this is likely to deter smaller players more strongly and could limit the potential for trials involving consumers in vulnerable circumstances and fuel poverty.” Some stakeholders questioned how other sandbox partners such as code administrators would be resourced to support trials.
The regulator said there were “no objections” to its proposal for multiple parties to participate in the same trial environment. There was “broad agreement” that the sandbox should be open to all innovators, whether licenced or unlicenced, although there were some concerns over how this would work in practice.
Overall, Ofgem said it is “confident from our engagement that stakeholders see enough value in the FRS to continue developing this idea into a deployable policy-making tool which will work in addition to our existing regulatory toolbox.”
“We recognise that, while there is agreement with the overall ambition of the FRS, there are many aspects of the design that need to be carefully considered so that we can achieve this ambition,” it added. “For example, we recognise that clarity of roles and responsibilities is key for success and will consider this carefully as we continue the detailed design and implementation of the FRS.”
The regulator suggested that trials could involve an initial ideation stage, in which any stakeholder can suggest ideas; a consolidation stage, in which it collaborates with other rule owners to design the trial environment; and then a consultation and invitation stage, in which potential participants and other stakeholders can feed into the trial design.
Ofgem said it is considering options for how FRS trials could be incorporated into the RIIO3 framework, for example, by linking them to the Strategic Innovation Fund or allowing re-openers once the concrete need for a trial has been established. It said it intends to publish its decision on this within the RIIO3 sector-specific methodology in the second quarter of this year.