Ofgem plans to set up a Future Regulation Sandbox (FRS) to test and trial changes to energy regulations ahead of full adoption and collect evidence to inform difficult policy decisions.
The proposed scheme builds upon, and would be in to addition to, the Energy Regulation Sandbox (ERS) previously introduced by Ofgem to allow innovators to apply for regulatory derogations to trial new products and services or launch them into the market.
“Now more than ever, it is important that the rules governing the energy sector are enabling and responding to innovation, because of its crucial role in achieving the UK’s net zero targets,” Ofgem explained.
“We recognise that there is a need for innovation in regulation itself to better support the exploration and deployment of innovation, as well as its proportionate regulation, for the ultimate benefit of consumers.”
Ofgem said the ERS in its current form is “not a means to change regulation on a permanent basis”. It said the FRS would be different in that its “explicit aim” would be to inform regulatory decisions and the initiation and design of trials would be led by Ofgem itself.
Similar to the ERS, the FRS would operate in the live market while providing a “contained environment to controlled testing of potential future regulation”.
“An FRS environment — rules and conditions in place for the time-limited duration of the trial — would limit risk to consumers, systems and markets, whilst providing a rich evidence base to inform decisions about how the rulebook should evolve,” it added.
These rules and conditions could include the removal of existing regulations, the introduction of new or altered regulations, and limits on the scale of trials, for example, based on the number of meters or consumers, geographical locations or energy volumes.
The regulator said it wants to take a flexible approach to the length of trials, but noted that trials in similar sandboxes in other countries have lasted for as long as a decade. It said it is open to extending trials if more evidence is required, or shortening them if the necessary evidence is gathered faster than expected.
Ofgem said it does not initially plan to make any funding available to innovators as part of the sandbox, but they could seek funding through existing Ofgem mechanisms such as the Network Innovation Allowance or the Strategic Innovation Fund. The regulator said it is also open to aligning the FRS with schemes by other funders such as the government and Innovate UK.
The trials would be observed by Ofgem’s relevant policy teams as well as any code bodies involved. It said ideas for trials could be proposed by any stakeholder or emerge from other programmes of work.
Ofgem has asked for feedback on the proposals, including suggestions for the initial topics the sandbox could explore. The deadline for responses is 19 January 2024.