Regulatory sandboxes: how to design them to help deliver net zero?
Alexandra Schneiders, UCL Energy Institute
One of the key obstacles to the rollout of innovative models driving the transition to a net zero society is regulation. Without it, or when there is too much of it, innovation cannot thrive. Countries across the world, including the United Kingdom, are currently grappling with the question of how to shape the regulatory framework in a way that enables energy consumers to have access to new digitalisation-driven forms of services, such as peer-to-peer energy trading. Policymakers and regulators must strike a careful balance between enabling (fast-paced) innovation by avoiding prescriptive laws, while providing a framework that protects consumers playing a more active role in the energy system.
The ‘regulatory sandbox’, first launched in financial services and now making its way into the energy sector, is a regulatory tool aimed at facilitating the striking of this balance. As stated by Ofgem, the UK energy regulator, a sandbox is necessary since “regulating for uncertainty requires a more flexible approach that relies on learning over time”. Regulatory sandboxes allow companies to trial new business models, not yet foreseen in or permitted under the current regulatory framework, with a limited number of consumers and within a set amount of time. Governments use the learnings from trials, particularly on consumer feedback and treatment, to assess whether legislation needs to be amended or drafted in order to make these models legally permissible and available to all consumers.
The countries rolling out energy sandboxes so far have taken different approaches. For instance, the UK has a two-year timeframe for trials while the Netherlands’ is 10 years. The UK timeframe has been criticised for being too short, but is 10 years a realistic timeframe to test a new model? Furthermore, some countries pre-select the energy rules that can be derogated from under the sandbox, thereby limiting the scope of regulation that can be assessed during the trial. This is problematic, since new energy service models giving consumers a more active role are likely to encompass non-energy fields, such as contract and data privacy regulation. Bearing this in mind, can today’s sandboxes fulfil the aim of rendering regulation more innovation-friendly while still protecting energy consumers?
This paper will aim to answer this question by assessing and comparing the energy sandboxes of the UK, Netherlands, Belgium, Singapore and Australia. Regulatory and policy documents published on these sandboxes will be analysed in their original languages (spoken by the author) and compared. Based on the comparative analysis, the paper will set out the pros and cons of countries’ approaches. It will conclude by providing recommendations to policymakers on the designing of energy sandboxes. It will also draw from the learnings of the financial services sandbox in the UK, which was the first ever regulatory sandbox to be launched and has had mixed results so far.
The paper will offer an international perspective on energy sandboxes, which has not been provided in the literature so far. It will also be produced within the context of the Global Observatory on Peer-to-Peer, Community Self-Consumption and Transactive Energy Models (GO-P2P), an initiative of the International Energy Agency assessing the regulation and social acceptance of these new business models.
Ofgem, Innovation Link (last visited on 2 March 2020)
RVO, Experimenteerregeling Elektriciteitswet (last visited on 2 March 2020)
Ofgem & BEIS, Flexible and responsive energy retail markets: putting consumers at the centre of a smart, low carbon energy system (22 July 2019)
Keyword set: regulatory sandboxes, innovation, consumer rights, digitalisation, international