Enabling innovation in the energy sector

Pamela Taylor

Pamela Taylor

Partner, Enforcement and Innovation Link
2nd October 2017
Areas covered:
Consumers
Corporate
Electricity
Circuit board image
The energy sector is changing rapidly. Disruptive technologies and new business models are already remaking the traditional energy landscape. We launched the Innovation Link last December to help innovators that want to break into the energy markets.

 

The Link offers innovators feedback on the energy regulatory implication of their business plans and the possibility of trialling innovative products and services, without facing full regulation, a service known as our regulatory sandbox. In today’s blog, I share some insights about our experience of working with innovators and announce the launch of the second window of the regulatory sandbox, which will be open for expressions of interest until 27 October 2017.

10 months on...

We are encouraged by the level of engagement we have had and the very positive feedback about the ‘fast, frank feedback’ service. Since last December, we’ve offered energy regulation feedback to 97 innovators. 88% of those surveyed told us that the steer we provided to them was very useful and helped to shape their business model. We are reaching a wide range of businesses seeking to enter the sector. As you can see in the pie chart below, only 17% of innovators that used the Link are involved in the energy sector already. 

Innovators'  Sector Origins chart

Trends we are seeing in innovation

The Link provides Ofgem a window into the innovation within the sector and allows us to learn how regulation may need to evolve in future. A number of organisations that used the service are looking at ways to innovate in the supply of energy to consumers. This includes offering consumers the possibility to select locally sourced renewable power or for communities to collectively own renewable plants or storage. A number of innovators are developing the technology to allow peer-to-peer trading of energy; providing an opportunity for small-scale power producers, including homes and business with solar panels to sell to other consumers. Others are developing concierge type services, which switch consumers to the best energy deals on their behalf. Some innovators are developing smart devices designed to optimise consumption and lower bills. A number of innovators are developing services for electric vehicles owners to allow them pay for their on-the-go charging needs via their home energy account. 

Trialling ideas using the ‘regulatory’ sandbox

In parallel to the feedback service, we launched a call for expressions of interest in a regulatory sandbox, to allow innovators to trial new business models without facing the full regulatory requirements for running a business in the energy market. In our July update, we reported that we were in discussion with five innovators that wanted to use the sandbox. These discussions are in their final stages. 

Our experience of trialling the sandbox has been extremely valuable. We found that many innovators required support in order to identify the specific regulatory barrier. In many cases, our fast, frank feedback approach helped to identify solutions that did not require a sandbox, meaning that innovators were able to consider market entry sooner and without the need for a trial. In other cases, even when a specific regulatory issue is identified, the responsibility for a requirement may sit with different organisations (Ofgem, the Department for Business, Energy and Industrial Strategy BEIS or Industry Panels in Elexon, etc.); this means Ofgem requires cooperation from others to relax rules during a trial. Therefore, other organisations openness and willingness to adopt ‘sandbox type’ solutions is important.

In light of these insights, we’ve decided to integrate our fast, frank feedback service into the sandbox process. This helps innovators assess whether there are regulatory barriers before considering the type of sandbox support that may be appropriate. We have amended our guidance and processes to reflect this. Interested innovators should register their interest by the 27th of October at the very latest (email: innovationlink@ofgem.gov.uk with the subject “sandbox expression of interest”). 

Throughout October and by the 3rd of November at the latest, we will meet with those that have registered to explore their proposals. We will work with innovators on a first-come, first-served basis. Interested innovators should see our website for more information and our detailed guidance.  

What next?

We want our services to be flexible and to respond to the needs and expectations of innovators. Innovators have suggested that we share insights about common barriers and solutions and develop ways to work with innovators after they have ‘exited’ the Link. We will be developing both of these ideas further. 

Our ambition in setting up the Link is that it provides the much-needed insights into innovation and the regulatory barriers that innovation faces in order to shape the future. This led us to holding a roundtable on 13 September to share insights on how blockchain technology is being trialled in the energy sector and to discuss the regulatory implications. We will be looking for more ways to share insights and learnings on innovation and its implications for regulation.