Playing in the sandbox: encouraging innovation
New technologies and business models have the potential to bring significant benefits to electricity consumers in the form of reduced prices, new services and enhanced reliability. But the fundamental question remains, how can electricity networks and other entities be encouraged to undertake such investments when regulations hamper the ability to trial unproven concepts?
The Australian Energy Market Commission is attempting to answer this in a consultation paper through the proposed creation of a sandbox environment where network businesses, the regulator and other interested parties can come together to focus on delivering innovation which is in the best interests of customers.
The idea is simple
In a sandbox environment, the regulator can exercise its discretion to exempt parties from specific regulations that create a hurdle or barrier to the use of innovative technologies and concepts. The current regulatory framework was designed, predominately, for a 20th century energy system, where networks deliver one-directional energy flows using traditional network investments with stable customer demand. The network was not built to handle bi-directional energy flows, the scale of uptake off distributed energy resources (solar and storage) or the vast amount of large-scale renewables providing non-synchronous generation.
A sandbox will enable proof-of-concept trials, whether related to technology or innovative ideas, models or theories, to be tested. A successful trial will not only deliver benefits to those customers involved, but also provide strong evidence to support any associated rule change, allowing the benefits to be shared with many more customers. Even an unsuccessful trial yields benefits as it provides learnings and a better understanding of how new technologies or concepts function in practice – moving the industry one step closer to providing customers with the benefits of innovation.
One of the key findings in the Energy Networks Australia-CSIRO Network Transformation Roadmap was that the regulatory framework needs to be flexible to new types of services. Whilst networks can currently undertake proof-of-concept trials, the process is not well-structured and is subject to regulatory uncertainty, with formal approval from the regulator being received only after significant ground work has already been undertaken. The number and type of projects is also constrained by the amount of the Demand Management Innovation Allowance.
Sandbox arrangements will provide networks with the regulatory certainty required to more easily trial innovative technologies and concepts while gaining valuable knowledge ahead of real-world implementation. Innovation is important in any industry, but particularly for the energy sector given the current unprecedented transformation.
Where might sandboxes be used?
The scope for potential trials under a sandbox is enormous.
New solar PV inverter technologies
To maintain network safety and reliability, networks have not been able to connect all requests for residential solar PV connections. A sandbox trial of new solar PV inverter technologies may find they provide better control of network voltage and frequency levels, resolving the current safety and reliability issues and paving the way for more residential solar PV connections.
Emerging residential markets
The ability for customers to participate in emerging markets and trade surplus energy from their solar PV system or battery back to the network or their neighbour could be trialled in a sandbox. In 2018 there were with no signs of solar investment slowing down this year.
Behind the meter technology
With appropriate customer consent, new technologies that allow networks to control certain customer appliances on high consumption days could be trialled. Customers would be rightly compensated if the network could draw energy from their charged electric vehicle or switch off non-essential appliances like their pool pump at peak times. If uptake levels of this type of support are high enough, this technology could allow network investment to be deferred or even avoided, lowering bills for all consumers.
Stand Alone Power Systems
A regulatory sandbox could bypass out-dated regulations that currently prevent networks from disconnecting stand-alone power systems from the grid. Until regulations catch-up with the real-world, this means the network must maintain two sets of assets to serve such customers. A regulatory sandbox could allow for grid disconnection, bringing forward the benefits of reduced network costs to customers.
Alternative regulatory models
Networks, the regulator and stakeholders could work together to trial alternative regulatory models and approaches that are technology and cost (capital or operating) neutral.
The way forward
Experience has shown that designing a regulatory model based on theory, then implementing a raft of untested reforms will not always provide the desired theoretical outcome. The power of choice reforms are a good example. Given the rapid changes in the energy sector, particularly with technology, such an approach is destined to fail. Instead, there must be a focus on tried and tested real-world customer outcomes to allow networks to deliver tailored and cost-effective service solutions to customers, sooner rather than later – and a regulatory sandbox is a great proving ground to achieve this.
A sandbox will allow the regulatory framework to continually flex and adapt to accommodate new innovative technologies and concepts that will benefit customers. And of course the best part about innovation is that most of the technologies and concepts which will bring benefits for customer in the future don’t even exist … yet.
AEMC recommends new regulatory sandbox arrangements – 7 March 2019