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Canada’s Energy Sector Should Start Playing in Sandboxes

Innovation in energy systems can help Canada both recover from COVID-19 and also deal with the climate crisis by accelerating the transition to a low-emissions economy. While financial investment is needed, to really advance the deployment of low-emissions innovation we need to look at investing brain power to overcome other barriers as well — specifically institutional barriers.

The main challenges to innovation in the energy sector are not technological — the technology we need is mostly already here — nor can they be solved by funding alone. Rather, they relate to integration and scaling. The main barriers to deploying more innovation in the energy sector are policy, regulatory and market barriers. 

How can Canada’s energy sector address these barriers while providing certainty and reducing risks to consumers? The answer: it should start playing in sandboxes, and here is why.

After being implemented in the financial technology sector for a while now (including Canada), Innovation Sandboxes are increasingly being used in the energy sector around the world because they are considered an effective policy tool to accelerate the safe scaling up of innovation. They have already been used, or are being developed, in nine jurisdictions across the world — mainly in Europe. In Ontario, the Ontario Energy Board has also developed an Innovation Sandbox. 

Pollution Probe and QUEST’s recent report, Enter the Sandbox, shows that Canada’s energy sector should play in the sandbox because it can accelerate innovation through system-level change. Innovation Sandboxes for the energy sector create safe and controlled spaces for innovation to be integrated into the energy system by examining real (and often perceived) barriers and testing solutions in a real-world environment. They allow for the development of new energy products, services, and business models that can survive without public funding. 

The main challenges to innovation in the energy sector are not technological — the technology we need is mostly already here — nor can they be solved by funding alone.

Innovation Sandboxes use three tools — Innovation Hubs, Enquiry Services and Regulatory Trials — to effectively promote system-level innovation. Innovation Hubs use collaborative tools or platforms to enable knowledge exchange and the sharing of lessons among the diverse stakeholders evolving in energy systems. Enquiry Services are avenues for innovators to informally discuss their project with policymakers or regulators to help them navigate the complex energy landscape and understand if the barriers they see are real or just perceived (in most cases they are just perceived). Finally, Regulatory Trials address real regulatory barriers by granting innovator specific, time-bound exemptions and derogations from regulations to test new ways of doing things.

The report also shows that Canada’s energy sector should enter the sandbox to control the risk associated with innovation, as innovation often comes with uncertainty. There is no clear solution on what to do to integrate innovation and no clear understanding of how it will impact the entire system — there may be unintended outcomes jeopardizing the system. 

Canada’s energy sector should also enter the sandbox because compared to traditional policy tools, Innovation Sandboxes can help reduce uncertainty by creating new knowledge and enhancing collaboration among diverse stakeholders. Findings from Innovation Hubs, Enquiry Services, and Regulatory Trials are used to inform policies and regulatory changes. Using real-world information allows regulators, policymakers and other stakeholders to better identify and refine tailored solutions thereby preparing for the future of energy in their jurisdiction. 

Innovation Sandboxes are thus flexible tools that address the diversity of Canada’s energy systems. Looking at lessons learned elsewhere we found that there is no “one” type of Innovation Sandbox but there are as many sandboxes as there are jurisdictions. This means that Innovation Sandboxes can be tailored for the unique energy systems of each jurisdiction in Canada. 

Ensuring that the energy sector plays in a well-designed sandbox requires designing a framework not only customized to each jurisdiction’s context and objectives, but also one that incorporates the inputs and feedback from diverse stakeholders representing the entire energy system. In addition, international experience shows three things to consider while designing Innovation Sandboxes:

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Regulators need to play a larger role in facilitating innovation and in working with new players, especially as non-traditional players do not speak the regulator’s language and feel overwhelmed by the regulatory “machine”
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Mechanisms of collaboration, transparency and knowledge sharing among multiple traditional and non-traditional energy stakeholders need to be prioritized.

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The definition and criteria of innovation need to be clear in order to protect consumers, and sound post-experiment evaluation mechanisms need to be put in place. The focus should be on “real innovation” which benefits all, as opposed to simply cost-shifting between different groups.

Enter the Sandbox is the first report in Pollution Probe and QUEST’s Innovation Sandbox initiative. We hosted our first Innovation Sandboxes webinar on September 17, and would appreciate any feedback you have on the project thus far by taking the survey below. 

Throughout this four-year initiative, we will provide research and lessons learned on Innovation Sandboxes, and will work with up to eight jurisdictions in Canada to help them develop Innovation Sandbox frameworks that meet their particular needs. This will all culminate in a national conference and innovation visioning framework. You can read all the reports and keep up to date on the project on our page web du projet.

We’d like to gather your feedback and insights to evaluate the relevance of this project in your jurisdiction, thanks to this survey:

AÏDA NCIRI

AÏDA NCIRI

Manager, Policy and Research, QUEST

Aïda is the Manager of Policy & Research at QUEST and delivers projects advancing Smart Energy Communities across Canada. With over eight years of research and consulting experience, Aïda brings a sound interdisciplinary expertise in energy systems, urban governance, and climate and energy policies. She is based in Calgary, Alberta.

Richard Carlson

Richard Carlson

Director, Energy Policy and Energy Exchange, Pollution Probe

Richard Carlson joined Pollution Probe in 2017 as Director of Energy Policy and Energy Exchange. He brings extensive energy policy and energy-literacy experience, most recently at the University of Toronto’s Mowat Centre. A recognized expert on energy policy and engagement, Richard has presented at numerous industry events. Media often invite him to provide commentary and context on energy stories. Beyond Canada, Richard has worked professionally and academically on energy development and policy in Europe, Central Asia, the Middle East, and East Asia. He also sits on the board of Transition Énergétique Québec, the Québec government’s energy transition agency.

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