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:

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 project webpage.