Innovation Sandboxes

Due to their heavy focus on technological demonstration projects, current energy innovation programs lack a space to experiment with non-technological innovations such as business models, consumers’ behaviours, governance and operational processes, and collaboration practices.

We heard about the need for innovation to move beyond conventional demonstration and to allow for safe trailing and testing within a real-world environment. Innovation Sandboxes provide this safe space. Examples of the types of innovations that could be tested in this way include: trialing new business, operational, governance, or consumer models, and testing new rate structures and practices.

Innovation Sandboxes that use real-world trials have the potential to introduce new opportunities that complement demonstration projects. This has been done by considering how the innovation integrates into the energy system (current standards, policies regulations, and business models) and interacts with other players (consumers, investment partners, and others).

1. Addressing regulatory no man’s land: these include regulations that did not catch up with emerging technologies or solutions, create uncertainty for innovators working with new technologies, as well as:
   • Regulatory lag: regulations that have been in place for so long that they are no longer stringent enough compared with recent technology performance
   • Lack of regulatory alignment creating a “patchwork of markets”: a streamlining and harmonization of provincial and territorial regulations with federal regulations
2. Delivering enquiry services to make the regulatory system more accessible and easy to navigate: the energy system can be challenging to navigate. It takes significant resources to understand the system as well as to influence it. 
3. Engaging new stakeholders, and in a different way: Non-traditional energy players do not speak the regulator’s language and feel overwhelmed by the regulatory “machine.” Innovation Sandboxes allow for the regulator to rethink the way they engage non-traditional stakeholders and to be innovative to make the system accessible to each actor.

Except in rare instances, most energy innovation policies and programs lack sound, comprehensive and well-thought-out collaborative and knowledge-sharing mechanisms. Typically, the results of a project centre on technical learning and advancements and are only shared through industry conferences and publications, leaving innovators and their innovations isolated from the economic, policy, and social dimensions of the system.

In addition, current energy innovation programs have limited to no mechanisms to capture findings and knowledge from projects and programs to inform policy and regulatory changes, yet this is essential to remove structural barriers to innovation and facilitate their scale-up.
Innovation Sandboxes can offer collaboration and knowledge sharing mechanisms through Innovation Hubs and put in place mechanisms to ensure lessons learned are documented and used to inform future energy policy and regulatory discussions.

To be successful, Innovation Sandboxes need to be well-designed and there is no “one” type as they need to be tailored to the local context and specific needs of the jurisdiction in which they are developed. There are multiple ways to run an Innovation Sandbox. Innovation Sandboxes are diverse in who is creating and implementing them. They can be developed by governments and regulators — in some cases both — to pursue specific policy outcomes. 

Innovation Sandboxes are also diverse in the energy sources they consider: while the focus has tended to be on the electricity system, some include, or will be expanded to, natural gas. A few have also included transportation and electrical vehicles. Finally, Innovation Sandboxes are diverse in the policy tools that are associated with them, such as funding, data sharing, and academic research. 

This is why the design phase is crucial. Developing effective energy Innovation Sandboxes in Canada means ensuring they reflect each jurisdiction’s context and needs and are designed by incorporating feedback from diverse stakeholders representing the entire energy system, from energy users to new entrants, to utilities; from the regulators to the government. Therefore, developing effective Innovation Sandboxes requires the use of innovative and inclusive engagement processes.

• Phase 1: National Engagement | April 2021. This first national workshop aims to collect feedback and input in order to capture a diversity of perspectives on the barriers to innovation. 
• Phase 2:  Jurisdictional engagement | Spring – Fall 2021. QUEST and Pollution Probe will engage with diverse stakeholders to recruit and work with several provinces and territories interested in implementing tailored Innovation Sandboxes. 
• Phase 3: Jurisdictional workshop | Winter-Spring 2022. QUEST and Pollution Probe will hold a series of workshops with participating provinces and territories to develop Innovation Sandboxes frameworks tailored to their particular requirements and circumstances.

QUEST and Pollution Probe will share learnings from the research and workshops and a national vision based on jurisdictional realities for the role of Innovation Sandboxes in Canada’s net-zero future. This will be done first nationally, and then for specific participating jurisdictions. These frameworks can then be used by others to inform policy and regulatory reform or to create more effective policies, regulations, and programs to accelerate the transition to a low-emissions future.