Ontario Energy Board Releases 2023 Innovation Sandbox Annual Report

Introduction

Last month, the Ontario Energy Board (OEB) published the Innovation Sandbox Annual Report, summarizing the achievements of the Innovation Sandbox during 2023. Launched in 2019, the Innovation Sandbox is a tool designed by the OEB to provide advice and support to project proponents seeking to advance "innovative projects related to electricity or natural gas service." For more information on the history of the Innovation Sandbox, please see our previous post here: OEB Launches "Innovation Sandbox."

Development of the Sandbox Concept

Origin of the Concept

Originally launched by the U.K.'s Financial Conduct Authority in 2016, the "regulatory sandbox" concept was initially focused on innovation in the fintech sector "to test innovative products, services or business models in a live market environment, while ensuring that appropriate protections are in place."¹ In 2017, the U.K.'s Office of Gas and Electricity Markets (Ofgem), the energy regulator for Great Britain, applied the innovation sandbox concept to its regulated energy markets.² In response to the 2018 report of the Advisory Committee on Innovation and modelled on examples such as Ofgem's, the OEB launched its own Innovation Sandbox in 2019.

Sandbox Activity Streams

In its initial conception, the Innovation Sandbox focused on two streams:

Renewal Consultations

In June 2021, the OEB launched the Innovation Sandbox Renewal Consultation. At this point, several issues were raised, including the lack of seed funding for pilot projects, the OEB's lack of power to grant regulatory relief and a desire for greater transparency, communication and information-sharing.

In response, the OEB made commitments to be implemented through the Innovation Sandbox between 2022 and 2024. These commitments were outlined in theInnovation Sandbox 2.0 Report published in 2022 and included increasing awareness and transparency and holding open dialogues. Additionally, OEB funding resources were created from administrative monetary penalties and in conjunction with the Independent Electricity System Operator's (IESO) Grid Innovation Fund (GIF). OEB staff were also tasked with providing advice on how to seek regulatory relief.

2023 Activities

Launch of the Innovation Sandbox Challenge

Perhaps the most significant achievement of the Innovation Sandbox in 2023 was the launch of the Innovation Sandbox Challenge. As part of the 2022 Innovation Sandbox 2.0 Report, the OEB planned to set up a thematic sandbox focusing on specific themes related to energy opportunities and providing funding for innovation. As a result, the Innovation Sandbox Challenge was established in March 2023. This program allowed innovators in Ontario to submit proposals for solutions that would help the energy sector better understand the benefits that innovation can bring to consumers.

The Innovation Sandbox Challenge focused on two main themes:

1. "Pilot to Permanent" – moving pilot projects into broader implementations.
2. "Consumer Engagement" – strategies to help consumers better understand their role in the energy transition.

From a pool of proposal submissions, the OEB chose six pilot projects and provided a total of $1.5 million in funding. Out of the six projects, Powerconsumer Inc. received the most funding ($400,000) to be used for existing pilot projects and enable "scalable flexibility markets," which encourage electricity customers to modify their level and pattern of electricity usage. Taykwa Tagamou Nation received $351,000 in funding to analyze the challenges and opportunities related to energy transition for First Nations communities in Ontario.

Implementation of Legislative Changes

As a followup initiative related to the 2022 Innovation Sandbox 2.0 Report, the OEB also focused on implementing legislative changes to promote innovation in the energy sector. In June 2023, the Ontario Energy Board Act was amended, and the newly added Section 57.1 enabled the OEB to grant licence exemptions for certain pilot projects. If an exemption is granted, an innovative pilot project is exempt from the requirement to hold certain licences in order to run the project, such as an electricity distribution licence, unit-sub metering licence, energy retailer licence, gas marketing licence and electricity wholesaler licence. With this development, the OEB successfully addressed initial concerns from stakeholders regarding its previous lack of ability to grant regulatory relief.

2024 Initiatives

The Innovation Sandbox Annual Report has set out four primary initiatives for 2024. First, the Innovation Sandbox will oversee the development of six pilot projects chosen through the Innovation Sandbox Challenge. The OEB plans to play an active role in providing regulatory guidance, reviewing milestones and conducting regular check-ins. Secondly, it will test projects that are part of the Joint Targeted Call initiative set up in 2021 between the OEB and the IESO's GIF. Third, the Innovation Sandbox will update the existing Innovation Handbook to keep up with changes and innovations in the energy sector. Lastly, the Innovation Sandbox will act as a regulatory partner for IESO's GIF call for proposals, providing regulatory guidance to selected applicants.

Conclusions

The Innovation Sandbox has been successful in selecting and funding projects, as well as increasing transparency and information-sharing. Over time, it will be interesting to assess whether such projects result in business models that can be scaled up, applied more widely and become economically viable.

Footnotes

1. Regulatory sandbox lessons learned report | FCA

2. Innovation Sandbox Service Overview | Ofgem

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