With the increasing integration of distributed energy resources like rooftop solar, community batteries, and electric vehicles, the Australian Energy Regulator (AER) is employing "policy-led sandboxing" to facilitate these dynamic changes; designed to facilitate innovation within a controlled regulatory environment.
Traditional regulations, while effective in ensuring stability and reliability, can inadvertently hinder the adoption of new technologies.
Sandboxing provides a controlled environment for testing new energy solutions. A policy-led approach proactively shapes trials, reducing friction between innovation and existing rules. By identifying where flexibility exists or where rules need to change, the AER can accelerate the development of beneficial solutions; and allow innovators to test their solutions under controlled conditions, thereby mitigating the risks associated with premature market entry.
AER's Framework and Focus Areas
Earlier this month, the AER released a paper outlining its policy-led sandboxing approach. This paper details key policy questions and principles guiding trials, along with specific focus areas. These "trial buckets" include:
Network-led orchestration or coordination: Can, and should, Distribution Network Service Providers (DNSPs) enable access to, and deployment and orchestration of, DER/CER? In relation to electricity, distribution networks are the low-voltage poles and wires that take power from the transmission networks to homes and businesses across Australia
Network data visibility: How can we better improve access to network data to facilitate the effective orchestration of targeted CER by non-network participants?
Flexible metering and EV charging: Can the metering regulations better accommodate CER and electric vehicle (EV) Charging?
Social retailing: Can customers, local government and communities own or control their own energy service arrangements to deliver the cleanest,lowest cost energy system for the community?
Tariff innovation: Alternative retail pricing models for managing network tariff signals.
Virtual Power Plant aggregation incentives: Testing consumer preferences for energy management by comparing price-driven vs. direct control and third-party management of their resources, to understand optimal commercial models.
Sandboxing Principles
The AER considers that the principles below would helpfully guide the design and evaluation of trials.
Source: AER Policy-led sandboxing Paper, February 2025
What does the AER look for in a trial proposal?
Projects where the who, what, when, where and why are settled. This includes all parties who will be receiving the waiver being parties to the application.
Projects that can be replicated and would benefit the whole market if they were replicated.
Projects that will generate learnings that can be shared with the whole market and candirectly lead to regulatory change.
Projects where the potential benefits outweigh the potential risks, and consumers are protected.
Projects with a strategy for completion – a plan for after trial completion for how to return to compliance with the regulatory framework or to affect a permanent rule, law or regulation change to benefit the whole market (e.g. can inform a future AEMC rule change)
Sandboxing Agencies
Each sandboxing agency works together to assess and facilitate on-market trials.
The AER's Energy Innovation Toolkit
The Energy Innovation Toolkit is a regulatory sandbox run by the AER in partnership with the Australian Energy Market Operator (AEMO), Australian Energy Market Commission (AEMC), Essential Services Commission (of Victoria, ESC) and Australian Renewable Energy Agency (ARENA).
The AER's Energy Innovation Toolkit serves as a comprehensive resource for stakeholders seeking to engage with the sandboxing process. This platform provides
Case Studies and Best Practices: Examples of successful sandboxing initiatives, offering valuable insights for prospective participant
Guidance on Application Procedures: A structured process for submitting proposals and navigating the sandboxing framework
Clarity on Regulatory Frameworks: Detailed information regarding applicable regulations and potential avenues for regulatory exemption
Strategic Considerations
While policy-led sandboxing offers significant potential, it is essential to acknowledge the inherent challenges. These include:
Balancing Innovation and Risk: Maintaining a delicate equilibrium between fostering innovation and safeguarding system integrity.
Ensuring Scalability: Developing mechanisms to facilitate the transition from sandbox trials to widespread market adoption.
Maintaining Regulatory Consistency: Ensuring a consistent application of sandboxing principles across diverse jurisdictions.
The AER’s policy-led sandbox initiative accelerates energy innovation, paving the way for a more resilient,sustainable, and consumer-focused energy future in Australia. The National Electricity Market (NEM) is currently undergoing a significant transformation,driven by technological advancements and changing consumer expectations.Regulators play a vital role in guiding this change to ensure a sustainable and efficient energy system. Partnering with the right experts to facilitate and inform these discussions is essential. Our consultancy and support services are designed to help you take the right first steps.
To schedule a conversation with our team, give us a call on 03 9836 6366 or email us at Info@ENMSolutions.com.au
