Governance Innovation & Change
Regulatory sandboxes provide a controlled, time-limited space in which innovators can test new products, services, or approaches with reduced regulatory requirements, while regulators observe and gather evidence to inform future frameworks.
The energy system is undergoing rapid transformation driven by digitalisation, decarbonisation, and the proliferation of distributed resources. Regulatory frameworks, designed for a different system architecture, often constitute barriers to new technologies and business models before sufficient evidence exists to regulate them fully. Regulatory experimentation tools, of which sandboxes are the most widely used, offer a structured way to generate that evidence in real-world conditions while maintaining consumer and system protection.
To keep up pace with innovation, regulation needs to learn from experimentation. Sandboxes are one answer to this challenge.
A regulatory experiment is a test or trial of a new product, service, approach, or process designed to generate evidence that can inform the design or administration of a regulatory regime.1) Regulators may experiment with a regulated product or service, a new approach to regulating, or a regulatory process itself.
A regulatory sandbox is the most structured form of regulatory experiment. It provides a temporary, limited exemption from specific regulatory requirements, or a streamlined regulatory process, within a supervised environment. Regulators actively monitor the sandbox, set conditions to uphold consumer protections, and can modify or close it if risks emerge. The evidence gathered informs whether and how permanent regulatory change should follow.2)
Regulatory sandboxes are one of several tools available for regulatory experimentation. The EC Staff Working Document (2023) groups these by their primary focus:
[Figure: Categorisation of experimentation tools by main focus, showing a decision tree from experimentation tool through technology-focused (testbeds), socio-technical (living labs), and regulatory (sandboxes, pilot projects, pilot regulation) branches. Source: European Commission SWD(2023) 277 final.]
While these are distinct tools, they can be combined. Synergies between them are beneficial, as they can mutually reinforce each other to support innovation and regulatory learning.3)
The term “experiment” covers fundamentally different approaches to knowledge generation. Ansell and Bartenberger (2016) identify three distinct experimental logics:4)
| Logic | Primary aim | Approach | Allowance for failure |
|---|---|---|---|
| Controlled | Isolate causality | Deductive; settings controlled as much as possible | High (researcher neutral to outcome) |
| Darwinian | Enhance systemic innovation | Inductive; variation more important than control | Very high (few variations will succeed) |
| Generative | Generate new solution concepts | Abductive; iterative refinement toward success | Low (researchers strive for success) |
Regulatory sandboxes in the energy sector tend toward the generative logic: the aim is not to test a falsifiable hypothesis but to iteratively develop a viable product, service, or business model within a regulatory environment. Controlled logic applies where pilot regulations test specific policy measures. Darwinian logic characterises innovation tender systems that run multiple parallel experiments and select successful approaches.
Regulatory experimentation is unevenly distributed across EU member states. Based on data collected through 2023, initiatives have been adopted or are under development in twelve member states, with a further three considering adoption.5)
[Figure: Overview of regulatory developments at EU level, showing Austria, Belgium, Croatia, Denmark, France, Hungary, Italy, Lithuania, Netherlands, Portugal, Spain and Sweden with regulatory experimentation in place or under development; Cyprus, Finland, Greece, Poland, Romania and Slovenia with no evidence found; Bulgaria, Czech Republic, Germany, Estonia, Ireland, Latvia, Luxembourg, Malta and Slovakia with no regulatory experimentation based on national authority responses. Source: EC-JRC, 2023.]
Early initiatives were reported in Italy and the Netherlands. The JRC report notes that regulatory sandboxes remain the most widespread form of regulatory experimentation in the EU energy sector, and that lessons from running sandboxes point to the importance of clear scope definition, stakeholder involvement from the outset, and structured learning mechanisms to translate sandbox outcomes into permanent regulatory change.
| Term | Definition |
|---|---|
| Regulatory sandbox | A supervised, time-limited framework that grants partial exemption from regulatory requirements to allow real-world testing of innovations, generating evidence for regulatory design. |
| Pilot regulation | A limited trial of a new regulatory measure with a specific group or area, testing its effectiveness before broader implementation. Distinct from a sandbox in that the regulation itself is being tested, not an exemption from it. |
| Regulatory innovation zone | A broader, geographically defined framework that adapts regulatory conditions across multiple sectors to support innovation ecosystems, rather than testing a single product or service. |
| Testbed | A controlled technical environment for developing and testing innovative products or services, with a primary focus on technical rather than regulatory learning. |
| Living lab | An open, real-world or virtual environment in which innovations are tested with users, with primary focus on revealing social needs and socio-technical dynamics. |
| Regulatory learning | The process by which regulators update frameworks, knowledge, and practices on the basis of evidence generated through experimentation. |
Sandbox and pilot regulation. A regulatory sandbox suspends or streamlines existing rules to allow an innovation to be tested; a pilot regulation tests a proposed new rule on a limited group. The sandbox starts from an innovation seeking regulatory accommodation; the pilot regulation starts from a regulatory proposal seeking empirical validation.
Sandbox and innovation zone. A regulatory sandbox is narrow in scope and time-limited, focused on a specific product, service, or model. A regulatory innovation zone is a broader, place-based arrangement that creates favourable conditions across multiple sectors and actors. In practice the two are often combined, with zones hosting multiple concurrent sandboxes.
Regulatory experimentation and regulatory reform. Experimentation tools generate evidence; they do not themselves constitute regulatory reform. A sandbox that yields positive results still requires a formal regulatory process to translate findings into permanent change. The quality of that translation, including how learning is captured and fed into rule-making, determines whether experimentation produces durable impact.
Ansell, C. K., & Bartenberger, M. (2016). Varieties of experimentalism. Ecological Economics, 130, 64–73. https://doi.org/10.1016/j.ecolecon.2016.05.016
Centre for Regulatory Innovation (CRI), Government of Canada. Regulatory Sandboxes. https://wiki.gccollab.ca/Regulatory_Sandboxes
European Commission (2023). Regulatory learning in the EU: Guidance on regulatory sandboxes, testbeds, and living labs in the EU, with a focus section on energy. Commission Staff Working Document SWD(2023) 277 final, 25 July 2023. https://data.consilium.europa.eu/doc/document/ST-12199-2023-INIT/en/pdf
European Commission, Joint Research Centre (2023). Making energy regulation fit for purpose: state of play of regulatory experimentation in the EU. Publications Office, Luxembourg. doi:10.2760/32253. https://publications.jrc.ec.europa.eu/repository/handle/JRC132259
ISGAN (2019). Innovative Regulatory Approaches with Focus on Experimental Sandboxes. Smart Grid Case Studies Casebook. IEA-ISGAN. https://www.iea-isgan.org/wp-content/uploads/2019/05/ISGAN_Casebook-on-Regulatory-Sandbox-A2-1.pdf
Kert, K., Vebrova, M., & Schade, S. (2022). Regulatory learning in experimentation spaces (JRC Science for Policy Brief JRC130458). European Commission. https://publications.jrc.ec.europa.eu/repository/handle/JRC130458