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Innovation and regulation in electricity : RSE contributes to the ISGAN Casebook in collaboration with the Italian regulatory Authority ARERA

Innovation and regulation in electricity : RSE contributes to the ISGAN Casebook in collaboration with the Italian regulatory Authority ARERA

The ISGAN Casebook on “Smart Grids Case Studies: Innovative Regulatory Approaches with Focus on Experimental Sandboxes” was presented during the joint “CEM - ISGAN – Mission Innovation IC1 Forum”, which was held in Vancouver on May 29, 2019. For Italy RSE, in collaboration with the Italian “Regulatory Authority for Energy, Networks and Environment – ARERA”, elaborated the Section on “Regulatory experiments to promote innovation in the power system in Italy”.

The activity was carried out as part of a Knowledge Transfer project in the frame of ISGAN Annex 2 "Smart Grid Case Studies".

The concept of "Regulatory Sandbox" in the energy sector was introduced by the UK regulator OFGEM (Office of Gas and Electricity Markets) in 2017 to enable innovative testing of new technologies, goods, services and business models in favour of consumers in a real environment; during the testing period, the regulator can grant waivers (if necessary) to some of existing regulations. The implementation of experiments based on this concept has become of great interest at European and worldwide level, as it is seen as a tool to accelerate the ongoing energy transition.

The Casebook Section on the Italian case, which has been prepared by Iva Gianinoni from the Department on Sustainable Development and Energy Sources of RSE (as Annex 2 Italian National Expert) in collaboration with Luca Lo Schiavo, Deputy Director of ARERA Energy Infrastructure Regulation and Unbundling Department, illustrates the Italian regulatory Authority’s approach to innovation and describes characteristics and impacts of several regulatory experiments launched since 2010 in different network and market areas related to Smart Grids. The five regulatory experiments (in chronological order) are the following:

1. Advanced Solutions and functionalities of Smart (electricity) Grids
2. Utility-scale Energy Storage Systems and Dynamic Thermal Rating for transmission lines
3. Innovative business models for Electric Mobility
4. Open Protocols for communication between 2nd generation Smart Meters and In-Home Devices
5. Opening of Ancillary Services market to “Virtual Dispatchable Units (UVA)”

The ten-year experience of the Italian regulatory Authority shows that regulatory experiments have been successful in promoting innovation in the power system: results of in-field pilots have been useful either to define new rules for large scale roll-out (when positive conclusions of the experiments were obtained) or to discard too complex or not efficient solutions. In particular, in the case of Smart (electricity) Grids it was possible to identify new “output-based” incentive mechanisms suitable for roll-out, whilst “input-based” incentives were used for the demonstration phase in the absence of consolidated metrics.

If the first initiatives were focused on pilot projects, confined in relatively small areas, in the two most recent initiatives the Italian regulator has moved towards innovation at the system level. This evolution of the approach to innovation has proven to be necessary to involve market players in a completely non-discriminatory way. In both cases an important role is played by network operators, in order to guarantee a consistent regulatory framework for all market parties.

ISGAN Annex 2 Working Group also elaborated the "Policy messages to enable Smart Grid Deployment", which were also presented in Vancouver, with the aim of providing decision makers with useful elements to carry out innovative regulatory experiments addressed at promoting the deployment of Smart Grids. Further details on ISGAN Annex 2 KTP project as well as the downloadable versions of the two documents are available at: