Unlocking digital innovation in the electricity system

5. Policy considerations for fostering digital innovation in the electricity system to support the AI economy

Digital innovation is rapidly reshaping electricity networks, enabling them to become more adaptive and resilient, reducing operational costs and enhancing system reliability. Moreover, as sustainable and reliable access to electricity is foundational to the operation of digital technologies such as AI, digital innovation in electricity can help to support economy-wide digital transformation. Governments can take a range of policy actions to foster digital innovation in the electricity system and thus support the AI economy, including supporting public funding, encouraging regulatory experimentation and providing technical enablers, including standards, for more digitalised energy business models.

Encourage regulatory experimentation in the electricity system to foster new and more digitalised business models

Digital innovation in electricity systems enables the emergence of new decentralised markets, connecting new sources of energy demand and supply. However, such new business models may not easily fit into existing policy frameworks, which may still focus on a centralised model of electricity supply. Regulatory barriers may create uncertainty for entrepreneurs and inadvertently prevent the emergence of such innovative, digitalised business models.

One policy tool includes the use of regulatory sandboxes, which enable a limited relaxation of regulations to enable firms to test new business models with reduced regulatory requirements. These sandboxes allow innovators to experiment with emerging technologies, like virtual power plants and other demand aggregation services while reducing administrative fixed costs. By providing a controlled environment for testing, regulatory sandboxes can accelerate the development, deployment, and scaling of novel solutions while informing future policy and regulatory updates (Attrey, Lesher and Lomax, 2020[20]) (Box 4).

Box 4. Encouraging regulatory experimentation through the United Kingdom Energy Innovation Link Regulatory Sandbox

Energy markets are typically heavily regulated to ensure system reliability, safety, and the reliable and affordable delivery of electricity, gas, and heat to consumers. These regulations can be designed around traditional, centralised models of energy provision, which may not fully encompass new digital business models. A regulatory sandbox provides a safe, time-limited environment where innovators can trial new approaches without facing full compliance costs or regulatory barriers, while regulators can observe impacts on consumers, markets, and grid stability.

The United Kingdom Office of Gas and Energy Markets (OFGEM) developed a regulatory sandbox called Innovation Link in 2017 to enable innovators to trial new products and business models. The sandbox provides approved innovators with a variety of regulatory tools, including time-limited derogations from specific rules for trials or for initial market entry. For example, in 2023, the programme provided regulatory waivers to enable the development of microgrids within residential housing developments. This project enabled residential customers to have the ‘right to switch’ between different, distributed sources of energy supply.

Source: OFGEM (2023[21]) Energy Regulation Sandbox, https://www.ofgem.gov.uk/decision/regulatory-sandbox-emergent-energy-systems-ltd-2023

Create technical enablers for digital innovation in electricity networks, such as the development of data standards

Multistakeholder standardisation efforts play an important role in providing technical enablers for digital innovation in electricity networks, including in the development and implementation of common standards. Standards for data formats, communication protocols, and device interoperability are essential to ensure that the rapidly growing ecosystem of smart meters, sensors, inverters, and distributed energy resources can work together seamlessly. Without common technical frameworks, devices from different manufacturers may be unable to exchange information reliably, limiting the effectiveness of innovations such as real-time grid monitoring, AI-driven fault detection, and automated demand-response systems. Standards also play a critical role in cybersecurity, providing baseline requirements for secure data transmission, storage, and access control, which are vital as electricity networks become more connected and digitalised (Box 5).

Box 5. Deploying smarter grids in the European Union

The European Union has prioritised the development of smarter grids to enable better management of energy supply and demand, better integrate renewable energy and enable the faster deployment of electricity intensive end-user devices, including electric vehicles. In so doing, the European Union has developed a series of policy actions to encourage investment, including the EU Action Plan for Grids as well as an EU Action Plan for Digitalising the Energy System. Part of this includes the development of standards, which cover the communication requirements of the grid and enable interfacing with a new multitude of distributed energy resources.

Moreover, smarter grid infrastructure across the European Union can help support closer integration of energy markets across the continent. Smarter grids help to enable real-time price signals and better congestion management, which can help to facilitate the emergence of a single electricity market. An integrated market enables a wider access to generation capacity, from all energy sources, to meet demand, generate efficiencies and maintain system stability. The potential benefits for Europe are enormous, with savings in 2021 estimated at approximately EUR 34 billion.

Source: European Commission (EC, 2025[22]) Smart Grids and Meters (EC, 2025[22]) https://energy.ec.europa.eu/topics/markets-and-consumers/smart-grids-and-meters_en; IEA (2023[23]) “Co-operation across borders is key to building interconnected power systems of the future”, https://www.iea.org/commentaries/co-operation-across-borders-is-key-to-building-interconnected-power-systems-of-the-future; EU (2023[24]) European Union (2023[25]) “Action Plan for Grids”, https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=COM%3A2023%3A757%3AFIN&qid=1701167355682

Empower consumers to access energy data and participate in innovative electricity business models

As outlined above, a key area of digital innovation in electricity systems relates to more flexible forms of demand response, where consumers can flexibly adjust their consumption, or even the storage and sale, of electricity in response to changing grid and market conditions. These digital innovations in turn enable new participatory business models that enable consumers to buy and sell electricity from distributed energy resources (see Box 3). Underpinning all of these innovations is an enhanced ability to capture different kinds of (often personal) data about electricity consumption at the point of use, for example through smart meters.

A body of OECD work points to the importance of fostering appropriate access to and the voluntary sharing of data on mutually agreed terms for greater societal and consumer benefit (OECD, 2022[26]). Where implemented successfully, enabling better data portability (e.g. easier third-party access authorisation) can both empower consumers to manage their own data, as well as foster competition by enabling easier switching between businesses (OECD, 2021[27]). With a view to enabling retail consumers to fully benefit from digitalised electricity business models, some jurisdictions, including Australia (DCCEEW Australia, 2024[28]) and the European Union (EU, 2025[29]) have developed regulations enabling consumers to better access and control their electricity data. More generally, better control, co-ordination and exchange of energy data between consumers, regulators and firms, including energy operators where relevant, could help to catalyse greater uptake of digital business models and drive further digital innovation (IEA, 2025[30]).