You’ll find this note helpful if you’re applying, or considering applying, for a derogation from the Balancing and Settlement Code (BSC) through the BSC Sandbox. You may be an innovator or a partner in an innovative trial. You may or may not be a BSC Party (signatory).

The BSC Sandbox supports Ofgem’s Energy Regulation Sandbox (ERS). All applications must be sent to Ofgem. This guidance should be read alongside Ofgem’s own ERS guidance. You can find links to Ofgem’s website at the end of this note.

What’s the BSC Sandbox?

Do you want to carry out a pre-competitive and time-limited trial, in a live market environment, of an innovative product, service, methodology or business model? If this trial isn’t compatible with normal energy licence or industry code rules, you can apply through Ofgem’s ERS for one or more derogations from these rules.

If your application to Ofgem’s ERS requires a derogation from an industry code that has its own sandbox derogation process (currently the BSC, DCUSA¹ and REC²) then Ofgem will let the relevant code administrator(s) know. The code administrator will co-ordinate their own supporting process.

For example, you may want to trial an activity or arrangement that would not normally be permitted by the BSC rules. Through the BSC Sandbox, Elexon assesses the risks and impacts of a derogation on behalf of the BSC Panel (the BSC’s governing committee). The Panel makes a recommendation to Ofgem and Ofgem makes the final decision.

What’s a BSC derogation and how long can I hold one?

A derogation gives you temporary permission, for a limited period of time, not to comply with one or more BSC rules. A derogation can be from rules in the BSC and/or its Code Subsidiary Documents, e.g. BSC Procedures (BSCPs).

The maximum time for which you can hold a BSC Sandbox derogation is 3 years in total. This includes:

2 years maximum for the Trial Period. You should apply for the shortest possible amount of time that you need to test your innovation.
An extra Transition Period, by the end of which you must either transition back to full BSC compliance or have progressed a permanent change to the BSC rules. You should plan to do this in the shortest time possible.

The Derogation Period you’re granted may therefore be less than the maximum shown in the diagram below.

Who can use the BSC Sandbox?

The BSC Sandbox is open to both BSC Parties and non-Parties.

By definition, derogations from BSC rules can only apply to the BSC Parties who would normally be bound by those rules. This means that, if your BSC Sandbox application is successful, you’ll need to accede to the BSC (become a BSC Party) in order for the derogation to be effective. You’ll need to factor this into your planning. Once you’ve acceded to the BSC, you’ll be bound by all BSC rules except those from which you’ve been granted a derogation.

Alternatively, you can work with a partner that’s already a BSC Party.

How do I apply?

Applications must be made through Ofgem’s ERS by completing and submitting Ofgem’s application form. If your application needs a BSC derogation, Ofgem will tell Elexon. We’ll contact you to discuss next steps.

We’re always happy to help with potential applications before they’re submitted. But we can only offer advice and support on the BSC interactions and process. We can’t comment on your trial’s commercial viability or whether you’ll get Ofgem’s approval.

What happens after I apply?

Once Ofgem’s accepted your application into its ERS process, and it’s notified us of a BSC Sandbox impact, we will:

Contact you to discuss next steps. We may ask you for further information to help our assessment.
Identify whether we need to co-ordinate with other industry code sandbox processes.
Assess your application against the BSC Sandbox eligibility criteria, including whether it:

Is similar to any other existing BSC derogations.
Is likely to be affected/constrained by any upcoming changes to the BSC rules.
Meets one or more Applicable BSC Objectives³ (e.g. has benefits to system operation, competition and/or BSC efficiency).
Creates any risks to BSC settlement accuracy. We’ll consider if any risks can be mitigated through monitoring and/or by applying conditions. This will involve us seeking a view from the BSC’s Performance Assurance Board.
Has any impacts on BSC Parties. This will include us consulting BSC Parties and other interested parties.
Involves any administration costs to Elexon or our service providers, e.g. to undertake manual workarounds or specific assurance activities. This will involve us carrying out impact assessments.
Represents the minimum scope and shortest period needed for your trial.
Includes a robust plan to transition back to full BSC compliance when your requested derogation ends, or if your trial fails.
Means that you need to report progress to us on a quarterly/annual basis or some other frequency.

Present this information to the BSC Panel. The Panel will recommend whether Ofgem should approve your BSC derogation. This may involve recommending that Ofgem applies conditions to your derogation, to mitigate any BSC risk or impact. Possible conditions could include placing limits on your trial’s scope or duration.
Submit all of the above information and the Panel’s recommendation to Ofgem for decision.

The BSC allows Elexon to charge you for the costs we incur in administering your derogation. We would only seek to do this if the costs are significant.

If the nature of your trial requires material changes to Elexon’s processes and/or systems, we’ll need to assess any risk to our ability to deliver normal BSC activities and other changes to the BSC. This will form part of our assessment of the impact to us and BSC Parties.

Our consultation documents and reports are always public, but we omit any commercially-sensitive information.

How quickly will I get a decision?

We treat each application individually. The BSC Sandbox application process can take several months to complete.

Ofgem has the ability to occasionally ask us for further information after we’ve sent it our report. This could mean that we need to carry out further assessment and consultation, and/or that the BSC Panel changes its recommendation.

What do I need to do if my application’s approved?

Ofgem will give you a direction letter. This will set out what BSC derogation you’ve been granted, any conditions on that derogation, the applicable time period and what/when you need to report on progress.

You’ll need to keep in regular contact with Elexon during the lifetime of your derogation. This includes sending us the reports and information specified in Ofgem’s letter. If you need to accede to the BSC for your derogation to be effective, then we’ll help you do that.

We’ll publish the progress reports you give us, but with any commercially-sensitive information removed/redacted.

Before the end of your Trial Period, you’ll also need to start preparing to use your transition plan:

If your trial’s successful, and you want to make it a permanent arrangement, you’ll need to propose an enduring change to the BSC rules that’s available to all BSC Parties. This means raising a BSC Modification Proposal. Your derogation may be extended by an extra Transition Period while the Modification’s progressed, although this can’t exceed the overall 3-year time limit on derogations.
If a Modification isn’t implemented by the end of your Trial Period or any extra Transition Period, then (unless there are exceptional circumstances and subject to the overall 3-year limit) the derogation will expire and you’ll be expected to be fully compliant with all BSC rules.
If your trial’s not successful, you can exit early – otherwise the derogation will expire at the end of the Derogation Period. You’ll then be expected to be fully BSC-compliant. If you no longer want to be a BSC Party, your exit planning could include starting the process of withdrawing from the BSC (but if your derogation’s expired, you’ll still need to be BSC-compliant until this withdrawal process completes).

The BSC Panel may recommend that Ofgem removes your BSC derogation early, if:

You’re in breach of the derogation or its conditions; or
Circumstances have changed materially since your derogation was approved, meaning that it no longer meets the BSC Sandbox eligibility criteria.

Where can I find more about the sandbox process?

BSC Sandbox:

You can find the high-level rules in BSC Section H10 and more detailed information in the BSC Sandbox Procedure: https://www.elexon.co.uk/bsc-and-codes/

Ofgem’s Energy Regulation Sandbox:

You can find Ofgem’s ERS guidance and application form on its Innovation Link webpage: https://www.ofgem.gov.uk/energy-policy-and-regulation/policy-and-regulatory-programmes/innovation-link-share-your-energy-ideas

Who can I contact with questions?

Email bsc.sandbox@elexon.co.uk.

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The copyright and other intellectual property rights in this document are vested in Elexon or appear with the consent of the copyright owner. These materials are made available for you for the purposes of your participation in the electricity industry. If you have an interest in the electricity industry, you may view, download, copy, distribute, modify, transmit, publish, sell or create derivative works (in whatever format) from this document or in other cases use for personal academic or other non-commercial purposes. All copyright and other proprietary notices contained in the document must be retained on any copy you make.

All other rights of the copyright owner not expressly dealt with above are reserved.

No representation, warranty or guarantee is made that the information in this document is accurate or complete. While care is taken in the collection and provision of this information, Elexon Limited shall not be liable for any errors, omissions, misstatements or mistakes in any information or damages resulting from the use of this information or action taken in reliance on it.

1 Distribution Connection and Use of System Code: https://www.dcusa.co.uk/sandbox-register/.

2 Retail Energy Code. See the REC’s Sandbox and Derogation User Guide: https://recportal.co.uk/rec-user-guides.

3 Set out in Standard Condition C3 of the Transmission Licence. The BSC Panel and Ofgem use these objectives to assess applications for temporary BSC derogations as well as permanent changes to the BSC rules.

CONTENTS

BSC Sandbox

Who is this guidance note for?