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Prosumers – social innovation

By Dave Elliott

One of the big innovations in 2014 has been the rise of prosumers, consumers who generate their own power, fleshing out the vision Hermann Scheer outlined in his 2005 Solar Manisfesto:   ‘Since everybody can actively take part, even on an individual basis, a solar strategy is ‘open’ in terms of public involvement… It will become possible to undermine the traditional energy system with highly efficient small-technology systems, and to launch a rebellion with thousands of individual steps that will evolve into a revolution of millions of individual steps.’

In a new report on prosumers, the International Energy Agency quotes Scheer as above and says that the rise of the solar PV prosumers ‘has the potential to transform the centralized electric utility model that has served the world for over 100 years into a more decentralized and interactive system’. In some countries it notes  ‘it is now more cost-effective for households to produce their own power from PV than to purchase electricity from the grid’. That, coupled with support from Feed In Tariffs, has lead to massive take-up, in Germany and Spain especially.  PV has also been taken up by commercial developers on an even larger scale, in big projects, but the IEA report notes that around 20% of PV capacity installed in Europe and the US in 2013 was residential systems, and over 20% of homes in the states in South Australia and Queensland have PV. Overall, it is estimated that between 25%-35% of global PV capacity of around 130GW is installed at the residential level, with Germany leading having about 10GW of residential PV systems.

However, the IEA-RETD report says, a full prosumer revolution, in which decentralized adoption of PV occurs on its own, in the absence of supportive policies or regulatory conditions, ‘has not yet arrived. Self-consumption of solar PV is a growing trend globally, but its expansion remains within policy makers’ ability to control… and develop.’  So we have not yet got to the position where consumers have taken control unaided! Some may baulk at the idea of  ‘controlling’ this grass roots phenomenon, but, to be fair, there is a need for some regulation to avoid chaos (e.g. to ensure grid balancing) and the policy and regulatory system can perhaps help to extend and support the transition to local power.

To that end, although it is not as such a ‘grass roots’ oriented report, the ‘RE Prosumer’ review does provide a helpful analysis and a comprehensive overview of the prosumer  phenomenon, looking at the influence of economic, behavioural and technological drivers, as well as national conditions for prosumer growth. It says it aims to provide policy makers with ‘detailed analysis on the potential benefits as well as costs and risks in order to articulate the justification for prosumer-related policies,’  and it discusses the different forms that PV prosumer policy strategies can take based on the evaluation of drivers and national goals.

Not all the options discussed are attractive. The IEA notes that ‘some PV projects in Germany can now be viably developed without the use of the feed-in tariff under the current policy environment. Developments such as these have led to vigorous debate within Germany about whether additional charges or taxes should be applied to PV prosumers.’ If it moves, tax it! Or slow it: ‘Even if PV LCOE decreased below the retail rate, governments and utilities could still govern (or constrain) the development of prosumers through the use of policy or the removal of enabling regulations (e.g. limiting the amount of PV that can be injected into the grid)’. Though the report warns that  ‘choosing to constrain the growth of prosumers creates the risk that PV prosumers could emerge suddenly and in a manner that is much more difficult – and costly – to govern in the future.’

The opposite approach is to embrace the revolution wholeheartedly, although the report focuses more on transitional strategies, ‘incremental adjustments to existing policy and regulation – rather than fundamental or structural changes to the electricity industry or market’. It says ‘there may be opportunities to enable prosumer scaleup while at the same time introducing legal and regulatory reforms that encourage “prosumer friendly” structural shifts in current business models’.

There are, of course, different types of prosumer, the most radical being those going fully off-grid. ‘Grid defection’ is rare in the EU. More common is self-consumption, backed up by grid top-ups, sometimes coupled with selling excess to the grid.  But this is all driven by the falling cost of PV, along with ‘green’ value orientations, though the report says it has taken the FiT system to kick start it- and it’s not yet self-sustaining. Though it may be soon in some places, with storage maybe opening up new options.

The report notes that ‘prosumers can challenge incumbents’ business models’ and this destructive innovation also presents challenges to governments. While some may welcome that, clearly the conventional power utilities may not be so enthused. They are losing their market share, partially because, as the IEA put it ‘ PV generation “steals” the peak during the day when power is most expensive’. The report notes that the resultant profit erosion makes it harder to invest in grid infrastructure upgrades, which may be even more necessary given the spread of distributed PV! But, as the IEA points out, there are plenty of opportunities for creative innovations to limit these problems, though they will need funding. Hence the talk of prosumer taxes! And a shift from FiTs to systems which charge for connections, contentiously, as now in Spain and Germany.

It’s a politically charged debate, but this thoughtful report tries to stay neutral. For a more polemical contribution, bewailing the demise of the FiT system in Germany and the European Commission’s proposals to phase FiTs out across the EU in favour of market-based support mechanisms, see: www.claverton-energy.com/the-death-of-another-beautiful-game.html

It will be interesting to see if the prosumer movement survives these changes. The IEA report certainly does offer a range of options to help. http://iea-retd.org/archives/publications/e-prosumers-report

In my next post I will look at the situation in the UK and at the role of ‘grass roots’ community-based energy initiatives.

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