The rise of prosumers

The rise of small-scale, distributed power generation implies that the electricity consumers of today have more choice than ever before. Customers can choose whether to buy electricity solely from a retailer or to produce part of it themselves. According to the IEA, one third of the global PV capacity was installed at the residential level in 2014. Customers will increasingly invest, not only in distributed generation, but also in heat pumps, electric vehicles, home management systems and home energy devices. Meanwhile, the European power sector is becoming increasingly service-oriented with many companies already offering prosumers a variety of services related to the installation and maintenance of equipment, as well as the purchase of excess electricity, providing balancing and back-up services, or optimising self-consumption with smart home appliances.

Europe has already moved beyond the early deployment of distributed generation with gigawatts of small scale installations and hundreds of thousands prosumers. However, under the existing regulatory arrangements, prosumers generally pay a minor share of the network costs, taxes and levies compared to other customers, while requiring access to the market and grid in the same extent. This poses a problem because their costs are increasingly shifted to non-prosumers, creating a “consumer divide”. Reduced bills for prosumers should not come at the expense of non-prosumers. Such problem is even more pronounced in case of non-market based net metering schemes, which present also a barrier to market integration, as there is no exposure to market signals.

To ensure a fair allocation of costs and benefits to all consumers and limit distortions in investments decisions, the regulatory framework should evolve towards more capacity-based network tariffs. These could help to ensure that customers pay for the grid services they actually use. Similarly, incentivising prosumers to optimise their consumption based on the market price signals and their own generation, and reducing artificial incentives to sell energy surpluses to the grid, is a good solution.

We need a stable and market-based regulatory framework that properly values electricity and stimulates innovation, thus enabling companies to develop better products and services for prosumers. When excess electricity is priced based on wholesale prices, customers are able to react to the market signals and optimise their consumption.

As the number of prosumers in Europe continues to grow, their integration into the market and the power system is becoming essential. To achieve this, indirect subsidies, such as non-market-based net-metering schemes and socialising of prosumers balancing costs should be avoided, as well as other schemes which prevent market integration. Support schemes should be designed so as to be cost-efficient and avoid market distortion.