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Energy Prosumers' Role in the Sustainable Energy System

Authors:
E
Energy ProsumersRole in the
Sustainable Energy System
Kirsi Kotilainen
Faculty of Management and Business, Tampere
University, Tampere, Finland
Faculty of Business and Economics (HEC),
University of Lausanne, Lausanne, Switzerland
Definitions
General denition for the prosumer is based on the
words producer and consumer; the term has been
coined by Alvin Tofer, who rst introduced the
producer-consumer, also referred to as a proactive
consumer, in his book The Third Wave (Tofer
1981). Tofer refers to prosumers as a group of
customers actively taking part in the process of co-
creating products. In essence, the prosumer is an
agent that produces as least portion of what it
consumes. Another commonly used characteriza-
tion, emphasizing more the customer function of
the prosumer, is that of a professional consumer,
which refers to an enthusiastic hobbyist or a semi-
professional customer that requires close to profes-
sional grade products and services, for example,
digital cameras, espresso coffee machines, or solar
panels. The concept of prosumer has been devel-
oped further (e.g., Kotler 1986; Tapscott and Wil-
liams 2008), especially in relation to mass
customization, marketing, and lately social media.
In addition to prosumer, other terms are used to
describe the same phenomena, e.g., competent cus-
tomers (Prahalad and Ramaswamy 2000) or work-
ing consumers (Cova and Dalli 2009). Main
approaches to general prosumer denition are sum-
marized in Fig. 1.
In the energy sector, prosumers have started to
emerge during the past decade with the introduc-
tion of affordable renewable energy technologies
(RETs), such as solar photo voltaic (PV) panels. A
high-level denition of an energy prosumer
embraces the multifold nature of the role as a
consumer who also produces, sells, trades, or
stores energy (Ford et al. 2016). More broadly,
the use of smart appliances, communication tech-
nologies, electric vehicles (EVs), and battery stor-
age capacities for exible services is included in
the prosumer description (Parag and Sovacool
2016). A consumer even without any energy gen-
eration capacity can be called a prosumer. In this
case the emphasis is on the proactiveness or the
ability to act as a providerby offering energy
resources, such as electric vehicle (EV) battery,
for the energy system demand side exibility
schemes. Energy prosumers are associated mainly
with electricity, but also heating, cooling, and
transport host a growing number of prosumers.
Energy prosumers are not always called pro-
sumers. European Commission refers to energy
prosumers as active consumersand denes it as:
a customer or a group of jointly acting customers
who consume, store or sell electricity generated
on their premises, including through aggregators,
or participate in demand response or energy
© Springer Nature Switzerland AG 2020
W. Leal Filho et al. (eds.), Affordable and Clean Energy, Encyclopedia of the UN Sustainable Development Goals,
https://doi.org/10.1007/978-3-319-71057-0_11-1
efciency schemes provided that these activities
do not constitute their primary commercial or
professional activity(European Commission
2016).
Furthermore, energy prosumers are sometimes
called energy citizens (Bertrand and Primova
2018; Blättel-Mink 2014; Kampman et al. 2016)
underlining their role as change agents in the
society. The energy citizens are seen as potential
agents in supporting energy democracy (Sovacool
and Blyth 2015) and sustainability transitions
(Geels 2012). Thus, the denition accentuates
the participatory aspect of the prosumers as pro-
active consumers and citizens. Energy citizens
relate best to individuals or households, leaving
larger prosumers and those of more commercial
nature outside this characterization.
Prosumption, in energy, usually refers to the
prosumer activities, such as producing energy
using solar panels and self-consumption of the
energy produced. Ritzer and Jurgenson (2010) sug-
gest that prosumption involves both production
and consumption rather than focusing on either
one (production) or the other (consumption).Pro-
sumerism is used more broadly to cover the social
and economic consequences of the prosumers if
they gain enough inuence. This could be com-
pared to consumerism which is a phenomenon
encouraging consumers to acquire products and
services in larger and larger quantities (Ritzer and
Jurgenson 2010).
Introduction
Sustainability transitions are taking place in mul-
tiple sectors. Climate change and ever-growing
demand for energy have forced us to think of
better and more sustainable ways to produce and
consume energy. Main developments that enable
the energy transition in the high level are decen-
tralization, digitalization, and electrication
(Astarloa et al. 2017). Stimulated by the sharp
decrease in costs of distributed energy resources
(DERs) such as solar PV and distributed storage,
decentralization of the energy system introduces
distributed generation (DG) based on the renew-
able energy sources (RES) in place of centralized,
large power plants. The addition of small-scale
variable energy sources based on solar and wind
requires increased exibility from the energy sys-
tem calling for improvements in energy efciency
and demand side management (DSM). Digitaliza-
tion enables a smart electricity system, the smart
grid, that is based on bi-directional ow of energy
and information and permits open, real-time, auto-
mated operation of the energy system. Digitiza-
tion, in essence, means transcribing data from an
analogue into a digital form using information and
communication technology (ICT). Digitalization
has a broader systemic meaning and refers to
digital transformation of not only technology but
also business models and processes (Collin et al.
2015). For example, the energy system is
Energy ProsumersRole
in the Sustainable
Energy System, Fig.
1Approaches to dene a
prosumer (based on Tofer
1981, Kotler 1986, Prahalad
and Ramaswamy 2000,
Cova and Dalli 2009)
2 Energy ProsumersRole in the Sustainable Energy System
experiencing digitalization in several levels of the
system; sensors, Internet of Things (IoT) devices,
and smart meters collect data at the consumption
(and production) site; the power grid transmits the
data; databases and data hubs store the data; data
is processed and analyzed; and different applica-
tions and services can utilize the data, for instance,
for automation and remote control, energy moni-
toring, or electric vehicle charging management.
Electrication is seen critical in achieving long-
term carbon goals and concerns large sectors such
as transport and heating; for instance, electric
mobility is transforming the transportation, and
heat pumps are diffusing fast as affordable solu-
tions for heating. Decentralization, digitalization,
and electrication together enable big changes in
the socio-technical and socioeconomical system,
for example, smart cities, smart buildings, and
green technology jobs.
The energy system transition is not only tech-
nical but involves many levels of changes in tech-
nology, infrastructure, business models, and the
society. Sustainability transition are often
described as socio-technical multilevel transitions
(Geels 2012) involving macro-, meso-, and micro-
level developments that gradually change
established regimes. One of the results of the
energy transition is that the energy system, tradi-
tionally dominated by large incumbent rms and
large power plants, is increasingly opening up to
new entrants, one of which is the energy pro-
sumer. The role of energy prosumers is envisioned
to be critical for the future sustainable energy
system: the prosumers are seen as important addi-
tions to decentralized energy system based on
RES, and their energy storages are seen as poten-
tial future exibility resources for exibility and
demand response (DR) that are required to man-
age the increasing variability in the energy gener-
ation. European Renewable Energies Federation
(EREF) predicts that by 2050, energy citizens in
Europe could produce twice as much power as
nuclear power stations produce now (Bertrand
and Primova 2018). Potential for the prosumers
in Europe has also been outlined in the CE Delft
report (2016), according to which 83% of house-
holds, collectives, micro and small businesses,
and public institutions could theoretically become
prosumers. In terms of the European households,
this would convert to approximately 187 million
residential prosumers.
Prosumers are proposed to bring multiple ben-
ets to the energy system, sustainability, and soci-
ety: reduced carbon emissions, increased use of
renewable energy sources, new business opportu-
nities, better access to energy in urban areas, and
improved resiliency for developing communities.
On the other hand, the prosumerism shakes the
existing regimes, and incumbent energy sector
stakeholders and increased share of variable
energy generation can cause commercial, techni-
cal, and operational issues to the electricity
system.
Different types of prosumers, their activities
and impact on the energy system, and sustainabil-
ity are discussed in more detail in the following
sections. First, prosumers and their role in the
energy system are discussed. Second, prosumer
challenges posed to the energy system as well as
the sustainability aspects of prosumerism are
examined. And nally, we summarize the contri-
bution of energy prosumerism to the Sustainable
Development Goal (SDG) 7: clean and affordable
energy for all.
Energy Prosumers and the Energy
System
Prosumer Types
Energy prosumers are not a homogenous group;
they come in multiple kinds and sizes. Hence, it is
not straightforward to dene or categorize pro-
sumers. However, the need for better denition
of energy prosumers and their role in the energy
system have been called for (e.g., Jacobs 2017).
Prosumers have been described in the literature,
for example, through their legal status; organiza-
tional type; size; type of energy they generate;
type of energy sources they use; amount of energy
produced, consumed, or sold; or their relationship
with the power grid (e.g., European commission
2016; Jacobs 2017; Kampman et al. 2016; Masera
and Couture 2015; IEA-RETD 2014;Sajn2016).
At least three approaches can be used to explain
the energy prosumers: through their role as energy
Energy ProsumersRole in the Sustainable Energy System 3
market participants; based on the energy type they
generate and the energy sources they use; and
based on their relationship with the power grid
(Fig. 2).
Prosumer as a Market Actor
A common way to categorize prosumers is through
their role in the energy markets; utilities and
retailers consider prosumers as primary customers.
Hence, the energy prosumers are commonly
grouped into residential, commercial, or industrial.
The exact grouping of different prosumers into
these categories is not clear-cut, but by applying
some simplication, the residential prosumers, also
referred to as domestic prosumers, typically
include households, apartment buildings, housing
associations, cooperatives, or collectives. The res-
idential prosumers normally occupy premises to
which electricity is supplied and use the electrical
energy for lighting, heating, cooking, and power
for domestic and household purposes.
Commercial prosumers contain, e.g., micro,
small, or large businesses, department stores,
shopping malls, hospitals, schools, ofces, or
sport facilities. Commercial prosumers use elec-
tricity, heating, and cooling for their own use and
create products and services for public.
Industrial prosumers are energy consumers
engaged in mainly manufacturing and are, for
example, factories, mines, mills, plants, or farms.
United Nations Industrial Development Organiza-
tion (Masera and Couture 2015)denes the
industrial prosumers as: industrial operators that
produce a portion or all of their on-site power
needs with renewable energy technologies
(RETs) and sell the excess to the national/local
grid or local community.
One of the most straightforward ways to tag
prosumers as either residential, commercial, or
industrial is based on their energy system size.
Although not harmonized even across the Euro-
pean Union (EU) member states, many states cat-
egorize prosumers into residential, commercial,
and industrial based on the amount of energy they
produce and demand. Commonly used limit for
residential prosumers is 10 kilowatt (kW), between
10 kW and 250 kW for commercial prosumers, and
over 250 kW for industrial prosumers (IEA-RETD
2014).
Besides their size, some sources divide energy
prosumers into public and private actors, in which
case the smaller public actors are considered res-
idential rather than commercial. Charitable insti-
tutions or places of worship are often considered
to be residential in nature (Sajn 2016). Likewise,
depending on the source and their production size,
agricultural farmers are considered either residen-
tial, commercial, or industrial.
Another aspect to energy prosumer types is the
prosumer groups. By denition (European Com-
mission 2016), the prosumers can organize into
groups and communities, which blurs the
abovementioned attempt of categorization to an
extent as sometimes the prosumers groups are
also called prosumers. Organizing into groups
potentially enhance the prosumersbargaining
position in the energy markets as they can combine
resources and trade large amounts of energy. Pro-
sumers within close proximity from each other
belong to the same subsection of the electricity
system, a micro-grid. These prosumer micro-grids
may act as single entities in the electricity market,
and the participating prosumers may generate,
store, and sell energy within their micro-grid com-
munity. An example of such micro-grid is a resi-
dential block or a housing community. Besides
close proximity energy communities, the energy
prosumers may also form virtual communities, for
example, virtual power plants (VPPs) (Rathnayaka
et al. 2014). VPPs have existed well before the
Energy ProsumersRole in the Sustainable Energy
System, Fig. 2 Different characteristics of the energy
prosumer
4 Energy ProsumersRole in the Sustainable Energy System
prosumer era, but their importance to the electricity
system is growing. Yet another example of virtual
prosumer community is peer-to-peer (P2P) trading
of energy. In this scenario, prosumers produce
energy and sell excess energy to any interested
party using a trading platform based, for example,
on blockchain technology (Parag and Sovacool
2016).
Rules of engagement in the energy markets
differ for different customer categories. Residen-
tial prosumers, for example, experience higher
energy retail price levels than commercial and
industrial prosumers that can purchase energy
from wholesale markets or auctions that have
minimum purchase limits for participants. Indus-
trial-scale prosumers have access to lower retail
energy rates than smaller consumer and pro-
sumers. This is one of the reasons why industrial
self-generation systems have struggled to become
commercially viable due to low retail energy
rates. Electricity rate structures also vary for dif-
ferent types of customers. For example, commer-
cial and industrial customers include in many
countries both volumetric and demand component
residential customers pay for volumetric compo-
nent and a xed rate. Furthermore, different coun-
tries apply different tax structures for different
customer types in the form of income, value-
added (VAT), sales, energy, and carbon taxes.
Some countries allow VAT deductions from
investments made by commercial prosumers to
solar PV, for example, in Finland, businesses are
able to deduct 25% of their investment in solar PV
systems (BusinessFinland 2018). In the USA, the
PV system investments by commercial customers
can be depreciated with accelerated schedule
(IEA-RETD 2014).
Due to their multifaceted and somewhat
unclear role, concerns over the legal status of
energy prosumers has been raised (Cseres 2018;
Jacobs 2017). For example, while EU considers
prosumers as active consumers, it does not dene
precisely who falls within the concept yet leaving
the rights and obligations of prosumers under-
dened. As a result, the absence of clear legal
status raises questions, and the practices to man-
age prosumers vary between the EU member
states.
Prosumer and Energy Types
Prosumer literature mostly focuses on electricity,
but microgeneration of heat and cooling also ts
with the energy prosumer meaning.
Electricity. Prosumers generate electricity
mostly from renewable energy sources (RES);
most popular energy sources for micro- and
small-scale energy production are solar and
wind. With declining cost for the small-scale
solar PV systems combined with attractive eco-
nomic policy incentives offered by governments,
many markets have experienced rapid growth in
their prosumer base. For example, there are well
over million prosumers in Germany, and
according to some projections, the prosumer
base could be as high as ten million by 2030
(Flaute et al. 2017). On-site electricity can also
be generated using small-scale wind turbines or
geothermal or hydropower pumps or from bio-
mass using solid wastes or biogas. Especially
agricultural farms are in a good position to utilize
biomass-based power generation.
Heating can be locally generated using geo-
thermal (or air) heat pumps, solar thermal collec-
tors, or biomass processors. Industrial prosumers
may rely on nonrenewable energy sources such as
using gas or diesel motors. Besides producing
heat locally, prosumers have been studied in the
context of district heating (DH) systems (Brange
et al. 2016). Like, electricity systems, DH systems
have traditionally been centralized large-scale fos-
sil fuel-based production units. DH systems are
envisioned to play an important role in the future
sustainable energy systems. As part of the sustain-
ability transition, also the DH systems are becom-
ing more resource efcient and decentralized and
are relying more on RES, enabling the energy
prosumers to participate in the DH generation.
While electricity is dominating the heating glob-
ally, DH systems provide about 50% of heating
especially in the Northern countries (Werner
2017). Furthermore, combined heat-and-power
(CHP) generation has potential especially for agri-
cultural and industrial prosumers.
Cooling, similar to heating, is most commonly
based on electricity, i.e., the prosumption of
cooling is often considered derived from solar
PV or heat pumps. Solar thermal collectors are
Energy ProsumersRole in the Sustainable Energy System 5
however another way to produce cooling locally
(ESTIF 2018). Prosumption of cooling is more
common among larger commercial and industrial
prosumers. District cooling (DC) systems are not
as common as DH systems, but do exist in large
cities in Europe and in large cities in the Southern
Hemisphere (Werner 2017).
ProsumersRelationship with the Grid
Yet another approach to describe energy pro-
sumers is based on their relationship with the
electricity grid or comparably with the district
heating system: the energy prosumers can either
be connected to the grid or remain off-grid.
Off-grid prosumers have two main drivers to
remain independent from the grid: lack of access
to the electricity grid and desire to produce enough
energy to fulll their demand. Off-grid prosumers
are more common in rural areas or developing
countries or where electricity price is considerably
higher than the cost of self-generation. The rural
off-grid prosumers are often agricultural entrepre-
neurs in remote communities taking care of their
electricity, heating, and cooling needs (Masera and
Couture 2015). Energy storage is important part of
the off-grid prosumption as it helps balancing the
energy generation and consumption times and
hence contributes to higher self-consumption rate.
A societal concern of more and more pro-
sumers leaving the grid is the resulting increase
of retail electricity rates for those that remain
connected due to the network rate component of
the grid being distributed between fewer rate-
payers. This in turn makes leaving the grid attrac-
tive also for those who originally stayed,
potentially escalating a utility death spiral taking
place (Severance 2011).
Majority of the prosumers produce only part of
the energy they demand and stay connected to the
grid. Grid-connected prosumers rely on the elec-
tricity from the grid to varying degrees. Self-con-
sumption can be a way to gain savings in electricity
bill, especially if electricity rates are high. On the
other hand, attractive tariff plans, such as feed-in
tariffs (FITs) and net metering, have encouraged
prosumers to feed all, or substantial amount of,
energy to the grid in some markets to an extent
that it has become an economic challenge for the
utilities. Commercial prosumers generally have
higher self-consumption rates than residential pro-
sumers. For example, commercial and manufactur-
ing buildings in Germany and Spain can achieve
self-use ratios of 75100% (IEA-RETD 2014).
Grid-connected prosumers have a broad set of
opportunities to be active in the energy markets.
They can, for example, participate in exibility and
demand response schemes orchestrated by energy
companies, aggregators for energy service compa-
nies (ESCO). Grid-connected prosumers can also
trade energy in virtual communities and be mem-
bers of VPPs or micro-grid communities.
Prosumer Activities in the Energy System
There are various approaches to describe prosumer
participation in the energy system. Technology-
focused approach associates prosumers with elec-
tric vehicles (EVs), energy storage, renewable
energy technologies (RETs), automation and
remote management, or smart buildings. A social
approach emphasizes the prosumer roles in energy
communities in which they share or trade energy
and hence increase the signicance of DER. Eco-
system approach considers prosumers as co-crea-
tors of value and innovations through offering
feedback, lead-testing products, and participating
in co-development.
Perhaps the most used approach to describe a
prosumer activity is through their on-site energy
generation, be it electricity, heating, or cooling. If
enough consumers convert into prosumers, they
can become a relevant and inuential part of DG.
Most popular way for prosumer energy generation
is the use of solar photovoltaic panels. IEA esti-
mates that global renewable energy capacity will
increase by 43% resulting as expansion of over
920 GW between 2017 and 2022 and that solar
PV capacity reaches 740 GW by 2022 (IEA
2017a). If the growing trend of installations con-
tinues, it has huge impact on the power system in
all levels and also on the electricity market. Dif-
fusion of solar PV varies by country and still
depends on policy incentives, taxation, and legis-
lative environment. Germany has incentivized
solar PV investments, and the prosumer takeoff
has been fast (e.g., Flaute et al. 2017). The com-
mercialization of other types of microgeneration
6 Energy ProsumersRole in the Sustainable Energy System
like micro wind turbines or micro turbines using
combustible fuel has been minor compared to
solar PVs.
Energy prosumers can organize in communi-
ties and sell excess energy they produce. Energy
selling can take place with the main power grid or
in micro-grids, virtual communities, or peer-to-
peer (P2P). Feeding excess energy back to the
power grid is enabled in most markets and incen-
tivized in some (Ramirez et al. 2017). Even
though there is a lot of excitement regarding the
potential of P2P energy sales, technology plat-
forms and business model readiness are currently
in demonstration phase, and regulatory and legis-
lative environment will require adjustments (Mar-
tin 2015). Technology enablers such as
blockchain have recently gained attention, and
pilot projects are being rolled out in different
parts of the world. The real applicability of the
P2P models remains open, partially due to regu-
lative environment currently in place in the energy
sector. However, once the prosumers start to orga-
nize in communities, their bargaining power in the
energy markets will grow substantially.
Current energy prosumer research focuses
heavily on analyzing consumers and prosumers
as participants in demand response (DR). Utilities
are focusing on extending the DR from industrial
customers to households as a way to direct elec-
tricity consumption away from peak hour, thus
reducing the risk of congestion and the needs for
network infrastructure investments. In this sce-
nario, prosumers could be home battery owners
or EV owners with a vehicle-to-grid (V2G) con-
nection that allows them to offer their batteries for
balancing loads during peak hours. Majority of
research related to household demand response
focuses on the technical management of DR, e.
g., load shifting techniques and algorithms (e.g.,
Haider et al. 2016). Consumer willingness to par-
ticipate in demand response has been studied, e.g.,
Molderink et al. (2010). Consumers can be willing
to participate, but they expect relatively high
incentives to change their energy consumption
behavior or to allow automated control of their
electricity. Time-of-use (TOU) price mechanisms
are a way to introduce dynamic pricing that shifts
energy use during off-peak hours and also encour-
ages DR participation.
Importance of distributed energy storage is one
of the rising topics in prosumer research; the
potential to cost-efciently store energy will
increase the relevance of DG and prosumer from
the power grid perspective as they can become
signicant exibility resources to the grid. EV
users can connect their batteries to the electrical
energy system in three ways: using smart charg-
ing, EV battery as a domestic backup power (vehi-
cle-to-home (V2H)), and EV energy storage as a
power resource for the public power system (vehi-
cle-to-grid (V2G)). With growing tendency to
electrify societies, EV sales are increasing glob-
ally (IEA 2017b).
A less researched potential for prosumers to
become active participants in the energy ecosystem
is through open innovation or value co-creation.
Co-creation is based on open innovation principles
according to which companies collaborate with
external stakeholders to innovate new products
and services (Prahalad and Ramaswamy 2004;
Chesbrough and Appleyard 2007). Consumers
can, for example, take place in crowdsourcing
campaigns or volunteer as lead users to test new
products and services. Living labs and smart cities
are often cited as milieus for co-creation in the
energy space.
Enablers and Drivers for Energy
Prosumerism
Correct mix of economic and noneconomic fac-
tors needs to be in place for consumers to adopt
new technologies (Rickerson et al. 2014).
National conditions such as available rooftop
space in cities inuence the prosumer potential.
Estimating the roof space is essential for under-
standing solar PV potential especially in densely
populated cities, for example, in Southeast Asia
(Byrne et al. 2015). Solar radiation, or insolation,
varies in different geographic areas having an
effect on the maximum potential of solar energy
generation. The Nordic countries, for example,
experience far less insolation than the countries
closer to the equator.
Energy ProsumersRole in the Sustainable Energy System 7
Availability of technology enablers is a basic
requirement for energy prosumption. Solar PV
has become efcient and affordable. Home bat-
tery storage solutions are developing, and price
levels are starting to decrease. Electricity grids are
being upgraded into smart grids that enable bi-
directional ow of energy and information gener-
ating a large amount of consumption, production,
and distribution data. Smart meters which are part
of an automatic measurement infrastructure
(AMI) manage energy measurement and control
and provide vast amounts of production and con-
sumption data which in turn can be used to pro-
vide better tools for energy monitoring,
automation of prosumer management, remote
control applications, and value-added services,
all of which can lower the threshold for consumer
to prosumer evolution. Smart meters are being
rolled out in different European countries (Zhou
and Brown 2017) with varying speed and timing.
Home energy management systems (HEMS)
manage the local energy resources allowing better
visibility of the production and consumption data
to the prosumer. Digitalization is a central enabler
for development in the energy system and new
business models. While technology development
is still necessary in many areas, the technology is
already widely available and becoming more
affordable for prosumers. Data privacy and secu-
rity as well as other cyber threats have been raised
as concerns, and management of consumption and
production data safely requires development of
both technical and legislative solutions.
Economic drivers including (PV or other) sys-
tem cost, energy prices, rate structures, and poten-
tial nancial gains are a key consideration when
consumer considers starting prosumption. Initial
investment for energy generation system and
expected payback time will be a factor in con-
sumer decision-making, for example, related to
solar PV equipment or EV which, despite declin-
ing price levels, still are substantial investments
with relatively lengthy payback periods. In addi-
tion to cost-benet analysis of investment, pro-
sumers also expect other economic gains, for
example, savings in their energy bill and compen-
sation for the electricity feeding into the grid.
Energy consumer and prosumer behavior can-
not be explained solely by economic factors as
people do not generally act rationally, the way
traditional economists dene it. Various behav-
ioral drivers including values, norms, beliefs,
and motivations have been suggested to steer con-
sumer decision-making. For example, pro-envi-
ronmental values have been studied as one of the
driving forces behind consumer behavior by, e.g.,
Ajzen (1985) and Stern et al. (1999). Diffusion
models (Rogers 1995) and technology acceptance
model (TAM) (Davis 1989) on the other hand
study adoption of new technologies, such as
RET. Ease of use and availability of turnkey solu-
tions have been found important in adoption of
complex technology solutions (e.g., Kotilainen
and Saari 2018). Intrinsic and extrinsic motiva-
tions (Ryan and Deci 2000) have been studied in
the context of value co-creation, and it has been
found that importance of intrinsic motivations is
signicant in consumer engagement (Füller
2010).
In addition to technological, behavioral, and eco-
nomic drivers, policy and regulation are commonly
agreed to have a signicant inuence in the growth
of prosumerism. Policymakers and industry experts
agree that macro-level policies in the form of incen-
tives, taxation schemes, and legislative enablers are
needed in order to boost consumer adoption in the
early phases of diffusion of environmental innova-
tions. Solar PV, electric vehicles, and smart meters
have all received support of some form from most
governments, but the level of policy push varies.
Different policies have been found to be effective in
different contexts. Policy mechanisms can be cate-
gorized as command-and-control, economic, and
soft instruments (Vedung 1998). The command-
and-control policies are mandates, laws, or regula-
tions. The economic incentives are efciently
boosting diffusion through lowering the investment
threshold in new technologies through, e.g., tax
exemptions, purchase subsidies, or grants. Further-
more, the soft instruments include information and
education campaigns, public procurement, and vol-
untary approaches that are aimed to improve public
awareness and acceptance of new technology solu-
tions. Regulatory instruments can be used to con-
strain or enable prosumer activities. The main
8 Energy ProsumersRole in the Sustainable Energy System
economic policy instruments for boost prosumerism
include net metering, feed-in tariffs, investment sub-
sidies, tax exemptions, dynamic pricing (TOU), and
regulations (e.g., Ramirez et al. 2017).
Feed-in tariff (FIT) and feed-in premium: FITs
are a form of incentive; they are long-term
contracts that guarantee the prosumers a spe-
cic tariff that is set above the market rate to
encourage the excess energy feed-in to the
grid. FIT has been an effective way to boost
microgeneration.
Net metering: Prosumers may feed excess
energy to the power grid and be compensated
for the amount provided in their electricity bill.
In practice, this means the prosumers are com-
pensated at the retail price. This means that the
utility pays higher rate for the excess energy
compared to their wholesale price from other
energy market sources. Net metering has been
used to boost distributed generation in several
markets.
Purchase subsidies, in the form of grants of tax
deductions, are applied to generation equip-
ment purchases and instalments to improve
the payback time of the investment. Solar PV
is reaching grid parity (or socket parity) which
suggests that public investment aids can be
phased out in the next years.
Taxation of self-consumption is a controversial
topic, and states have taken different approaches
to implement taxation. In most cases self-con-
sumption is not taxed. Some countries, for exam-
ple, Spain, have introduced self-consumption tax
to keep the prosumer base in control.
Furthermore, solar access laws that protect
buildings with solar installation by prohibiting
any new buildings from blocking their solar
access are in place in some jurisdictions (Ket-
tles 2008).
While effective in boosting the diffusion of
RET, policy interventions have been criticized to
create unfair market conditions, and policymakers
and energy industry experts both agree that poli-
cies should be phased out once the desired level of
diffusion has been achieved. Figure 3depicts key
enablers, drivers, and prosumption activities.
Despite declining RET price levels and inter-
national and national policy efforts to enable
small-scale energy prosumption, the prosumer
adoption is still in early market phase in most
regions; a prosumer revolution is yet to occur.
Key barriers for prosumer mass movement reect
the same categories as the drivers and enablers: for
example, low insolation or lack of roof space for
solar PV installations; technology barriers such
RET perceived as difcult to use and lack of
availability of turnkey solutions; economic bar-
riers such as low energy price levels or rate struc-
tures with emphasis on xed fees; behavioral
barriers such as lack of interest or social accep-
tance of RET and regulative barriers such as lack
of feed-in tariffs or net metering; and tax on self-
consumption or regulation that prevents energy
sales (e.g., Rickerson et al. 2014).
Prosumer Influence on Energy System
and Sustainability
While emergence of prosumerism has several
benets to environment, economy, and society,
the rising number of prosumers also poses chal-
lenges. This entry discusses consequences of
increasing energy prosumerism to the energy sys-
tem and sustainability.
Growing Prosumer Base Impact on the Energy
System
Prosumers are new actors in the energy markets
and their activities increase the use of RES and DG.
On-site power generation helps reducing losses
that take place during transmission and distribu-
tion, lower the need for increased transmission and
distribution capacity, increase local community
resilience in the absence of central power system,
and offer economic opportunities for individuals
and local communities. Furthermore, increased use
of RES helps reducing emission globally and
locally. Besides several benets of energy pro-
sumerism, it also poses at least two broad
Energy ProsumersRole in the Sustainable Energy System 9
categories of challenges to the current energy sys-
tem: commercial and technical.
First, the prosumers, and other new entrants
such as aggregators and service providers, shake
the status quo of the energy industry. Incumbent
energy companies that are mostly large and long-
standing power generators or utilities now face
new kind of competition, and potential loss of
revenue, that is in many markets backed up by
public policy-induced subsidies. Prosumers hence
face inertia from the energy industry companies in
the form of resistance against changes in regula-
tions that enable or incentivize prosumption. Self-
generation and using energy in off-grid mode
means less and less paying customers for the
utilities. Fears exist that this could lead to a cycle
of rate increases for the rest of the consumers
causing even more self-generation to begin and
eventually lead to a utility death spiral(e.g.,
Laws et al. 2017).
Besides the incumbent companies, other con-
sumers may be affected in the form of increased
energy rates. Cross subsidization and cost-shifting
between prosumers and consumers, i.e., the ques-
tion whether prosumers are paying their share of
the energy infrastructure, have been raised as an
issue: when prosumers are incentivized for the
energy they sell, normal energy consumers may
be the ones who pay the bill in terms of increased
energy and distribution charges (Eid et al. 2014).
There are concerns that a division will arise
between those who can afford to self-generate
and those who cannot. Furthermore, tax authori-
ties may experience loss of tax revenues as a side
effect of increased prosumption.
Second, the energy system also may encounter
technical challenges due to rapidly increasing vol-
umes of intermittent energy supply to the grid.
Electricity system has traditionally been based
on centralized energy generation based on large
power plants with predictable outputs. Energy
grid needs to remain stable and balanced in
terms of generation and demand, and thus predict-
ability is important in the management of the
system. Stricter environmental regulations mean
that adding traditional generation capacity is less
viable, thus shifting focus to DG and RES. Inher-
ently intermittent supply of RES makes its pre-
dictability hence much harder. Besides load
forecasting problems and capacity management,
prosumer base growth can pose technical prob-
lems to the grid that create quality and reliability
issues, including overvoltage conditions, conges-
tion issues, back-feeding into the circuit, stability
issues, as well as system planning challenges
(Rickerson et al. 2014). Furthermore, increased
amount of data collected, transmitted, and ana-
lyzed creates data privacy and security concerns.
Energy ProsumersRole
in the Sustainable
Energy System, Fig.
3Prosumer activities and
enablers
10 Energy ProsumersRole in the Sustainable Energy System
Commercial challenges to incumbent energy
companies, tax authorities, and ratepayers can be
addressed, for example, through phasing out sub-
sidies as soon as desired outcomes have been
achieved, by developing new business models
and investing in innovative solutions to create
new business opportunities and revenue streams.
There is growing body of research to address the
technical challenges of increased DG based on
RES and prosumption. Some of the solutions to
the address the technical issues are, e.g., increas-
ing capacity of the power lines, technical upgrades
to the power grid, developing more effective ex-
ibility and DR schemes, setting safety standards
for grid feed-in, building storage capabilities,
addressing data security, and investing in
improved data utilization and forecasting capabil-
ities (e.g., Rickerson et al. 2014).
Energy Prosumerism and Sustainability
Energy prosumers are anticipated to contribute to
diverse aspects of sustainable development. Sus-
tainable development (SD) targets to achieve
long-term stability of the economy and environ-
ment achievable through the integration of eco-
nomic, environmental, and social concerns (e.g.,
Dernbach 2003).
Prosumerism can contribute to environmental
sustainability in at least three ways: rst, pro-
sumerism increases the use of RES as most of
the energy produced by prosumers is renewable
energy. DG, or microgeneration, based on RES
has clear environmental benets, perhaps the most
important being that it helps in reducing the over-
all greenhouse gas emissions. By investing in
RES to improve energy access, it is possible to
avoid increase in the global emissions (WOE
2017). In addition to global emissions, cleaner
energy reduces local particle emissions which in
turn contributes to reduction of health-related
issues of pollution. Second, prosumerism sup-
ports achieving better energy efciency: when
energy is locally produced, stored, and consumed,
less will be wasted. Better energy efciency in
turn lessens the demand to energy generation.
Third, prosumerism can contribute to the creation
of pro-environmental innovations which indi-
rectly helps nding more environmentally
sustainable ways to produce, consume, and share
energy (e.g., Kampman et al. 2016; Masera and
Couture 2015).
In addition to its contribution to environmental
aspects of SD, energy prosumerism can contribute
to social and economic sustainability. First, pro-
sumerism enables improved energy access in
rural areas where electricity grid is not available
or is unreliable. The number of people without
access to electricity fell to 1.1 billion in 2016
from 1.7 billion in 2000. Despite the progress, the
electrication rate in sub-Saharan Africa is cur-
rently only 43% (WOE 2017). Renewables are
seen the way to further increase the energy access,
especially in the rural areas in the developing
world. Improved energy access in turn has multiple
positive effects on the development of local com-
munities in the form of better opportunities for
businesses to develop and additional revenue
streams for individuals. Energy poverty is a social
problem affecting those with no access to afford-
able energy, be it electricity or heat (Pye and Dob-
bins 2015). While mostly predominant in the
developing world, energy poverty exists also in
the developed regions (WOE 2017; Pye and Dob-
bins 2015). Prosumerism can contribute to reduc-
tion of energy poverty by energy projects in
communities without access to electricity or district
heating. Prosumerism helps increasing the income
of vulnerable households and the energy efciency
of buildings (Bertrand and Primova 2018).
Second, once the initial investment is recov-
ered, self-produced energy is highly affordable.
Energy sharing or selling back to the grid can help
reducing energy bills or even gain additional
income. Sustainability effects of energy sharing
can be approached through sharing economy, or
collaborative consumption, which is claimed to
have multiple sustainable environmental and
social impacts (e.g., Heinrichs 2013). Sharing
economy reduces overall production that has
been referred to as a balancing trend to consum-
erism (Botsman and Rogers 2010). For example,
sharing energy using P2P platforms increases ef-
cient use of renewable energy resources and
enables social and economic benets for both
sellers and buyers of energy.
Energy ProsumersRole in the Sustainable Energy System 11
Third, the outcome of value co-creation is to
boost development and use green innovations/
eco-innovations. Another way to look at sustain-
ability impacts of value co-creation with pro-
sumers is through green socio-technical niches
(Smith 2007) that can produce sustainable inno-
vations that can later be adopted by regime and
become widespread practices.
Conclusions
SDG 7 calls for: ensuring universal access to
modern energy services, improving energy ef-
ciency and increasing the share of renewable
energy. To accelerate the transition to an afford-
able, reliable, and sustainable energy system,
countries need to facilitate access to clean energy
research, promote investment in energy infra-
structure and clean energy technology.Energy
prosumption can contribute to multiple aspects of
the SDG 7 (see also):
Affordable energy: With decreasing price
levels for energy generation technologies, such
as solar PV, locally produced and consumed
energy is highly affordable.
Improved energy access: Prosumerism improves
energy access by enabling rural communities with-
out access to a reliable power grid to self-produce
energy for their own needs.
Improved resiliency in communities: Improved
energy access helps local communities develop and
improve the livelihood of their inhabitants and
economy.
Improved energy efciency: Prosumerism
contributes to energy efciency through their par-
ticipation in demand response programs and by
storing and selling excess energy they produce.
Increased use of RES reduces pollution: If
energy prosumerism becomes as widely adopted
as predicted, it will signicantly increase the share
of renewables in the energy system. Prosumerism
supports availability of sustainable energy for all,
including the developing countries.
Environmental activists have been campaigning
to put a halt to ever-expanding consumerism which
may be seen as having a damaging impact on the
environment. To meet the growing demand for
goods, industries are using extensive amounts of
water, energy, and raw materials to develop prod-
ucts. Consequently, poor working conditions may
result from extensive production of goods in the
developing countries. Contrary to consumerism,
energy prosumerism could potentially have a pos-
itive, and a balancing, effect through improved
energy efciency, increased use of clean energy
sources, introduction of sustainable energy innova-
tions, and improved living conditions and nancial
development in communities. At its best, energy
prosumerism conserves natural and human
resources instead of exploiting them and enables
sustainable economic growth that supports the vul-
nerable communities.
Cross-References
Micro-Grids
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14 Energy ProsumersRole in the Sustainable Energy System
... The costefficiency of prosumage is maximized when the ratio of battery capacity to peak power capability of a solar panel is 1:1 (kWh/kWp) [41]. Even an electric car battery can serve as a domestic backup power source, forming a vehicle-to-home (V2H) system when connected to the grid [42]. This solution can certainly support self-consumption. ...
... Energy prosumers are most commonly classified according to the role they play in the market. With this criterion in mind, prosumers are divided into residential, commercial, and industrial prosumers [42]: ...
... Residential prosumers have an installed capacity limit of no more than 10 kW, commercial prosumers encompass installations over 10 kW and below 250 kW, while industrial prosumers employ installations of 250 kW and more [44,45]. There are also other ways of classifying energy prosumers-for example, by the type of energy they generate, the source of energy they use, or by their relationship with the power grid [42,44]. Importantly, prosumers may organize themselves into groups or communities, which frustrates attempts to classify them. ...
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... Although small-scale intermittent energy generation may challenge the electricity system (Mathiesen et al., 2017), PVs on private residential houses are set to play an important role in producing more electricity from renewable sources. These so-called energy prosumer households, which not only consume but also produce and sell electricity (Kotilainen, 2020), may also bring other benefits. For example, some studies indicate that prosumer households become more environmentally friendly after getting PVs (Hansen et al., 2019), and micro-generation of electricity seems to increase households' awareness of the energy system (Hansen and Hauge, 2017;Keirstead, 2007;Palm et al., 2018;Palm and Tengvard, 2011). ...
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