For decades, consumerism has reigned supreme, but people are now beginning to realise the toll that this has had on the planet. Energy consumption in particular has put huge pressure on the environment, and with sustainability now the number one priority as we move towards net zero, it could be time to find an alternative to consumerism.
Wildfires in Greece, floods in Europe and the run up to COP26 this year have put the spotlight firmly on the energy industry and its role in tackling climate change. It’s no secret that the industry is going through a number of transformational changes to meet the Government’s net zero by 2050 target, and these changes include reassessing how energy is both bought and sold. Could ‘prosumerism’ be the answer?
Prosumers are generally defined as electricity consumers who produce part of their electricity needs via their own power source, often choosing renewable methods to do so. As well as contributing to decarbonisation, prosumerism offers a more flexible and integrated electricity system. More prosumers mean increased competition for energy providers, increasing the fluidity of the market and in turn, reducing prices.
Although not a new concept, with the Feed-In Tariffs (FIT) scheme paving the way in 2010, prosumerism has been gaining pace in recent years. The Government’s Energy White Paper in particular has highlighted the important role that the electrification of society will play in the future. Inevitably, this will increase electricity peak demand, leading to network constraints. Improving grid flexibility through methods such as prosumerism, will be needed to manage this risk.
For consumers, this will mean embracing solar power, battery storage (potentially in the form of vehicle-to-grid technology), and smart energy management systems. By producing their own energy, storing it, and then injecting any excess back into the grid, demand on the electricity distribution network can be reduced while benefiting the environment. Investing in a community-funded wind turbine or solar farm that can be linked to each house’s electricity bills through their energy supplier, could also help to reduce electricity bills while staying green.
Commercial buildings, such as offices and retail spaces, are also starting to turn to onsite renewable energy generation. Whether they use 100 percent of the electricity themselves, or sell it back to the grid, this approach will help businesses to meet sustainability goals while appealing to consumers and potential employees who care about the environment.
Industrial prosumers can take advantage of the land that often surrounds them by installing generation capacity onsite that goes beyond solar panels on a roof. Not only does this have the potential to minimise grid charges, it also gives them the opportunity to sell electricity back to the grid, creating a new source of income for the business. Captive power generation – the generation of electricity for the purpose of consumption by the generator – is not new, with some larger industrial and commercial energy users adopting on-site generation following privatisation in the late 1980s and 1990s in the UK to reduce costs. However, for large corporations that have huge electricity needs, onsite generation might not be enough on its own. By purchasing electricity directly from renewable energy projects via sleeved or virtual Power Purchase Agreements (PPAs), they can continue to improve their sustainability levels and burnish their brands.
Energy communities can also be created. This approach has two methods: virtual and proximal. Virtual communities involve a group of energy users pooling their collective energy assets with the help of Energy Service Companies (ESCos), aggregators and asset managers that serve as energy retailers. These facilitate the collective purchase of solar and wind power, as well as assisting with storage, installation and operation.
Proximal communities rely on a micro-grid that is near to buildings such as municipal facilities, universities or multifamily dwellings, and is powered by onsite solar panels, wind turbines or battery storage. This micro-grid can be used to shift load profiles at peak times to keep energy prices low.
Peer-to-peer trading systems based on smart and blockchain technology could be the future of prosumerism. At present, prosumers have limited options, mainly having to sell their surplus to the grid or an electricity supplier. Blockchain has the potential to enable mass decentralised peer-to-peer trading, securely linking large numbers of unknown counterparties that are happy to trade with each other because they trust the underlying technology. Smart contracts will be a key part of this, allowing prosumers to set the parameters and let the system carry out the process.
Prosumerism could undoubtedly help the UK to improve its sustainability across all areas, whether consumer or commercial, but incentives will need to be provided. Although the concept has been around for some time, it is only now starting to enter the mainstream, and regulatory frameworks will need to change to reflect this shift.
Author: Sushma Maharaj, partner in the energy team at law firm, Shakespeare Martineau
