What does the future hold for energy ‘prosumers’?

Individuals, communities and small businesses across Europe are entering the energy market as prosumers – often for environmental as well as economic reasons. It’s a trend that’s highlighting the limits of national energy policy, says Josh Roberts

Everyday citizens are becoming more central to the discussion on how to take Europe’s energy transition forward. And the European Parliament has now waded into the growing debate around it.

With its report Delivering a New Deal for Energy Consumers and the Renewable Energy Progress Report, the European Parliament has cast the latest word in the debate on what, if anything, the EU should do to empower citizens to become active in the energy market. Both come at a time when the European Commission is considering substantial reforms to EU energy law.

Why a debate on ‘prosumers’?
With decentralisation of the energy system, ways that ordinary households and small businesses consumers can actively participate in the energy market are becoming more diverse. Households and small businesses are no longer resigned to the role of passive consumer, but have the potential to become energy ‘prosumers’ by self-producing and storing renewable energy, or by getting flexible with how they use energy, including through conservation.

This can be motivated by environmental consciousness – or simply through the desire to save money on energy bills. It can also help provide services to the local power grid and boost local economic growth and innovation.

And individuals don’t even have to do these things all by themselves. Prosumers are also setting up new businesses called community energy projects, which allow them to produce renewable energy to sell to each other or to themselves, operate local power grids, or help their members achieve energy savings.

The problem is, however, that not everyone in the energy industry appreciates this. Many utilities, which have traditionally held a firm grip on market share, are now seeing the very foundation of their business models being disrupted by prosumers. National policymakers are still trying to catch up with this trend.

At the EU level, it’s no different – there is currently no legal framework in place for prosumers.

Why do energy-producing citizens need support from the EU?
Historically, national and local governments have been responsible for putting in place supportive laws and policies to promote active consumer participation in the energy sector. This has been great for citizens in countries like Germany and Denmark – in the latter approximately half of renewable production is in the hands of citizens.

However, opportunities to become a prosumer across the EU vary dramatically. For instance, in stark contrast to Germany, next door in Poland there are only 4,700 micro-installations connected to the grid.

Furthermore, citizens in some countries, such as Spain, after being incentivised to invest in renewables, have had the rug pulled out from under them through retroactive changes that now penalise self-production and storage.

Some EU level policies are also causing countries that have traditionally been supportive to energy citizens to change course. For example, Germany is now imposing more barriers on prosumers through its very strict implementation of the EU’s state aid guidelines, which seek to limit national support for renewables and expose them more to the market unaided. This will slowly drive prosumers out the energy market and ultimately exclude them.

These challenges highlight the limits of national energy policy in creating a supportive legal framework for EU citizens to participate in the energy transition. It means the EU must ensure that its own internal market and competition policy helps to empower prosumers, rather than imposing additional barriers – particularly if it wants to achieve its climate objectives.

The next step for prosumers in the EU
Prosumers can clearly play a role in Europe’s energy transition, but this is by no means guaranteed. First, the EU needs to craft a dedicated legal framework to guarantee prosumer participation in the energy market.

This will need to start with defining, legally, what prosumers are, ensuring that the definition is broad enough to cover both participation by individuals and community energy initiatives.

Prosumers need a concrete set of rights that guarantee they can be active in the market. They need protection from investment risk and irresponsible market actors – and they need schemes that usher them past the competitive barriers to entry posed by the big utilities.

National regulations also need to recognise the innovation that new, disruptive business models can provide in unlocking prosumer potential, and ensure that rules do not place them at a competitive disadvantage.

Brexit: what does it mean for the prosumer?
Given the sheer uncertainty around the recent Brexit, it is hard to judge exactly what its impact will be on prosumers in the UK. The UK has already significantly scaled back support for renewables, and leaving the EU could embolden these efforts further. Nevertheless, regardless of its relationship with Europe post-brexit, the UK is not an energy island – it is likely that it will become more interconnected with its neighbours, not less. Therefore, as prosumers in the UK look towards innovating new business models, a legal framework clarifying their role in Europe’s energy market will be arguably even more important.

As for the EU itself, Brexit should be a wakeup call and a period of self-reflection as to what the EU can offer all citizens of Europe. Through this lens, empowering citizens to take ownership of the energy transition represent a unique and positive opportunity.

An opportunity to put citizens at the centre of Europe’s energy transition
As the number of prosumers across Europe has grown, so have the questions about what role they have to play in the energy transition. The debate will only get hotter as the European Commission gets closer to releasing legislative proposals for renewables, energy efficiency and a new energy market design.

There is a clear opportunity to create a framework that means citizens can contribute to, and take ownership of, the energy transition. It is ultimately up to the Commission to be ambitious enough to grab it.