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A prosumer is an individual who both consumes and produces. The term is a portmanteau of the words producer and consumer. Research has identified six types of prosumers: DIY prosumers, self-service prosumers, customizing prosumers, collaborative prosumers, monetised prosumers, and economic prosumers.[1]
The terms prosumer and prosumption were coined in 1980 by Alvin Toffler, an American futurist, and were widely used by many technology writers of the time. Technological breakthrough and a rise in user participation blurs the line between production and consumption activities, with the consumer becoming a prosumer.
In the field of renewable energy, prosumers are households or organisations which at times produce surplus fuel or energy and feed it into a national (or local) distribution network; whilst at other times (when their fuel or energy requirements outstrip their own production of it) they consume that same fuel or energy from that grid. This is widely done by households by means of PV panels on their roofs generating electricity. Such households may additionally make use of battery storage to increase their share of self-consumed PV electricity, referred to as prosumage in the literature.[2][3] It is also done by businesses which produce biogas and feed it into a gas network while using gas from the same network at other times or in other places. The European Union's Nobel Grid project, which is part of their Horizon 2020 research and innovation programme, uses the term in this way, for example.
The sharing economy is another context where individuals can act as prosumers. For example, in the sharing economy, individuals can be providers (e.g., Airbnb hosts, Uber drivers) and consumers (e.g., Airbnb guests, Uber passengers). Prosumers are one avenue to grow the sharing economy.[4]
Scholars have connected prosumer culture to the concept of McDonaldization, as advanced by sociologist George Ritzer. Referring to the business model of McDonald's, which has emphasized efficiency for management while getting customers to invest more effort and time themselves (such as by cleaning up after themselves in restaurants), McDonaldization gets prosumers to perform more work without paying them for their labor.[5]
The blurring of the roles of consumers and producers has its origins in the cooperative self-help movements that sprang up during various economic crises, e.g. the Great Depression of the 1930s. Marshall McLuhan and Barrington Nevitt suggested in their 1972 book Take Today, (p. 4) that with electric technology, the consumer would become a producer. In the 1980 book, The Third Wave, futurologist Alvin Toffler coined the term "prosumer" when he predicted that the role of producers and consumers would begin to blur and merge (even though he described it in his book Future Shock from 1970). Toffler envisioned a highly saturated marketplace as mass production of standardized products began to satisfy basic consumer demands. To continue growing profit, businesses would initiate a process of mass customization, that is the mass production of highly customized products.
Toffler has extended these and many other ideas well into the 21st-century. Along with more recently published works such as Revolutionary Wealth (2006), one can recognize and assess both the concept and fact of the prosumer as it is seen and felt on a worldwide scale. That these concepts are having global impact and reach, however, can be measured in part by noting in particular, Toffler's popularity in China. Discussing some of these issues with Newt Gingrich on C-SPAN's After Words program in June 2006, Toffler mentioned that The Third Wave is the second ranked bestseller of all time in China, just behind a work by Mao Zedong.[7]
In July 2020, an academic description reported on the nature and rise of the "robot prosumer", derived from modern-day technology and related participatory culture, that, in turn, was substantially predicted earlier by science fiction writers.[11][12][13]
Educating and engaging prosumers will be vital to the energy transition. To engage customers as partners who contribute to resiliency and sustainability, utilities use incentive programs and data transparency to nudge their behavior.
Utilities also have more ability today to share tools and large amounts of data with customers in real time. When this data transparency is paired with education and advice, it is a powerful tool for creating shared value and partnership on the journey to net zero. Online calculators are one way that customers and utilities can share information to work together to save energy. For example, a calculator can model the potential cost savings of electrifying a fleet of vehicles, and how much a business can benefit from charging them during off-peak times.
If utilities can profit from providing energy services and not just by building more power generation assets, they will promote more energy efficiency and energy management programs that benefit all customers.
Business prosumers exert more impact than ever on grid infrastructure and energy supply and demand. That makes it important to understand their goals to work with them effectively. C&I utility customers are already interested in optimizing their energy consumption and meeting environmental, social and governance (ESG) goals. This makes them powerful allies in the development and management of a cleaner grid.
An essential resource for a partnership with the energy prosumer is the customer usage data collected by advanced metering infrastructure (AMI). AMI data helps customers decide how to manage their electricity, use new products, or enable third-party services. Data analytics can help every customer understand their own consumption patterns and make changes in line with their own needs and motivations. Sharing data and usage insights with customers helps change their relationships with the utility from a mere consumer to more of a partner. As a partner, customers can adjust their energy consumption in ways that support grid conditions and keep the lights on.
Prosumers adopt distributed energy resources (DER) to cover part of their own consumption and to sell surplus energy. Although individual prosumers are too dispersed to exert operational market power, they may collectively hold a strategic advantage over conventional generation in selecting DER capacity via aggregators. We devise a bilevel model to examine DER capacity sizing by a collective prosumer as a Stackelberg leader in an electricity industry where conventional generation may exert market power in operations. At the upper level, the prosumer chooses DER capacity in anticipation of lower-level operations by conventional generation and DER output. We demonstrate that exertion of market power in operations by conventional generation and the marginal cost of conventional generation affect DER investment by the prosumer in a nonmonotonic manner. Intuitively, in an industry where conventional generation exerts market power in operations similar to a monopoly (MO), the prosumer invests in more DER capacity than under perfectly competitive operations (PC) in order to take advantage of a high market-clearing price. However, if the marginal cost of conventional generation is high enough, then this intuitive result is reversed as the prosumer adopts more DER capacity under PC than under MO. This is because the high marginal cost of conventional generation prevents the market-clearing price from decreasing, thereby allowing for higher prosumer revenues. Moreover, competition relieves the chokehold on consumption under MO, which further incentivises the prosumer to expand DER capacity in order to capture market share. We prove the existence of a critical threshold for the marginal cost of conventional generation that leads to this counterintuitive result. Finally, we propose a countervailing regulatory mechanism that yields welfare-enhancing DER investment even in deregulated electricity industries.
Over the past 40 years, the electricity industry in most OECD countries has experienced two structural reforms. First, it has gone from being a mostly state-regulated enterprise with vertically integrated investor-owned utilities to a decentralised one with separation of generation and retailing functions (Wilson 2002; Baek et al. 2014; Ajayi et al. 2017). Second, in the last decade, concerns about climate change have prompted decarbonisation of the power sector and electrification of wider energy use in other sectors. This orientation towards sustainability has been facilitated by policies for supporting renewable energy technologies and carbon pricing (von Hirschhausen 2014; de Leon Barido et al. 2020).
In particular, climate policy has catalysed the adoption of distributed energy resources (DER) (Burger and Luke 2017), such as rooftop solar photovoltaic (PV) panels (van Kooten and Mokhtarzadeh 2019) and plug-in electric vehicles (PEVs) (Fox et al. 2017). For example, small-scale PV generation by end users in the U.S. has increased fivefold in the past seven years.Footnote 1 While renewable-energy subsidies and targets have made DER technologies more economically attractive for residential and commercial entities, the rise of the so-called prosumer, i.e., an agent that both produces and consumes energy,Footnote 2 is further enabled by underpinning regulation. For example, FERC Order 2222Footnote 3 and EU Directive 2019/944 (Article 16)Footnote 4 ensure non-discriminatory access to electricity markets for DER providers. In this context, aggregators can pool DER capacity to participate more effectively in markets (Wang et al. 2019).Footnote 5 Thus, while a single prosumer may have limited influence in the electricity market, an aggregator with a diverse portfolio of DER can potentially exert market power (Iria et al. 2019; Yin et al. 2020).
We have two settings with a deregulated industry: one in which conventional generation acts perfectly competitively (PC) and another in which conventional generation alone exerts market power in a simultaneous-move game (MO). In either case, the prosumer invests in DER at the upper level, thereby leading to a bilevel problem. As a benchmark, we also have a central-planning setting (CP) in which all decisions, x, y, and z, are treated as if they were made by a single benevolent entity that maximises social welfare. Thus, CP is handled as a single-level optimisation problem.
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