The Concept of Prosumption: More Power to Consumers

By LIVIU C. FLOREA, Ph.D.WASHBURN UNIVERSITYC. PATRICK WOODSWESTAR ENERGY

In the inter-related process that involves simultaneous production and consumption, individuals become prosumers, in that they consume and produce a product.

In relation to business, people are not only consumers; they can collaborate with companies and participate in the production of goods and services by providing their input of time, effort and capabilities. They can co-create or produce goods and services for their own self-consumption through such activities as farming or becoming involved with designing or customizing products for their own needs.

PROSUMPTION—NEW WINE INTO OLD BOTTLES? While the term is relatively recent, prosumption has been common throughout history. Before the Industrial Revolution, most people were prosumers, since they provided for the needs of their own families and communities, as hunters, gatherers, and farmers. As the world became industrialized, production and consumption became separated, and consumption took precedence over prosumption. A shift from the production-dominated society to consumer-dominated society has been a characteristic of the last decades. Production and consumption re-integrated, making it difficult to distinguish precisely one from the other.

Prosumption is different than consumption, since prosumers take an active role in creating goods and services that they consume. Some prosumers provide unpaid labor, offering goods and services at no cost, and producers and consumers may collaborate to develop new products. Meanwhile, prosumption for one’s own consumption or for sharing, referred to as bricolage or “do-it-yourself” projects, and cooperative, peer-to-peer presumption are quite common. A common theme of all forms of prosumption is that prosumers cocreate value and transform the good or service before its consumption.

How do weprosume today?

INTERNET As the Internet has opened numerous venues for prosumption through crowd- and open-sourcing and user-generated online content on social media and online commerce and information, the trend toward doing things by one’s self rather than having paid employees perform those tasks has accelerated. At the same time, there is no charge for most of that which is prosumed online, whether it is given away free of charge by companies or individuals.

Some examples include Facebook pages, Amazon orders, Wikipedia entries, communities of product enthusiasts who are rewarded in exchange for talking about products (e.g., Vocalpoint), and participation in designing products from the manufacturer’s website. Arguably, the ability for users to produce content collaboratively has been a milestone in the re-emergence of prosumption.

An example of successful Internet-based prosumption is Wikipedia, the largest and most popular encyclopedia based on a model of openly editable content. Launched in 2001, this online encyclopedia allows anyone to make entries and create articles that can then be continuously reviewed, updated and commented on. Most often, inaccuracies, such as errors, biases and irrelevant entries, are immediately corrected. The articles from Wikipedia have always been free, allowing the online encyclopedia to successfully compete against classical businesses. Prosumption is based on individual freedom and creativity, and plays an important role in innovation and entrepreneurship.

CONSUMER AND INDUSTRIAL GOODS The impact of prosumption is easy-to-track for consumer goods. Prosumers perform tasks that they had not performed before, such as checking themselves in hotels and airports, and in the process, they eliminate the need for certain jobs, help companies be more profitable, and make some goods and services available free of charge to anyone. Technology has facilitated prosumption in various forms, including self-checkout systems at supermarkets, self-diagnosis and personal health-care, travel arrangements, assembling furniture, sharing of photos and videos, distance learning, online entertainment, and buying and selling virtually anything.

The impact of prosumption can be also observed in industrial goods. Many companies used large manufacturing facilities, effective supply chains, or well-established distribution networks to fend off competitors and develop a sustainable competitive advantage. Some companies have found a competitive edge in customizing and adapting their goods and services to specific user preferences. Companies are interacting with an ever-increasing numbers of customers to learn their preferences, with the objective of creating, designing and adapting goods and services. As such, these customers become prosumers. In the process, the production and consumption, as well as procurement and distribution, tend to become less separable components of a supply chain.

SERVICE ORGANIZATIONS Other manifestations of prosumption can be seen in the work of volunteer-based service organizations, such as Rotary, Lions Club, Red Cross and United Way. Through their members’ unpaid involvement, they support business, educational, social, and health initiatives in their communities and worldwide. For some goods and services, communities and the entire society relies on their contributions, reducing the need for paid-for work activities.

How Do We Prosume Today… In Kansas?

DISTRIBUTED ELECTRIC GENERATION In our own backyard, the state of Kansas has extended the use of distributed electric generation (DG) technologies, through private rooftop solar panels and small wind-turbine generators, to encourage renewable energy presumption [See EXHIBIT 1, page 74].

Distributed generation is electrical generation located on-site with the enduse customer. For Westar Energy, over one-third of the generation portfolio is composed of renewable energy, as the company maintains a diverse generation infrastructure. In many instances, renewable generation is also distributed generation [See EXHIBIT 2, page 74].

EXHIBIT 1

The Legislature and the public utilities regulatory commission established a crediting procedure, known as net-metering, that allows customers to sell the excess electricity generated by their distributed generation system to their electric utility.

Through net-metering, customers with distributed generation systems are credited the full variable retail rate for the electricity that they sell back to the utility company via the grid.

Essentially, the meter of the customer with distributed generation spins backward by the amount of generation sold back, leaving the bill to be based on the “net” consumption of electricity. The result is that these customers are able to produce a portion of their energy, albeit variable, reducing their electric costs or increasing their usage without increasing their bill.

As emphasized by Dr. James McHenry, one of the current 700 DG prosumers, a substantial capital outlay, an investment in solar panels of over $20,000 is required for the customer. For the utility, the most immediate cost involves the provision and installation of a buy-back meter and a generation meter. The benefits are considerable —the consumer can lower their energy bill by about 80 percent. Some utility customers integrate production and consumption of electricity.

DISTRIBUTED ELECTRIC GENERATION: ETHICAL CONSIDERATIONS While research on the topic is still in infancy, ethical aspects associated with prosumption are emerging. One ethical problem that has arisen with prosumption is cross-subsidization. For example, in the case of distributed generation of electricity, customers who do not have DG systems end up paying more than they would pay if there were no prosumers because the fixed costs of the grid (maintenance and enhancement of infrastructure for generating, transmitting and distributing electricity) are not allocated equitably to both groups of customers.

Customers in the prosumer group are credited for the electricity that they generate with their home DG systems based on the full retail rate, as opposed to a more general wholesale rate for electricity. This is significant because the full variable retail rate includes the fixed costs for maintaining the grid that all customers use. The wholesale rate, on the other hand, simply reflects the costs associated with generating the electricity (fuels, generation infrastructure, etc.).

This means that the prosumer is producing a portion of their energy to be sold back to the utility via the grid and simultaneously reducing their share of the cost for maintaining that very grid. The costs for maintaining and enhancing the grid don’t decrease in this situation; they simply shift to the other group of customers—those who cannot take advantage of net-metering because they do not have DG systems.

Grid-only consumers, therefore, are left to pay a disproportionate share of the costs associated with the critical grid resiliency and enhancement projects that utility companies will need to undertake in the coming years. Although these grid enhancements are necessary for integrating more variable generation—in the form of renewable resources and distributed generation—into the collective generation portfolio and tend to benefit all consumers, under the current billing system the gridonly customers would end up picking up a disproportionate share of the tab.

This presents a significant public dilemma, because renewable energy (which includes virtually all DG units) represents a significant natural resource for communities in Kansas and across the country. In Kansas, most utility providers have embraced renewable energy because of the competitive costs, renewable virtues and readily available character.

However, the industry and its regulators have struggled to reconcile the reality of increasing DG capacity under the current net-metering structure with the requirements for grid maintenance and enhancements. As the future undoubtedly trends toward greater prosumption of electricity, modernizing the methods for billing and financing of grid maintenance and enhancements so that the costs are allocated equitably to all customers will become one of the most critical bodies of work.