3.1.1. The Concept of Prosumers
As discussed above, prosumers are consumers which not only withdraw energy from the network, but also produce and supply energy into it [11
]. Even if they must, generally, be considered as consumers, prosumers participating in energy efficiency and especially demand response programmes are often behaving more like producers than consumers since they provide services that the market needs in exchange for compensation [25
]. The definition of prosumers often describes consumers or other agents that rely on smart meters and solar PV panels to generate electricity and/or combine these with home energy management systems, energy storage, electric vehicles and electric vehicle-to grid (V2G) systems [2
Nonetheless, a first legal barrier that they encounter is that many national regulatory frameworks in the EU do not define who fall within the concept of prosumer yet. The consequence is that their rights and obligations have not been defined and diverge between Member States. The Winter package provides a definition at the EU level for the first time. Nonetheless, in spite of the reception that this term has in the literature on energy law and economics, the Winter Package prefers to use the term active customer
]. Article 2(6) defines active customer
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 efficiency schemes provided that these activities do not constitute their primary commercial or professional activity”. It clarifies that the abovementioned commercial activities cannot constitute the “primary commercial or professional activity
” of the consumer. This casts some doubts on the ability of active consumers to place competitive pressure on electricity suppliers, [27
] which seems to be one of the objectives of the Winter Package [26
Prosumers, unlike traditional consumers, are more autonomous and participate in a more active and diverse way in the market [25
]. Prosumers take more control of their consumption decisions, either taking active steps to regulate their consumption or engaging in self-supply. Moreover, they act as market participants by selling the excess of energy generated to their local utilities, by bidding energy storage services into ancillary services markets, and by receiving compensation through demand response programs [25
]. Regulation is then expecting that prosumers become an active and relevant actor in the market.
Demand response programmes provides a way to integrate prosumers and household consumers in the electricity markets as active participants. However, as will be discussed below, there are still some legal and relevant technical problems to allow a massive participation of small prosumers in demand response programmes through dynamic retail pricing (Implicit DR) and the use of aggregators (Explicit DR) which will be explained below.
3.1.2. Legal Barriers for the Introduction of Demand Response (DR)
With regard to implicit demand response, dynamic retail pricing means the calculation of the electricity costs based on real time pricing. It reflects the marginal network costs and/or generation costs of electricity in the wholesale market (See on this [28
]). Currently, there is significant variation in the penetration of dynamic pricing among households in Europe. So far residential consumers can only take advantage of dynamic pricing in the Spanish, Nordic and Estonian markets [3
There are several reasons that still impede the penetration of dynamic pricing [3
]. First, the influence of non-energy components could provide wrong signals that can blur the benefits of dynamic pricing, unless they are also dynamically designed [3
]. There is not a prohibition in the regulatory framework that prevents dynamic network tariffs, however they are still not being applied [1
] (p. 100). The reason may be that they are complex, as well as dynamic pricing is not a panacea since it can also have socially adverse redistribution effects, for instance for vulnerable consumers with less flexible consumption patterns or less access to flexibility sources [18
]. In addition, the creation of more individualized data by smart meters raises questions about their treatment [31
]. This could create potential problems with the right to data privacy, if unmanaged. CERRE 2017 warns that “thanks to smart meters and demand-response programs, large quantities of precise information will be collected […] Consumers will progressively lose the initial informational advantage on their electricity needs […] and service suppliers will be able to extract more rents from consumers […]. Another question(s) are […] Will it be legal to sell data on consumption profiles? Will data on profiles be viewed as an essential facility for new entrants?” [32
] (p. 39).
Regarding explicit demand response, the number of prosumers has increased together with the number of aggregators. Article 2(14) of the proposal for the revised Electricity Directive defines an aggregator as a market participant that combines multiple customer loads or generated electricity for sale, for purchase or auction in any organised energy market [26
]. These companies offer their services as middlemen between prosumers and electricity markets, [25
] for instance they aggregate many small demand response commitments and bid them as a package into retail or wholesale electricity markets. Aggregators capitalise on economies of scale and scope and the savings that they get are passed on their clients retaining a fee [33
]. The aggregator can act as an incumbent electricity supplier offering aggregation services, a service provider specialized in aggregation services collaborating with a supplier, a joint venture between a traditional supplier and a service provider or as an independent market actor (independent aggregator) [34
]. In addition, regulation can permit opt-in models where the consumers choose to join the services provided by an aggregator or opt-out models where the consumer belongs to the aggregation scheme unless he expresses he does not want [35
]. It is a regulatory decision to make the abovementioned business models available for consumers [37
]. The value of aggregators in the retail market is that they offer a service to consumers that do not have the means and knowledge to trade in the market. However, explicit DR still encounters some regulatory obstacles in Europe [37
]. First, in some markets demand-side resources cannot access the market since they are closed to explicit demand response. This is for instance the case in the balancing markets in Spain or Italy, as well as in the re-dispatching market in Germany. Furthermore, in the Netherlands, aggregators can only participate in the market through balancing responsible parties (BRPs) [37
]. Moreover, some countries (Polonia and Slovenia) have not opened their markets to aggregated load, only allowing industrial customers to access the market. In addition, some countries have still neither defined what an independent aggregator is, nor clarified its role under a principle of fair competition that let them access the market without an agreement with the consumers’ retailer.
3.1.3. Evolving Roles of DSOs
In this new market design, where consumers become more active, DSOs are one of the key contract partners of the prosumers and active consumers. The DSO’s key task [40
] (Article 25) is the responsibility to ensure the long-term ability of the distribution system, as well as to manage a secure, reliable and efficient electricity distribution system [12
]. Furthermore, DSOs usually are also responsible for measuring the energy used and produced by household consumers and usually make measurement devices available for small connections [12
]. Prosumers and distributed generation together with the roll-out of smart meters ought to change the role of DSOs vis-à-vis the consumers to a more active system manager [41
]. Nonetheless, this should not change core responsibilities of DSOs (e.g., maintaining grid security and ensuring security of supply).
There is also wide consensus among policy-makers that DSOs are well suited to act as neutral market facilitators in the transition towards a Smart Energy System [42
]. This notion expresses the idea that the DSOs can enable and facilitate the connection of flexibility services to their grids to develop local flexibility markets in a neutral way, for instance by sharing data on the availability of flexibility sources in an independent way. Flexibility can be seen as the modification of generation, injection and/or consumption patterns in reaction to an external signal in order to provide a service within the power system [12
]. The evolving DSOs’ tasks related to the role of neutral market facilitator are not addressed by the current European and national legislative frameworks [42
Moreover, as it is expected that more imbalances and congestions may occur locally, DSOs may also assume part of the transmission system operators (TSOs)’ main task which is the balance of demand and supply. Accordingly, DSOs could locally balance demand and supply and apply local congestion management in the distribution systems [42
]. This development requires more coordination and cooperation between the DSOs and TSOs.
3.1.4. Legal Barriers for the Birth of Peer-to-Peer (P2P) Networks
In a decentralised electricity market, where active consumers and prosumers are progressively being empowered, the technological process seems to head towards a paradigm where these consumers could buy and sell electricity among themselves. In April 2016, the project Transactive Grid
did the first P2P exchange of energy between five homes in Brooklyn, NY, USA. The excess of energy produced on one part of the street was sold to the other part without the need of a utility Transactive Grid
helped to manage the microgrid that supported the transaction and used a blockchain software run by Ethereum project
. After this first pilot, the US start-up LO3
, responsible of the Transactive Grid
project, is collaborating with Siemens
to develop blockchain microgrids [43
]. Blockchain is a decentralized internet protocol that facilitates transactions, such as the sale of electricity, directly between peers without an intermediate institution. In the energy sector, decentralised storage of transaction data could increase security and may ensure greater independence from a central authority [24
]. It can also help to digitize contracts, to manage digital content and to execute trades. Nonetheless, unlike the financial sector, where blockchain is firstly being developed, electricity requires a network infrastructure to be transported. Thus, even if it is possible to conceive a future with a majority of autonomous off-grid and self-sufficient agents, it is more likely that prosumers are still connected to a (micro)grid where they sell their excess of electricity [44
].The emergence of blockchain technology [24
] and the raising of prosumers with storing mechanisms facilitate the booming of P2P markets [2
] where prosumers, and consumers, could buy and sell energy between each other without an intermediary.
Parag et al. envisages three possible models of prosumer-integrated markets [2
]. P2P models strictu sensu interconnects prosumers directly with each other wherever they are. These models are the less structured ones. A P2P platform would allow prosumers to bid and sell electricity directly between each other. Secondly, prosumer-to-grid models connect prosumers to a local microgrid where they buy and sell their services. There would be brokerage systems where prosumers would sell the electricity to a central (local) market where other prosumers and consumers would buy it. Thirdly, in organized prosumer group models, groups of prosumers aggregate their resources in pools and buy and sell to other prosumer groups. This model is more structured and centralized than the other two. Accordingly, the first model requires a larger number of contractual relations and the development of its network is more costly. More decentralisation also entails a more uncertain attribution of liability and accountability for the energy services. Those problems are less relevant in the other two models where the use and demand of energy is more aggregated. Nevertheless in the last two models, prosumers mainly provide a service to the grid, rather than becoming a competitor for generation [2
Even if P2P electricity trading is still in an embryonic state, it allows to conceive a future where the electricity could be sold for a trading period (30 min or 1 h) between consumers/prosumers without the intervention of a traditional utility. This raises some legal questions on how the energy market could be and how the new roles, responsibilities and rights of market participants evolve.
The first question that P2P networks raises is whether the prosumer that sells the excess of energy to another peer is a business or still a consumer. With the possibilities to store energy and to speculate with the price of electricity through storing capacities, the prosumer that sells the excess of energy that it does not use might be more similar to a business. This question is also being discussed in the context of the shared economy and collaborative consumption [46
]. In the EU, the ECJ will have to solve a preliminary reference made by a Spanish Court (C-434/15—Asociación Profesional Elite Taxi
) which could solve some of the questions about the sharing economy. If prosumers were considered businesses, they would have to comply, inter alia, with stricter consumer provisions when they sell the electricity or with a different tax regime. This could also result in prosumers becoming balance group managers and submitting their own demand forecasts to the network operator [24
]. This would place an unjustifiable burden on the prosumers that would likely prevent the rise of P2P trading.
A second issue is that it is possible to conceive some self-sufficient microgrids, albeit it is more likely that they are still connected to a macrogrid to ensure the security of supply. A “manager” should demand energy to the macrogrid to grant the supply in the microgrid when the latter is exhausted due to the intermittent flows of renewable generation. Regulation ought to designate who should be this microgrid manager. Taken the role of the DSO in ensuring a secure and reliable operation of the distribution grids, it would not be strange to give that function to the DSO.
A third question concerns the elimination of intermediaries. Even if blockchain technology could help to eliminate the retailer in some transactions, others may appear, such as the digital platform that keep peers in contact. Moreover, every private transaction between peers would have to be levied for the use of the DSO’s infrastructure. For instance, [47
] proposes a model where DSOs charges a fee for the use of its infrastructure. In this model, the supply company or aggregator earns a small fee for operating the blockchain-based platform that connects peers and consumers still pay a retail tariff, including taxes and distribution charges. Blockchain technology could help as the ledger for all those transactions.
The introduction of these new digital platforms in the market raises some concerns as well. They may be a retail market platform or central backbone which will make profit of interconnecting sellers and buyers of energy (in exchange for a fee per transaction or per kWh) such as Uber or Airbnb do in other sectors. Nonetheless, the transaction that peers negotiated through the platform would be different and add to the transaction that the peers make with the DSO to transport the electricity fed into the grid to the demand point. Thus, the role of the peer-to-peer platform at least in a first stage could be more to complement than substitute the incumbents, which will still participate in the market and ensure the non-P2P transactions [48
]. The introduction of new business models would inevitably reduce the gains of some incumbents, such as traditional suppliers, unless they are the ones that operate the new platforms. This could lead to a “death spiral” of current utilities when new businesses thrive [49
]. It could also create unfair competition problems for P2P platforms in the energy sector, as Uber is experiencing in the transport sector, due to the considerable market power that some traditional suppliers still have in some countries.
An important question to answer is thus the legal nature of these digital platforms. Would the platforms and their members be subject to the same obligations as energy suppliers? Would they be considered an “information society service” that keeps consumers in contact? Advocate General Szpunar considers that Uber falls within the field of transport, rather than information society services, and therefore it can be subject to licenses and authorizations (See C-434/15 Asociación Profesional Elite Taxi v Uber Systems Spain, SL (2017) ECLI:EU:C:2017:364). The consequence of being considered as an “information society service” would mean a different application of the freedom of services. In that case, licences and authorizations by Member States would be more difficult to justify.
As a last remark, a second stage of booming of P2P transactions also suggests that the incredibly high number of transactions that would be generated between peers would have to be automatized. As in financial markets, the parties may have to define a trading strategy (for instance, more flexible consumers (more risk) may be able to make more profit selling energy), which may be set in computer code. The transactions would then be executed impartially by the computer matching buy and sell orders. Potentially, consumers could delegate their trading functions to professional managers that could manage their “electricity portfolio”, as investment funds in financial markets. This may require a market regulation similar to a stock exchange providing a framework contract for some microgrids which would take into account possible contingencies and would establish obligations of the parties involved. It is likely that those framework contracts have to be approved by a public authority to provide the rules that would guide the platforms and designate the manager that secures the balance of supply and demand.