Rise of the prosumer
Subsidies lowering cost barriers to roof top solar have created a new type of consumer, the “prosumer” and created a powerful driver of sustainability in the electricity market. The prosumer both produces and consumes and is no longer content to be a price taker. As grid power prices have risen to protect profit margins, prosumers have led a groundswell of change through the community energy companies, microgrids and battery storage. Together, these changes are transforming the power grid into something more diversified and sustainable.
Prosumers are also driving a wave of change in transport since they are well placed to take advantage of electric vehicles. Solar home owners can use electric vehicles either as mobile battery storage or as a means of turning their excess power into fuel. In April this year, the Model 3 Tesla electric vehicle was swamped with 320,000 orders in the first week, the largest pre-order of any new vehicle, of any type.
The advent of compulsory superannuation has created yet another type of prosumer. Initially designed to sustain- ably finance retirement for an aging population, superannuation has thrust consumers indirectly into the arena of finance and investment. A “Divestment” movement has created demand within the superannuation market for sustainable and ethical investment streams that help build a better future in which to retire. More superannuation funds are providing this type of investment stream not just to meet demand but because the returns have been insulated from the volatility of fossil fuel markets.
Superannuation is a compulsory form of saving that on a personal balance sheet would appear to make an individual more independent of debt and insurance products. And it may be possible to push sustainability reforms in both housing and insurance by using the market power of superannuation without threatening retirement income.
When purchasing a home, the top 20% of the price is at risk to market volatility. The next 30% would only be at risk from a severe market down turn, while the remaining 50% is relatively secure. The Super balance of a couple might be used to offset the secure 50% of a home purchase i.e. the Super fund would have first lien on resale and would proportionally benefit from capital gain.
Banks might still require a deposit to offset the highest risk part of the home purchase price and might expect a slightly higher premium but the overall loan would be reduced. Banks would be forced to compete in home finance with Super funds whose interests align more to the long term benefit of the home owner. Effectively the home owner would be an indirect prosumer in home finance via their Super fund.
Insurance is another financial risk product where Super funds could play a prosumer role by offering low cost brokerage that in the event of a claim, draws firstly on up to $10,000 of super savings. Acting like a large “excess” , this approach would deter most small claims and should substantially lower premiums. More importantly, both consumers and Super funds would have an incentive to avoid claims by maintaining assets and being safety and security conscious. The Super funds would act as prosumer advocates by negotiating better premiums for low rates of claims and by forcing prompt settlement of major claims.
The current insurance market is unsustainable, especially in a world of climate change. Premium reductions for risk minimisation are trivial or non-existent. Instead, insurance companies prefer to hike premiums as risks increase and routinely obstruct or refuse the major claims. Victims are often left with no choice but to dip into super savings at a substantial financial penalty and consumers have no means to know whether one insurer is more likely to pay up than another.
Unlike insurance companies, Super funds have a commercial and charter interest in the financial well being of their members. The funds have an interest not only in member recovery after natural disasters but in encouraging preparation and maintenance of homes for weather extremes. As shareholders in insurance companies and as prosumer representatives, Super funds could drive substantial reform toward a fairer and more sustainable insurance industry.
Prosumer approaches may not be applicable in all types of industries but rooftop solar alone is driving major change in how consumers view their market role. Prosumer strategies in a few more industries could encourage a broader sentiment across the economy where sustainability and balanced incentives are an expected part of all market structures.
Greg Reid is an ERA member living in NSW