A new form of energy poverty is the hallmark of liberalised electricity sectors.
The restructuring of electricity sectors has resulted in households
paying significantly higher prices. Some European prices rose by more
than 100 per cent between 2000 and 2010. NSW households experienced an
80 per cent increase during the period 2007 to 2012. Growing numbers of
low-income and vulnerable households are spending higher proportions of
disposable income on energy bills and, we contend, suffer deprivation
and social exclusion as a result. This phenomenon, we posit, is a new
form of energy poverty driven by rapidly rising electricity prices which
are directly related to electricity sector restructuring. The
energy-impoverished population is estimated at 150 million in Europe,
and growing. Policy responses are ineffective and poorly targeted, while
Australian policy makers rely on measures which significantly understate
electricity price changes. This article explores the prevalence and
consequences of the problem of energy poverty and outlines the extent of
its occurrence in Australia, the country hailed as an exemplar of
electricity sector liberalisation.
Keywords: electricity prices, electricity sector liberalisation, energy poverty, fuel poverty, low-income households
Electric power (Economic aspects)
Electric power (Prices and rates)
Energy policy (Influence)
Electric utilities (Economic aspects)
Electric utilities (Laws, regulations and rules)
|Publication:||Name: Australian Journal of Social Issues Publisher: Australian Council of Social Service Audience: Academic Format: Magazine/Journal Subject: Sociology and social work Copyright: COPYRIGHT 2011 Australian Council of Social Service ISSN: 0157-6321|
|Issue:||Date: Summer, 2011 Source Volume: 46 Source Issue: 4|
|Topic:||Event Code: 200 Management dynamics; 740 Commodity & service prices; 930 Government regulation; 940 Government regulation (cont); 980 Legal issues & crime Advertising Code: 94 Legal/Government Regulation Computer Subject: Company business management; Company pricing policy; Government regulation|
|Product:||Product Code: 9006500 Energy Programs-Total Govt; 9106500 Energy Programs; 4910000 Electric Utilities NAICS Code: 92613 Regulation and Administration of Communications, Electric, Gas, and Other Utilities; 2211 Electric Power Generation, Transmission and Distribution SIC Code: 4911 Electric services|
|Geographic:||Geographic Scope: Europe; Australia Geographic Code: 4E Europe; 8AUST Australia|
Electricity sectors around the world have undergone major structural change over the last 20 years. Large monopolies have been 'broken up' into smaller companies. Some of these new companies have been privatised. Markets have been created for the wholesale trading of electricity, and many households can choose which company they want to supply their electricity.. New regulatory institutions have also been created (Chester 2007). These structural changes have spawned an escalation of household electricity, prices at rates well above inflation and income growth.
Electricity is a common energy source for household uses such as cooking, lighting and heating. Steep increases in electricity, prices will cause hardship unless households have adequate income or the capacity, to reduce energy demand. A household in the United Kingdom with an estimated need to spend more than 10 per cent of income on heating and other energy essentials is deemed to be in 'fuel poverty-'. The United Kingdom recognised this as a distinct social problem in the 1990s (Hills 2012). More recently the European Commission (EC) and International Energy Agency (IEA) have acknowledged the existence of a more widespread problem (Heffner et al. 2011).
This article explores the prevalence of rising energy costs, and the consequences for poor households in Australia and elsewhere. The discussion commences with an overview of global electricity sector restructuring and the subsequent rise in household electricity prices. Our conceptualisation of energy poverty is then discussed and distinguished from its traditional use as a relative measure referring to the lack of energy services to meet basic human needs in developing countries. We posit that the term 'energy poverty.', rather than the concept of 'fuel poverty.' used in the United Kingdom, is more appropriate because it captures the contemporary multiple household uses of energy other than for heating. Low-income households are the most vulnerable to energy poverty, as greater proportions of income are increasingly required to pay energy bills. This, we argue, is leading to deprivation and social exclusion. Acutely aware of the limitations of an absolute arbitrary measure, we use a similar threshold to that of the United Kingdom and define energy poverty as occurring when low-income households spend 10 per cent or more of disposable income on household energy bills.
The article's focus then moves to the prevalence of the 'new' energy poverty across the Northern Hemisphere, New Zealand and Australia. A widespread incidence is found internationally and we posit there is a real and growing problem for Australia's 3.5 million lower-income households. Early findings from our current research strongly indicate that Australian energy poverty is not confined to the poorest households who are highly dependent on income support but is spreading into the second lowest income quintile. Less than 30 per cent of households in the second lowest quintile depend on income support; instead they are much more reliant on wages and other income sources (ABS 2011b). The impacts and consequences of higher energy bills for those on low incomes are then discussed, followed by an overview of policies available to the energy-poor. We suggest that current policies are generally ineffective forms of temporary relief that further embed the problem. A final section draws together our key arguments.
The 'liberalisation' of electricity sectors and the Australian exemplar
By the 1980s, in line with the growing ascendancy of neoliberalism, a new paradigm for the provision of utilities, and particularly the production and supply of electricity, asserted the need for greater competition and less government involvement. Benefits were claimed to include lower prices for all consumers, more efficient operations through lower costs, the elimination of cross-subsidies and far more productive investment (Newbery 2002a; Joskow 2003).
This paradigm impacted on the restructuring of electricity sectors through three dimensions commonly denoted as sector 'liberalisation' or 'deregulation' (Newbery 2002b; EC 2005). First, companies have been 'unbundled' (often called 'de-integration'). The competitive activities of generation and retail have been separated from the natural monopolies of transmission and distribution. Second, government-owned electricity companies have been commercialised, then corporatised and ultimately, although not in all cases, privatised. The third dimension to change has been the sector's regulatory regime. New forms of regulation and institutions have created wholesale and retail markets, determine the pricing of transmission and distribution network services, monitor the performance of electricity companies and represent consumer interests. These changes have transformed electricity sectors around the world with the 1990s as the decade in which radical structural change took place with 'astonishing rapidity' (Chester 2007).
From Russia to South Africa, the Nordic countries, Latin America, Canada, the United Kingdom, the Asia-Pacific region, the European Union (EU) and the United States, electricity sectors existing in the 1980s are unrecognisable today. There has not been universal adoption of one standard set of changes. Some countries have created wholesale trading markets. Privatisation has featured strongly in some but not all restructurings. Not all consumers have a choice of electricity supplier. The most consistent restructuring feature has been 'unbundling' of companies. Nevertheless, all these changes have been predicated on increasing competition and less direct government involvement (Chester 2007).
The restructured Australian electricity sector has been hailed by the IEA (2005a; 2005b) as a role model. Complex Federal and State regulatory regimes have been introduced. Since late 1998, the majority of electricity generated has been traded on a newly created national wholesale market. Government monopolies have been broken up and many of the new companies sold. The functions of generation and retail are exposed to competition, and the natural monopoly functions of transmission and distribution are regulated. The majority of Australian households can also choose their electricity supplier (Chester 2007).
Today's Australian sector stands apart from international counterparts because the full 'suite' of key policy instruments (de-integration, privatisation, wholesale market, retail competition, regulation of transmission and distribution) has driven its restructuring. Despite the difference in instruments used to restructure electricity sectors, the new millennium has witnessed some strong consistent trends around the world, one of which has been the rapid escalation in electricity prices paid by households.
Rapidly rising household electricity prices in liberalised electricity sectors
One of the proclaimed benefits of electricity sector restructuring was lower consumer prices. But post-restructuring, households are not paying lower electricity prices and have experienced increases far in excess of general price and wage movements, most noticeably during the last decade. (1) Table 1 illustrates the following trends:
(a) for those countries with relatively minor electricity sector restructuring (Japan, Mexico), household price movements have been either in line with or lower than inflation;
(b) for major economies that did not embark on electricity sector liberalisation until the late 1990s, real reductions in household prices occurred between 1990 and 2000, which were reversed after restructuring was implemented (Canada, Ireland, the United States);
(c) price cap regulation has limited the increases for two 'late starters' (Netherlands and Spain);
(d) energy policy decisions, made prior to restructuring, about nuclear power (France) and renewable energy (Germany) lowered long-term electricity production costs which has maintained real reductions for household prices;
(e) two countries which led sector restructuring in 1990 (Norway, the United Kingdom) had real reductions in household prices between 1990 and 2000, due to falling generation fuel prices (hydro and coal). Steep increases since have eliminated these gains. UK electricity prices declined from 1996 to 2004 due to falling fossil fuel prices but rose in real terms by 44 per cent from 2005 to 2010 (Hills 2011: 104); and
(f) the largest increases between 2000 and 2010 were in countries which started restructuring the earliest (Chile, Czech Republic, Hungary, New Zealand).
National changes also mask underlying variations. For example, US prices show an increase post-restructuring of over 40 per cent between 2000 and 2010. Yet household electricity prices in 12 American States rose, between 1999 and 2007, by more than 50 per cent with the highest increase being 74 per cent in Texas (Anderson 2009; Showalter 2008). In those US States which have liberalised their electricity sectors, household prices are at least 10 per cent higher than elsewhere (Marcus 2011).
Similar pricing trends are evident for Australia. As in electricity sectors elsewhere, a rapid escalation in prices started about a decade after restructuring commenced. Electricity price increases well above 50 per cent were experienced by most households within a few years.
Most Australian households are able to choose the company to supply their electricity. If they do so, the prices paid are set by a 'market contract'. If a household chooses to remain on a 'standard contract', their electricity prices are set by State and Territory government regulators. Some two-thirds of NSW households, 40 per cent of Victorian, one-third of South Australian, and nearly 60 per cent of Queensland households have chosen to remain on 'standard contracts', and thus pay regulated electricity" prices (IPART 2010; QCA 2010). These regulated electricity" prices are to be phased out, subject to evidence of effective competition (COAG 2006). There have not been regulated prices for Victorian households since 2009, although electricity companies must provide 'standing offer' electricity prices to those not on a 'market contract'.
During the five years to 2003-04, NSW household prices showed no real change although there were real increases of five to 11 per cent in all other States and Territories except South Australia, where prices stagnated before leaping 24 per cent in real terms in 2003-04 (ESAA 2003). More substantive increases in regulated household prices have occurred in recent years (ABARE 2010). Each regulator has sought to make prices reflect the cost of supply and 'consistent with the Government's policy aim of reducing customers' reliance on regulated prices' (IPART 2010: 11).
In the five year period to mid-2012, the average increase in NSW household electricity prices was nearly 80 per cent, more than 60 per cent in Queensland, South Australia and Tasmania, and 57 per cent in Western Australia (Table 2). Increases for households in the two Territories were 38 to 45 per cent. The only available Victorian data since 2009 is for average market contract prices. The average real increase for standing contract prices (tantamount to regulated prices) from 2006-07 to 2010-11 has been 36 per cent which is comparable to the nominal change shown in Table 2 of nearly 40 per cent in the four years to 2010-11 (ESC 2011a).
The average change may understate the actual increase experienced by a household, as does the CPI Electricity Price Index for those who live in the eastern States (Table 3). (2) Nevertheless, this index shows (except for Canberra) electricity prices clearly outstripping CPI and average weekly earnings for the vast majority of households. During the same period the Pensioner and Beneficiary Living Cost Index (PBLCI) increased by 16 per cent (ABS 20011a). The PBLCI informs decisions about pension indexation rates and policy makers use the CPI Electricity Price Index as evidence of price trends (for example, Ferguson 2010). Both indices substantively understate actual average electricity price movements for the majority of Australian households. Households in the most populous States face potential increases of 33 to 42 per cent during the next two years (AEMC 2011: 6). It has been announced recently that NSW household electricity prices will rise on average by 18 per cent from July 2012, those for Victorian households by up to 15 per cent and Queensland by a similar magnitude (IPART 2012; Morton 2012; QCA 2012).
These past and potential future price increases are directly attributable to higher charges for transmission and distribution services, and to a lesser extent the wholesale (generation) charge (AEMC 2011). (3) As noted earlier, electricity sector restructuring implemented a new regulatory regime for the pricing of the monopoly activities of transmission and distribution, and new markets for the wholesale trading of electricity. The new regulatory pricing regime has sought to make prices cost-reflective of supply and recover the cost of investment in transmission and distribution networks to replace ageing assets, to increase capacity to meet rising peak demand and to meet reliability and safety standards. An unequivocal outcome for the exemplar of electricity sector liberalisation, Australia, has been a rapid escalation in household electricity prices due to the magnitude of the increased charges for network services permitted under post-restructuring regulation. It is the impact of these price increases on low-income households to which we now turn.
Conceptualising a new form of energy poverty
Research into the consequences of escalating household electricity prices has overwhelmingly focused on a phenomenon deemed 'fuel poverty" found in the UK, Ireland, Europe, the US and New Zealand (Boardman 1991; 2010; Healy 2004; Power 2005; Lloyd 2006; Bazar 2007). Fuel-poor households are considered to have 'energy costs which are excessive compared to overall household income' (Heffner & Campbell 2011: 6). Boardman's ( 1991 ) pioneering fuel poverty, research exposed the causes to be the conjunction of low income, rising energy prices and poor energy efficiency of housing. Not all low-income households are fuel-poor although some are more vulnerable, such as older people, those with health or disability issues, very large families, those in rural isolated communities with limited energy choices, those with low literacy levels, and those without access to the internet or with old, energy inefficient appliances.
The official UK definition maintains that fuel poverty exists if a household needs to spend more than 10 per cent of its income on fuel to achieve an 'adequate' level of warmth and on all other energy services such as cooking and lighting. (4) The rationale for 10 per cent was that it represented twice the median energy expenditure which was deemed to be a disproportionate level (Boardman 2010). This definition 'can encompass households that clearly are not poor' (Hills 2012: 6). The UK Fuel Poverty Review proposes a more meaningful measure of households below an income threshold (after housing costs and adjusted for household size and composition) that have energy costs above a 'reasonable level'. The income threshold is recommended at 60 per cent of median income, the official poverty line (Hills 2012).
The European Commission's Energy Policy (2010) suggests that fuel poverty arises from a household using a broad group of energy sources, whereas 'energy poverty' occurs when a household relies on only two energy sources, electricity and gas. The Policy's proposed definition of energy poverty is a pre-defined threshold share of overall household energy expenditure around twice the relevant national average (EC 2010: 16). Traditionally the concept of energy poverty has been used to define the lack of regular and safe access to electricity, or the complete absence of any modern energy sources, in developing countries (Pachauri & Spreng 2003; Heffner & Campbell 2011). Measures of energy poverty thus defined include engineering-type estimates of basic energy needs for particular social groups, the derivation of energy use as a function of expenditure or income and adoption of an energy poverty line (like that for UK fuel poverty), and measuring lack of access to electricity, by determining the dependence on solid fuels (Pereira et al. 2011).
We contend that the term 'energy poverty' is more appropriate than fuel poverty to the circumstances of low-income households living with rapidly escalating energy prices, irrespective of the energy source. Fuel poverty evokes the connotation of energy use solely for space heating, that is, fuel purchased to generate energy for warming a home. Most of the fuel poverty discourse ignores expenditure on 'other energy services' although space heating is estimated to have accounted for only 56 per cent of the average UK household energy bill in 2009 (Hills 2012: 29). Energy uses include cooking, lighting, and for appliances like refrigerators, televisions, clothes dryers, dishwashers, freezers and computers. Households in developed economies have on average 10 appliances (OECD 2011: 63). Home energy use also includes space cooling, which has grown rapidly in Australia, being used by 73 per cent of households in 2011 (ABS 2011e). The term 'energy poverty' captures the contemporary multiple household uses of energy other than for space heating.
It is for these reasons that we use energy poverty to refer to the situation of low-income households paying more than 10 per cent of their disposable income to meet energy costs, irrespective of household use or energy source. We consider that low household income and actual, not estimated, energy expenditure as a proportion of disposable income are core determinants of this concept. (5) Although acutely aware of the limitations of such an arbitrary absolute level, we have adopted 10 per cent as a headline indicator until more definitive evidence is available. (6)
Growing prevalence and embeddedness
'Regardless of the definition, the incidence ... in IEA member countries is growing' (Heffner & Campbell 2011: 6). (7) The numbers judged energy-poor are most prevalent in countries with restructured electricity sectors. Up to 150 million of the European population and 20 per cent of UK households were estimated to be experiencing energy poverty in 2009 (Bird et al. 2010). Within the United Kingdom there are marked regional differences, with an estimated incidence in Northern Irish households of 44 per cent compared to 19 per cent in England (DECC 2011: 11). As electricity prices dropped between 1996 and 2004, the number of energy-poor English households fell to 1.2 million but rose back to four million by 2009 as electricity prices surged (Hills 2011: 32). There have been 'appalling increases ... since 2004, largely as a consequence of unprecedented energy price increases' (EAS and NEA 2009: 6). If electricity and gas prices continue to rise at the same rate, the average UK household will suffer energy poverty by 2015 (Blair 2011).
The European Commission (EC 2010: 16) estimated 13 per cent (27 million) of European Union households spend a 'considerable share' of expenditure on household energy costs compared to national averages. Relying primarily on 2005 data, the national estimates range from six to nearly 20 per cent, which would now be higher following more recent electricity price increases. Across the Atlantic, nearly 16 million US households were energy-poor in 2006, and the difference between 'affordable' and 'actual' US household energy bills jumped from US$18.2 billion in 2002 to US$41.2 billion by 2008 (Power 2006; Cohen 2008). In New Zealand, the estimated population living in energy poverty grew from 10-14 per cent in 2006 to 23 per cent in 2008 (O'Sullivan et al. 2011).
Data about the numbers of Australian energy-impoverished low-income households is more limited. Nevertheless, we posit that energy poverty is a growing problem, based on the following arguments and evidence. Australian households do not experience the freezing winter temperatures of the Northern hemisphere or New Zealand and thus are unlikely to pay more than 10 per cent of disposable income in heating costs. However, Australian households have the highest rates of ownership of refrigerators and air-conditioners in the OECD, with nearly 75 per cent using space cooling and 57 per cent a clothes dryer, both big energy users and for which there has been a marked increase in household take-up in recent years (ABS 2011e; OECD 2011).
Around 3.5 million Australian households fall within the two lowest income quintiles (ABS 2011b). Poor households in advanced industrial economies, as in developing countries spend higher proportions of income and expenditure on energy" (Jamasb & Meier 2010a; Khander et al. 2010). In 2009-10, domestic fuel and power accounted for 2.6 per cent of average weekly expenditure for all Australian households. Seventy-five per cent of this weekly expenditure was for electricity costs (ABS 2011c). This average, however, masks a distinct difference between income groups. As household disposable income rises, a steadily declining proportion is spent on domestic energy. The poorest 20 per cent of households in 2009-10 spent four per cent of average weekly expenditure on electricity,, double that of the richest households ('Fable 4). The comparative weekly expenditure proportions in 2003-2004 were 2.9 per cent for the poorest and 1.5 per cent for the highest income (ABS 2006).
Table 4 also shows the disproportionate impact of energy costs by household income quintile. The poorest quintile, actually nearly 25 per cent of Australian households, in 2009-2010 spent, on average, seven per cent of equivalised disposable income on energy costs. This is nearly three times the proportion spent by the wealthiest households and represents an upward shift since 2003-2004 when the poorest quintile was found to be spending 2.4 times that of the wealthiest (ABS 2006). It is also notable that the second lowest quintile, and a little more than 18 per cent of households, in 2009-2010 spent twice the proportion spent by the wealthiest households.
Two cautionary notes need to be made about this data. First, all the energy expenditure proportions have been derived from the mean weekly income for each quintile. This means that the derived figures will not be representative of all those within each income quintile and should be treated as indicative only. Second, these figures understate the current situation for low-income households because they do not include the effect of the substantial electricity prices increases since mid-2010 (as shown in Table 2). Early findings from our current research on low-income households signal that much higher proportions of disposable income are being paid on energy bills. These findings partly confirm the NSW Independent Pricing and Regulatory Tribunal's (IPART) recent estimate that more than 10 per cent of disposable income was being paid on electricity bills by five per cent of Sydney households and eight per cent of those in country NSW (IPART 2011). IPART also claimed that electricity bills for the lowest income quintile Sydney households may require more than 10 per cent of disposable income compared to two per cent for the highest incomes (2011: 10).
These trends and data illustrate two critical points. Electricity prices rises are causing low-income households to pay higher proportions of income and expenditure to meet energy bills. The severely disproportionate impact on the poorest Australian households is widening over time. There is little doubt that electricity bills are impacting on the circumstances and well-being of low-income households. Hence, it is our contention that many Australian low-income households are already suffering energy poverty, contrary to the claim of Simshauser, Nelson and Doan (2011) that it will emerge in the future.
A low-income household's capacity to meet escalating energy costs will be influenced by the ability to change its energy demand and housing tenure (Healy 2004; Boardman 2010). The condition of housing influences the demand for energy. Draughty, poorly insulated, inadequately ventilated and older housing causing damp and mould growth, excess cold or excess heat, will directly influence energy use for space heating and cooling. Owner-occupiers may be more likely to make energy efficiency improvements given their greater level of control over the home. Many older owner-occupiers will, however, have insufficient financial resources for housing improvements to reduce their energy needs. Renters may not feel the responsibility or right to make housing improvements (Healy 2004). Low-income renters also face the constraint of being able to find alternative, affordable and more energy-efficient housing. Low-income households have much less capacity to influence housing energy efficiency to reduce their energy demand and stem the growth of energy bills as prices rapidly rise.
The ability of low-income households to adjust their energy demand will not only depend on housing conditions and tenure. It also will be influenced by the size, composition and daily activities of the household, as well as the capacity to replace energy-inefficient appliances and adopt different household practices. A number of studies have found that the energy demand of low-income households is relatively price insensitive (IPART 2003: 22-25; Jamasb & Meir 2010b). Consequently, we posit that higher electricity prices are forcing low-income household expenditure patterns to shift because greater proportions of disposable income are needed for energy bills and less is available to meet other essentials. This is being confirmed by early findings from our current research. There is also a growing body of evidence of low-income households suffering considerable hardship in paying energy bills, increasing arrears on utility bills, and self-disconnection to manage energy costs (Gibbons and Singler 2008; EEPE Project 2009a; OFGEM 2008; PSIRU 2008; World Bank 1999). As a result, an increasing number of vulnerable households are suffering forms of deprivation and social exclusion directly attributable to the rapidly rising prices of liberalised electricity sectors.
Excessively high energy heating bills in relation to low income:
often means choosing between essential household items or living in an adequately heated home ... living a cold, damp environment can cause discomfort and ill health.... health problems such as influenza, heart disease and strokes can be exacerbated, and cold homes can promote the number of dust mites and the growth of fungi, which are often linked to asthma and other similar conditions. Households that need to spend a large part of the family income on fuel often have to spend less on other parts of the family budget. This may lead to a poor diet or reduced participation in leisure activities, both of which can impact quality of life and health ... Children's education may also be adversely affected. Cold homes can increase the amount of time it takes to recover from an illness, which could result in longer absences from school (Barnardos 2010: 1).
Strong correlations have been found, in the United Kingdom and Europe, between energy poverty and excess winter mortality, expenditure trade-offs between food or other household essentials and energy, self-disconnection, (often when a pre-payment energy meter has been installed), a range of 'energy coping strategies' across household type, impacts on physical and psychological health, and social exclusion and marginalisation (Boardman 1991, 2010; McKendrick et al. 2003; Doble 2000; Healy 2004; Gibbons and Singler 2008; Rural Services Network 2010; Beatty et al. 2011). In the United States, unusually cold weather has led low-income families to reduce their expenditures on food--the 'heat or eat' syndrome. 'Poor American families face stark choices in cold weather ... they increase their home fuel expenditures at the cost of expenditures on food and nutritional well-being' (Battacharya et al. 2003: 1153). Liddell and Morris (2010) report that mental health effects on adults and adolescents, and physical effects on the health of infants, are significant, as well as the cumulative health effects associated with living in cold conditions.
Deaths due to the inability to keep housing warm during winter months have been the most extreme manifestation of the impact of higher energy bills. The rate of these 'excess' winter deaths has grown as energy prices have risen (Healy 2003, 2004; Hills 2011). Australia is not immune to climate-related deaths. Excess mortality has been found concentrated in the elderly and associated more with extreme heat than the coldest winter days (Guest et al. 1999). In Victoria, a heatwave in 2009 caused substantial morbidity and mortality, with a 64 per cent increase in excess deaths within one week (Victorian Government 2009).
There is currently no substantive evidence base of the consequences for tow-income Australian households of escalating electricity bills. Some small research projects have, however, made findings comparable to those found internationally. A 2004 report starkly described a range of physical and mental health effects, social exclusion and deprivation experienced by 12 low-income South Australian households following an electricity price increase around 30 per cent in one year:
all forgo at least one of the normal essentials of physical health, thermal comfort, adequate nutrition, social contact, access to education or entertainment, or freedom from financial insecurity and mental stress ... usually a combination of two or more of these unmet needs has emerged (Laris and Associates 2004: 9).
Changed household expenditure patterns arising from electricity price increases were also found in 2004 amongst people receiving financial counselling. Half had reduced their spending on food and telephone, whereas 80 per cent or more had cut expenditure on clothing, holidays, movies and sport (Uniting Care 2010: 7). A few years later, more than 70 per cent of financially stressed households were found to be making sacrifices to meet electricity price increases and 10 per cent were unable to meet the cost (Wesley Mission 2010). Electricity and gas bills have been found also to be the greatest cause of rental arrears (63 per cent) in Victorian low-income households (Sharam 2007).
A not-for-profit organisation which distributes government vouchers to assist those having difficulty with the payment of energy bills reported in 2008 that 80 per cent of these were seeking assistance for electricity bills (Babbington & King 2008: 15). Nearly 40 per cent of the two lowest household income quintiles were unable to pay electricity, gas or telephone bills on time during 2010 (ABS 2011d). (8) Income support recipients are most likely to be unable pay a utility bill, particularly sole parents, unemployed people or those with a disability (ACOSS 2008).
A study of the experiences following a utility disconnection reported children (36 per cent) or others in the household (34 per cent) became anxious or distressed, children were unable to do homework (17 per cent), and someone in the house either could not use a medical device (nine per cent) or became ill (seven per cent) (PIAC 2009). State government regulators are reporting higher levels of electricity disconnections, with increases of 33 per cent in Victoria and 54 per cent in South Australia in 2010-11 (ESC2011b: 9: ESCOSA 2011: 14).
Finally, a 2010 survey carried out by students of one of the authors of this article found 27 per cent and 18 per cent of older NSW homeowners dependent primarily or solely on the age pension 'always' or 'often' had difficulty paying their electricity or gas bills respectively2 Just over one quarter of respondents said they could 'seldom' or 'never afford' to heat or cool their homes adequately, and 44 per cent of those who perceived that their quality of life was 'poor or fair" always had difficulty paying their electricity bills.
The current policy approach
The Australian Federal government has acknowledged that low-income households:
have been particularly impacted by increases in retail energy prices as a result of poor quality, housing stock, limited ability to reduce energy use with better appliances, and the fact that ... they spend proportionally more of their income on this essential service (DCCEE 2011: 4).
Nevertheless, energy poverty as a problem is not recognised by Australia or the majority of countries where it is prevalent (EPEE Project 2009a). The United Kingdom is the only country to formally recognise it as a distinct social problem. These policy positions are reflected in the assistance available to the energy-poor.
Generally not designed to address the problem of energy poverty, current policies fall within three types. The first are measures such as social tariffs, concessions, rebates and pre-payment meters which aim to limit the impact of energy prices. The second type focuses on improvements to housing energy efficiency, examples of which are insulation and retrofitting. The third type seeks to increase household income, such as the winter fuel payment provided to UK households and the Australian utilities allowance for income support recipients. A summary of a range of programs in the United Kingdom, the United States and Europe is provided at Appendix 1.
Australian assistance to the energy-poor is more limited and is provided through three means. First, all electricity retailers are required to provide 'hardship programs' which generally are payment arrangements for energy bills owing or for ongoing use (AER 2011). Second, the Federal Government provides a utilities allowance to a small group of income support recipients to assist the payment of water, sewerage, property rates and energy bills (Centrelink 2011). The equivalent of this allowance is also paid to age pensioners within a quarterly pension supplement. The Australian Government's Low Income Energy Efficiency Program is intended to assist low-income vulnerable households improve their energy efficiency, although it is unclear whether this will amount to more than endeavouring to change household behavioural practices. Other programs to improve housing energy efficiency, like those internationally, have tended to provide rebates to home-owners and have not targeted low-income households, one example being the ill-fated Home Insulation Program (ANAO 2010).
State governments provide the third and primary form of assistance through concessions (such as a lump-sum or concessional tariff rate) (see Table A.2, Appendix 1). Eligibility criteria vary across jurisdictions. Generally, to receive State Government assistance a low-income household must be receiving income support and/or hold a concession card such as the Federal Health Care Card. Most States provide a rebate for life support or medical needs for cooling. New South Wales and Queensland provide 'crisis' assistance to those experiencing difficulties paying bills and Tasmania provides a meagre heating allowance of $56 per annum. Some State governments have provided energy audits and limited assistance to improve energy efficiency, such as light globes and door 'snakes' (NSW DECCW 2010).
We contend that the majority of measures provided by all governments, Australian and international, are so tightly targeted that they do not 'capture' all those experiencing energy poverty. There is a high prevalence of reactive, temporary financial assistance measures for vulnerable households. Australian State Government rebates and concessions offer little assistance against the recent price increases. Measures to provide widespread, long-term improvements to housing energy efficiency are virtually non-existent.
The numbers in energy poverty are growing rapidly in all countries with liberalised electricity sectors as the prices paid for household electricity escalate. Many households are paying increasingly high proportions of income to meet energy bills, with the greatest proportionate impact experienced by low-income households. Small-scale studies suggest that many of these disadvantaged households are experiencing misery, discomfort, ill-health and sometimes even death, as well as other forms of material and social deprivation, because of the need to choose between essential household items and using electricity to maintain a decent standard of living.
In Australia, there is scant understanding of the consequences of rapidly rising electricity prices for 3.5 million households which fall in the two lowest income quintiles. Some small studies have provided snapshots of difficulties experienced, but no Australian research has established a substantive evidence base as yet of the consequences for low-income households of meeting the rising costs for this essential utility. Consequently there is an inadequate understanding of the pressures and circumstances confronting the poorest Australian households. Policy makers are informed by measures which severely understate the movement in household electricity prices. Current policies and income support indexation do not ameliorate the problem.
Energy poverty needs to be explicitly recognised as a distinct social problem if it is to be addressed and to prevent more of the population becoming energy impoverished. The measurement of this problem is critical to understanding how many are exposed. Policies also need to be both remedial and preventative, focusing on the root causes not the symptoms. One immediate Australian policy priority should be a national review of State Government assistance to remove locational inequities and improve effectiveness. A review of the rationale and justification for increases in the charges for transmission and distribution network services should be another immediate and fundamental priority for policy makers. Use of more accurate measures of price movements should be another priority. Policies to improve the energy efficiency of homes need to be of sufficient scale to have an impact on the overall problem. Moreover, a new approach to energy policy is urgently needed. Rather than just applying limited reactive policies, an approach to electricity pricing is needed that prevents adverse impacts on the standard of living for millions of Australian households. We need an energy policy approach with explicit social objectives, or energy poverty will continue to be the hallmark of liberalised electricity sectors and will become further entrenched.
ACOSS (2008) Who is missing out? Hardship among low income Australians, ACOSS Info Paper, December, Strawberry Hills, ACOSS.
Arocena, E, Ktihn, K.U. & Regibeau, F. (1999) 'Regulatory reform in the Spanish electricity industry: a missed opportunity for competition', Energy Polio; 27 (7), 387-99.
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(1) Further steep increases are imminent as carbon pricing policies are adopted given electricity, generation's high reliance on fossil fuels contributes more than 40 per cent to global carbon emissions (IEA 2011a).
(2) The average price increases presented in Table 2 refer to all household consumers whereas the CPI electricity index only covers metropolitan households. This different coverage does not account for such a wide difference for so many households.
(3) Electricity prices comprise a complex array of tariffs which represent four types of charges for the activities of generation, transmission, distribution and retail.
(4) World Health Organisation standards are used to define 'adequate" level of warmth. These are 21 degrees Celsius in the main living room and 18 degrees Celsius in other occupied rooms during the day and lower temperatures at night.
(5) It is debatable whether the income measure used should be pre or post-housing costs. We prefer pre-housing costs because there is evidence that households have gone into rental arrears because of energy bills (Sharman 2007).
(6) The authors are currently undertaking a large research study of the impacts for low-income Australian households of rising energy prices, including the proportion of household disposable income needed to pay energy, bills. Details can be found at www. householdenergy-use.com.
(7) The IEA is an OECD organisation and has 28 member countries including Australia, the US, the UK, Ireland, and 20 European countries. All member countries have restructured their electricity sectors.
(8) Prices for gas and telecommunications did not increase at the same rate as electricity during this period (ABS 2006; 2011b). Thus we assume that electricity bills were a significant contributor to this outcome.
(9) The survey was undertaken by third-year students at the University of New South Wales for a research project on older homeowners who are solely or primarily dependent on the age pension. An electronic questionnaire was distributed by the NSW Council on the Ageing to which 203 responded. The questionnaire design and survey was coordinated by one of the authors.
Appendix 1: Table A.1: Examples of international programs which the energy impoverished may access Country Programs France Solidarity Energy Funds Financial assistance to those unable to pay energy bills. Social tariff Applies to low-income electricity consumers. Claimed to reduce bills by 30-50 per cent. Incentives to improve housing For owner-occupied and rental housing. Overwhelmingly directed to higher-income earners. Subsidies for low-income households For home improvements if contribute own labour. Spain Social Emergencies Subsidies Can be accessed to pay energy bills but generally used to pay rent. Belgium Social Fund for Energy Inability to pay energy bills is the trigger for financial assistance. Heating Fuel Social Fund Subsidises heating oil costs but targeted at period of September-April; only applies above an oil price threshold to a maximum volume and value per winter for eligible low-income households. Social tariffs Preferential rates for electricity and gas regularly set for eligible 'protected customers'. Financial support for investment in housing energy efficiency For low-income owner-occupied households but take-up has been very limited. Italy Social tariff (electricity) Disadvantaged households (e.g. member suffering chronic ill-health) pay m:nimum rate determined by household size and 'normal use' of lighting and appliances. Households must have electricity demand less than 31
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