Adequate warmth, cooling, lighting and the energy to power appliances are essential services needed to guarantee a decent standard of living and citizens’ health. Furthermore, access to these energy services empowers European citizens to fulfil their potential and enhances social inclusion.
Energy poor households experience inadequate levels of these essential energy services, due to a combination of high energy expenditure, low household incomes, inefficient buildings and appliances, and specific household energy needs. It is estimated that more than 50 million households in the European Union are experiencing energy poverty.
More and more consumers struggle to pay their energy bills and to heat or cool their homes. Consumers’ electricity bills should stop being a vehicle for financing other – sometimes totally unrelated – policies. Energy efficiency is key for alleviating energy poverty. Therefore, financing tools that leverage private investments should be chosen ahead of regulating prices or taxes and levies reflected through an increase of the energy bills. As the Clean Energy Package is close to being finalised, rapid transposition by Member States will be key to addressing the energy poverty issue. But this European action is only the first step, since social and tax policies remain the sole responsibility of national governments. Electricity prices and “energy poverty” have recently made the headlines in several European countries, with suppliers being the main defenders. However, reality shows that policy costs and levies have been the main driver for higher households’ electricity prices over the past few years. According to European Commission’s figures, they have indeed increased by no less than 71% between 2008 and 2015. As consumers struggle to pay their electricity bills, companies – facing arrears amounting to millions of euros – have to find effective solutions. To assist consumers that have difficulties in managing their electricity usage and bills, suppliers provide energy efficiency advice, payment arrangements, and appropriate debt management processes. Many suppliers have also signed agreements with local authorities and social services to support low income consumers and help avoid supply interruptions due to unpaid bills.
First of all, it is key to recognise that Member States are best placed to define criteria and policies for alleviating energy poverty. National situations differ greatly in terms of employment, social security systems, climate, electricity consumption, home insulation, energy retail prices and so on. Thus, it is more efficient to tackle the issue locally, in line with the principles of subsidiarity and better regulation. Second, Governments should be aware that increasing taxes and levies on electricity does not combat energy poverty. Consumers’ bills should reflect, as much as possible, the market-based cost of electricity and should not finance other policies. Besides, with the progressive decarbonisation of electricity, a higher uptake of electrical solutions should be encouraged, not discouraged. For instance, scours opt for burden sharing: by spreading the costs of decarbonisation to other energy sources according to their carbon footprint. Third, the way network charges and levies are charged to consumers is problematic. Even though network costs are largely fixed, they are regularly charged based on consumption. With technological developments, like distributed generation, storage, or electro-mobility, consumers use less electricity from the grid. Thereby they do not contribute to the system through tariff payments. Eventually, those costs will be supported by a smaller consumer base – including by those not willing or not able to invest in such technologies – though an effective increase of their tariff payments. To reverse this trend, regulated costs should be charged in an efficient way, progressively removing cross-subsidisation. Fourth, energy efficiency is key to alleviate energy poverty. However, it is not sustainable to finance such measures through the bill, as costs are distributed among consumers regardless of their ability to pay. We must transition to using financing tools which leverage private investment such as Energy Performance contracts (EPC), Energy Saving Agreement (ESA) or on-bill repayment. Last but not least, customers having energy debts are likely to struggle to pay for other essential services too (e.g. housing, food, etc.).
Therefore, a wider social policy is the best mechanism to tackle the root causes of debt, including energy debts. Considering the progressive nature of taxation, using social policies and State budget would also allow for a fair burden-sharing, as people would pay depending on their income and not consumption.