This is the second installment in a series of three, called Energy Poverty Today. Part I has tackled energy access, the current part is focusing on fuel poverty, and the third part will offer recommendations to tackle the issues and best practices.

 

Unlike a number of comprehensive studies on energy poverty in the EU [1] or in Romania [2], the current piece outlines a definition of fuel poverty, discussed its effects, and offers a description of the factual situation in Europe and in Romania.

IEA’s World Energy Outlook 2017 [3] projects in its central scenario an increased global energy demand by 30% between now and 2040. The largest demand growth is to come from India and South Asia – with Asia overall accounting for two-thirds.

The remaining demand is expected to come from the Middle East, Africa and Latin America. IEA assumes that energy access will increase in those regions. The EU, for its part, is unlikely to see a demand increase in the coming decades. In particular, physical access to the electricity grid is not a contributing factor to demand growth in Europe. However, there are obvious energy affordability issues in the EU.

 

Fuel Poverty and implications

A simple and accurate definition of fuel poverty refers to “the situation of not being able to afford energy services and/or to keep the household adequately warm, at affordable prices”.

As the issue mostly goes down to costs and revenues, fuel poverty seems to have less to do with energy access. In other words, fuel poverty is mainly the result of low incomes, unaffordable energy bills, and poor energy efficiency.

Some consumers in a fuel poverty situation see themselves constrained to resort to electricity theft, through such actions pose physical and manifold legal risk, which often results in, or continues, a state of social marginalization (criminal records, employment barriers etc.).

Imagine having to choose between using an electric heater or a washing machine. Even worse, imagine actually not having such a choice, since the accumulated debt led to network disconnection. Thus, fuel poverty can easily lead to loss of energy access.

This means a mobile phone always running low on battery, not having proper lighting, and having to cook several times a day using a GPL stove, simply because there is no refrigerator to keep the food. To compound the issue, getting reconnected involves fees, as well as a good deal of paperwork that many of the more vulnerable communities are unable to provide.

Indeed, we tend to take for granted the goods of energy service, yet quite a few of us face a different reality.

 

Fuel Poverty in Europe

About 150 million people across the EU face energy affordability issues, which means that more than 29.4% of the EU citizens of can be considered energy poor. By including in the analysis non-EU countries as well, the picture gets even worse.

A study of a few years indicated that 54 million EU citizens (i.e. 1 out of 10 Europeans) were unable to keep their home adequately warm [4]. Although each member state has its specific fuel poverty difficulties, bigger problems can be identified in CEE and SE Europe – Europe’s poorer regions – which is unsurprising, given that fuel poverty goes hand in hand with poverty itself.

To better tackle fuel poverty, regulators have come up with the concept of vulnerable consumer. Less than a third of the Member States have introduced the concept in their legislation, but this is about to change, since the Third Energy Package requires EU countries to identify their vulnerable consumers and put in place efficient mitigation measures.

There is no common definition of the vulnerable consumer. Although some specialists emphasize the need for a common definition across Member States (usually justified through the tendency of convergent energy prices across the EU, by means of the single energy market), it is likely that a one-size-fits-all approach would hinder a differentiated treatment of vulnerable consumers in different parts of Europe.

Most available definitions used EU-wide are referring to the social or medical status of the vulnerable customers, rather than to the energy prices. This puts the focus on on the customer’s situation, but tends to obfuscate the commercial aspects of the issue.

The EU Member States had to face the challenges by various means. Some countries took a social policy approach, others framed the issue as an energy policy topic, while still others had mixed approaches. As for Romania, as indicated by CDS (2017), no consistent approach has been pursued (figure 1).

Figure 1: Member States categorised as social or energy policy-focused; source: CDS (2017)

 

Fuel Poverty in Romania

At the end of 2016, the European Commission released the so-called Winter Package – a sum of various proposals regarding EU energy market design, governance, and energy efficiency. The package of documents also contains an overview of the electricity and prices around Europe for different sectors. [5]

Although Romania has one of the lowest electricity prices in Europe (Figure 2), it also has one of the largest shares of the electricity bill in the total average monthly expenditures (Figure 3), in 2015.

Figure 2: National electricity retail prices for households in 2015

 

Figure 3: Different consumer goods in household consumption expenditure

Hungary’s situation, for instance, is even worse – second lowest electricity prices and second biggest share of electricity bill in the total of monthly expenditures.

Based on these two charts, one can say that the commercial side alone (energy prices and taxes) plays a rather negligible role for the final consumer, as even the lowest energy prices can have a sizeable impact in the monthly expenditures, if the average revenues are low. Therefore, commercial aspects are not determinant.

Indeed, the graphs indicate that those facing the more acute problems are, implicitly, the ones with lower incomes. For them, the share of the energy bill in the monthly expenditure is much higher, even if the relative energy prices are low.

Moreover, the „commercial” aspect of „vulnerability” should not stop at commodity-plus-taxes level, especially not at present, when the sector is going through so many transformations.

On the contrary, this level should be a driver for additional products and services, which will bring a shared value for customers, utility companies and other entities. For example, a vulnerable consumer would be a perfect match for energy efficient products (white appliances, led bulbs etc) that could be bought also inside a public support scheme. This, in turn, will increase the manufacturers’ revenues as well, would increase to retailers’ turnover, and would generate additional jobs.

In this context, the recent CDS study suggests that in defining the “vulnerable consumer”, the lawmaker should include not only the age, health and income factors, but also aspects related to the commercial behavior, market design, customer’s economic and socio-demographic status. [6]

The Winter Package emphasizes market design as a determinant factor, since “switching related fees such as contract termination charges continue to constitute a significant financial barrier to consumer engagement. In addition, poor consumer satisfaction with energy bills, and poor awareness of information conveyed in bills suggests that there may still be scope to improve the comparability and clarity of billing information.”

True, clarity and better explanations must always be provided to the customers – be they vulnerable or not; nonetheless, the switching costs or termination associated costs do not apply in Romania, though they are certainly relevant in other jurisdictions.

These dimensions are essential to define and understand what and who is a vulnerable consumer.

The same CDS study suggests that applying the most common indicators in Europe, about 19% of the population could be considered energy poor. But as we don’t have a clear cut operational definition and, just as importantly, the relevant data, such figures are merely suggestive for Romania.

Indeed, the financial support received by vulnerable consumers for heating (the only financial measure in force in today’s Romania) is highly underrated and 60% of the funds go to those that use biomass. They recipient only get 20-25% of their real heating needs for the winter period.

A particular, though significant, section of the vulnerable customers is represented by those that use electricity for heating. This happens because their dwellings have no district heating access, or because their building is energy inefficiency, or a combination of both. For such reasons, they use electric heaters, which are big electricity consumers, thus adding significantly to their energy bills in winter time. Moreover, some of them have no real alternative than to steal electricity, in order to withstand high winter conditions.

Financial support for those using electricity for heating? It is only available at the equivalent of less than 2% of the total support scheme.

 

No Energy Access, but also no Fuel Poverty?

The bureaucratic hurdles of getting grid connection in Romania pose major barriers in front of new connections or reconnections. How is this related to the vulnerable consumer? Without being in a situation of no physical access to the electricity network, and also without necessarily having difficulties in paying the energy bills, some people are still unable to close an electricity contract with a supplier, because they do not have at hand the bunch of needed documents: IDs, ownership documents, other technical documents related to the dwelling, fiscal documents etc.

It is useful to point out again that, in such a situation, some of them have no other concrete solutions to survive the winter months than to acquire electricity illegally.

The energy supply contract should be treated merely as a commercial contract (the same kind as a mobile service contract or as an Internet contract), and the needed documentation to close it should be minimal. This would be a clear benefit for both customer and supplier, as is the case in the Western European countries. [7]

 

The final installment will focus on identifying some best practices around the world (both for energy access issues and fuel poverty problems) and will also bring into attention some measures and recommendations for the short and medium term.

 

 

[1] [4] INSIGHT_E – Energy poverty and vulnerable consumers in the energy sector across the EU: analysis of policies and measures, 2015

[2] [7] www.democracycenter.ro/romana/publicatii/rapoarte-de-cercetare/saracia-energetica-si-consumatorul-vulnerabil-evidente-din-romania-si-europa

[3] IEA – World Energy Outlook 2017, November

[5] http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52016DC0769&from=EN

[6] http://democracycenter.ro/application/files/1615/1178/4536/rezumat_executiv.pdf

 

 

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