Energy poverty, an issue affecting a growing number of consumers as a result of greater levies added to electricity bills, depsite often being unrelated to electricity supply, is the focus of an article, for energypress, by Kristian Ruby, Secretary General of Eurelectric, a sector association representing the common interests of the electricity industry throughout Europe.

By Kristian Ruby, Secretary General, Eurelectric

More and more consumers struggle to pay their energy bills and to heat or cool the place they live in. Faced with this reality, national governments should act. Consumers’ electricity bills should stop being a vehicle for financing other – sometimes totally unrelated – policies. Moreover, while energy efficiency is key to alleviate energy poverty, financing tools which leverage private investment should be chosen ahead of regulating prices or indeed imposing obligations on suppliers.

Electricity prices and “energy poverty” have recently been top of the news in several European countries with suppliers occasionally accused of being responsible. However, reality shows that the main driver for households’ electricity prices over the past few years has been policy costs and levies. According to European Commission figures, they have indeed increased by no less than 70% between 2008 and 2015. Today, their weight equates that of the energy and supply component of the bill for a residential consumer.

Consumers struggling to pay their electricity bills are of concern for companies too – beyond the fact that the cost of arrears borne by companies can amount to millions of euros – and it is in their interest to find effective solutions. Suppliers generally assist consumers who are struggling to manage their electricity usage and bills through 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.

So, what are some solutions to this problem? How can Europe face the challenge of energy poverty? First of all, it is crucial to recognise that EU member states are best placed to define criteria and policies to alleviate energy poverty. This is because their situations differ greatly in terms of employment, social security systems, climatic conditions, electricity consumption, home insulation and energy retail prices. Tackling the issue should be done at the level where it is most efficient to do so, in line with the subsidiarity and better regulation principles. Governments should also be aware that increasing taxes and levies on energy is not in line with combatting energy poverty. Consumers’ bills should reflect as far as possible the market-based cost of energy and should not be a vehicle for financing other – sometimes totally unrelated – policies.

The way network charges and levies are charged to consumers is also problematic. These regulated costs are indeed paid according to the consumption, even though they are largely fixed and need to be paid even if consumption decreases. With technological developments like distributed generation, storage, or electro-mobility, some customers are now consuming less electricity from the grid, thereby contributing less to system costs through tariff payments. Those costs then have to be charged across a smaller consumer base – those consumers not willing or not able to invest in such technologies, including many low income consumers – meaning an effective increase to their tariff payments. To reverse this trend, regulated costs should be charged in an efficient way, progressively removing cross-subsidisation.

Similarly, whilst energy efficiency is key to alleviate energy poverty, financing such measures through the bill is not sustainable. Indeed, costs are distributed among consumers regardless of their ability to pay. In addition, they inevitably create winners, those who receive measures, and losers, those who cannot or do not receive measures. 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, as customers who have energy debts are likely to struggle paying for other essential services too (e.g. housing, food, etc.), wider social policy is the best mechanism to help consumers tackle the root causes of debt, including energy debts. Considering the progressive nature of taxation, using social policies would also allow for a fair burden-sharing without causing those on lower incomes to bear a disproportionally higher burden.