The poverty premium and the journey to clean household energy: how do we ensure low income households are not left behind
On May 1, 2019, the UK Parliament approved a motion to declare an environment and climate emergency, a year after warnings that to keep the rise in global temperatures below 1.5C this century, all emissions of carbon dioxide would have to be cut by 45% by 2030. This level of threat requires more than just piecemeal modifications around the edges, but significant change to the way in which we live, invest, and consume globally; at government-level; among firms in the corporate sector; within local authorities; in our immediate communities; and in our own households.
Given the scale and severity of the problem there are huge institutional hurdles to jump: increasing renewable energy sources, protecting land and oceans, plants and animals from the harm intensified by greenhouse gases. What’s more, the necessary changes will impact our homes and the providers of our energy sources — and will potentially change the relationship we have with all suppliers of our most essential services, how we pay for those services, how we heat, and how we eat.
The positive news is that many of us in the UK are up for the challenge. As think-tank Bright Blue found in polling last year, 34% of UK adults put stopping climate change among their top three environmental priorities. Of the under 40s, climate change is the second most popular priority. A small majority of UK adults (51%) are either a lot more or a little more concerned than they were ten years ago.
This is fortunate because the UK has a lot to achieve on this front: not only aligned to the main target set by the Committee on Climate Change that says every individual on the planet has the right to emit the same amount of greenhouse gases by 2050, but because the UK was the first to go through the Industrial Revolution, emitting those gases for longer than any other country, there requires an even bigger role lowering reliance on carbon.
How the UK has prioritised lowering that reliance, to date, is what is most relevant to us at Fair By Design: moving to more sustainable sources of household energy, which has an obvious impact on the cost of our energy bills.
Even though improvements in energy efficiency and ongoing drops in the price of renewable power will play a major role in reducing the cost of bills over time, it is widely accepted that shorter term costs are higher.
Interestingly, research by Professor Jim Watson at the UK Energy Research Centre has shown that the British public are willing to accept some increase of their bills in the meantime (between 9% and 13%) to help finance the future energy transition. However, “this willingness is conditional on the parallel commitment of energy companies and the government to help facilitate the increased use of more sustainable energy.”
Irrespective of attitudes towards taking a hit in the pocket for the transition, many consumers simply don’t have the slack in their budget to pay any more. Not only do low income consumers already pay proportionally more for their energy bills than higher income households (around 1.5% of the household income of the lowest earners in the country was spent on energy bills, compared with under 0.2% for higher earners), but many incur a ‘poverty premium’ for being defaulted to a standard tariff rather than the best deal, or are penalised for not switching — a money saving move that tends to favour those with much more time and confidence to navigate complex digital consumer markets.
A public attitudes tracker commissioned by the Department for Business, Energy and Industrial Strategy (BEIS) found that high levels of concern about over-paying for energy have been consistent for the past two years. The level of worry was at its highest amongst those with household incomes under £16,000 (38%), private renters (37%), 35- 44 year olds (36%), and social renters (35%). However those with household incomes below £16,000 were least likely to have plans to switch (just 5% intended to). This will likely be to do with the low perceived gains of switching provider. A recent report commissioned by Citizens Advice found that consumers still found the current switching model too complex with few guarantees that it will result in a genuinely better service.
In summary there is a dual challenge ahead of us: finding what we can all do to play a part in reducing the environmental damage to the planet, and then ensuring that there is a just transition away from “cheap and dirty” natural gas over to a green energy supply which doesn’t exacerbate existing pressures on low income consumers already under serious financial strain, particularly where they are in vulnerable circumstances, in or at serious risk of fuel poverty, or experiencing poverty more broadly.
Designing out the poverty premium in energy markets, and making this transition easier for low income communities, requires innovation at every level. It might include:
· An increase in the availability of schemes that are fit for purpose, better targeted, and reaching homes most at need (such that is necessary for the Warm Home Discount)
· Consideration of the re-introduction of a social tariff, as Energy UK recently committed to
· Recognition of market disrupters providing automatic switching services for consumers to low cost suppliers
· Purpose-driven sandbox initiatives designed for new energy efficient providers to test ideas potentially to take to market, particularly for consumers in vulnerable circumstances
· Rethinking the best business models for helping customers benefit from energy efficiency, including the Time-of-use optimisation model (helping households know when energy purchasing is cheaper at different times of the day and night) and peer-to-peer supply models (helping households become “prosumers” in renewables and trading excess energy to others)
· Wider use of, and cheaper access to, thermal imaging cameras/smart thermostats to identify and control energy use for efficiency and money saving purposes
· A review of the Energy Company Obligation (ECO3) and the roles of other stakeholders in ensuring proper insulation and other energy efficiency measures for households across the country, focusing first on fuel poor households and those in social housing
On the journey towards greater use of renewables, we need to make sure all consumers regardless of income can benefit immediately. We know that sometimes the best deal isn’t always the cheapest, but we must ensure people aren’t shut out of greening their homes.