WARMER HOMES - A Strategy for Affordable Energy in Ireland
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WARMER HOMES A Strategy for Affordable Energy in Ireland
WARMER HOMES A Strategy for Affordable Energy in Ireland
2 Warmer Homes A Strategy for Affordable Energy in Ireland
Contents Foreword 7 Glossary of Terms and Abbreviations 9 Executive Summary 11 1 Introduction, Policy Context and Vision for Affordable Energy 15 1.1 Introduction 15 1.2 Approach to Formulation of this Strategy 15 1.3 Policy and Organisational Context 16 1.4 A Vision for Affordable Energy 17 1.5 Definitions and Nomenclature 19 2 Understanding and Measuring Energy Poverty 21 2.1 What is Energy Poverty? 21 2.2 What is Affordable Energy? 21 2.3 What are the Causes of Energy Poverty? 21 2.4 Defining and Measuring Energy Poverty 22 2.5 Individual Household-level Indicator of Energy Poverty 24 2.6 Non-Energy Benefits of Low-Income Housing Retrofits 32 2.7 Energy Prices and Affordability 33 3 The Challenge – Extent and Impact of Energy Poverty 37 3.1 Extent of Energy Poverty 37 3.2 Who is Affected and Most at Risk? 38 3.3 The Key Risk Factors for Energy Poverty 48 4 Existing Measures and Actions 51 4.1 Introduction 51 4.2 Improving Energy Efficiency of the Housing Stock 51 4.3 Income Supports 53 4.4 Energy Supply 56 4.5 Information Dissemination and Communication 57
4 Warmer Homes A Strategy for Affordable Energy in Ireland 5 Looking Forward 59 5.1 Introduction 59 5.2 Targeting Priority Households 59 5.3 Work Packages 60 5.4 Introducing an Area-based Approach to Energy Poverty Mitigation 62 5.5 Ensuring Greater Access to Energy Efficiency Measures 63 5.6 Reforming Eligibility Criteria for Energy Efficiency Schemes 63 5.7 Review of the National Fuel Scheme and Household Benefits Scheme 64 5.8 Other Activities 64 5.9 Conclusions 65 5.10 Key Actions 66 Annex 1 Membership of the Inter-Departmental/Agency Group on Affordable Energy 71 Annex 2 Respondees to Public Consultation Paper 72 Annex 3 Income Support Eligibility 73
List of Tables Table 1: Estimated Annual Running Costs for Typical Dwelling Types and BER Ratings based on 2010 Fuel Prices – € per annum 26 Table 2: Risk of Energy Poverty for Typical Dwelling Types and Energy Efficiency Ratings – Annual Energy Expenditure as % of Household Disposable Income: Median Income Household 28 Table 3: Risk of Energy Poverty for Typical Dwelling Types and Energy Efficiency Ratings – Annual Energy Expenditure as % of Household Disposable Income: Household with Income = 1/2 of Median Household Disposable Income 29 Table 4: Risk of Energy Poverty for Typical Dwelling Types and Energy Efficiency Ratings – Annual Energy Expenditure as % of Household Disposable Income: Household with Income = 1/3 of Median Household Disposable Income 30 Table 5: Risk of Energy Poverty for Typical Dwelling Types and Energy Efficiency Ratings - Annual Energy Expenditure as % of Household Disposable Income: Household with Income = 1/4 of Median Household Disposable Income 31 Table 6: Movements in Energy Affordability 35 Table 7: Energy Poverty in Ireland – Number of Households Experiencing Energy Poverty 37 Table 8: Subjective Measures of Energy Poverty 38 Table 9: Energy Poverty and Income Poverty 39 Table 10: Risk Factors for Energy Poverty 48 Table 11: National Fuel Scheme payments 2004–2010 54 Table 12: Household Benefits payments 2004–2010 55
6 Warmer Homes A Strategy for Affordable Energy in Ireland List of Figures Figure 1: Composition of Retail Electricity Prices 33 Figure 2: Energy Poverty Rates by Income Group 40 Figure 3: Energy Poverty Rates by Household Composition 41 Figure 4: Energy Poverty Rates by Housing Tenure 42 Figure 5: Energy Poverty Rates by Marital Status of Household Chief Economic Supporter 43 Figure 6: Energy Poverty Rates by Accommodation Type 44 Figure 7: Energy Poverty Rates by Accommodation Age 45 Figure 8: Energy Poverty Rates by Type of Heating Systems Used 47
Foreword Minister for Communications, Energy and Natural Resources For those unable to afford to heat or light their to link thermal efficiency to energy-related income home, the effects can be hugely detrimental to supports in a more effective manner, thereby taking their ongoing health and wellbeing. This document into account a household’s need to spend on marks the first Government strategy aimed at energy. specifically making energy more affordable for In addition to our ongoing commitment to low-income households in Ireland. Up to now, efforts improving energy efficiency in low-income homes, by government departments and agencies have this Government will introduce, and progressively focused on delivering on discrete policy remits; this increase, minimum thermal efficiency standards strategy changes this approach, setting a clear for properties offered for rent. Our focus will be on framework for how we will measure, record and progressively removing properties in the E, F and report on the numbers of households in difficulty G bands from the rental market by 2020. We will and the actions necessary to improve the quality of also ensure that appropriate standards are set for life for such households. the Rent Supplement and Rental Accommodation The underlying factors that influence energy Schemes, for which Government provides financial affordability are well understood and have support. been subject to extensive scrutiny as part of the We have looked at the experiences of other development of this strategy. The complex interplay countries and taken note of efforts to fully eradicate of energy prices, thermal efficiency and incomes energy poverty. In our view this is not a realistic goal mean that no one simple solution can be brought for this strategy, as energy poverty is not something to bear. Each situation is unique, requiring a that we can overcome today, tomorrow or even different set of policy interventions. The way in which in the next few years. The factors that influence Government responds needs to vary according vulnerability are numerous and pervasive. What we to individual circumstances. We plan to tailor our must do is address each of the underlying causes of response to ensure that resources are directed at vulnerability and systematically remove the barriers those most in need. that prevent people from benefiting from high There is only one long-term solution to making quality accommodation. Without an improvement energy more affordable – using less of it. Improving in the quality of homes, this strategy will not be the thermal efficiency of homes is the most cost- effective. effective way of increasing energy affordability and This strategy will require a cross-departmental reducing energy poverty. While income supports and agency response, with identified actions to such as the National Fuel Scheme and Household be delivered in the short, medium and long term, Benefits play an important role in reducing the depending on the nature of the change required financial burden of energy bills, they represent an and the level of analysis to be undertaken. While expensive way of addressing the real problem – we have been actively engaged in retrofitting poor quality homes. Since 2004, over €2 billion has low-income homes since 2000, more recently we been spent on income supports. Over the same have redoubled our efforts. In 2010 close to 25,000 period €60 million has been provided for thermal homes benefited from energy efficiency measures, efficiency measures in the private sector, with representing an 11-fold increase in programme a further €183 million spent on central-heating activity since 2006. However, this level of action upgrades and retrofits in public sector housing. It is will need to continue and will require the ongoing clear that we need to change our priorities if energy support of the Sustainable Energy Authority poverty is to be tackled in a meaningful way. Our of Ireland, the Money Advice and Budgeting starting point will be to assess whether it is possible
8 Warmer Homes A Strategy for Affordable Energy in Ireland Service, the Society of St. Vincent de Paul, the Department of Social Protection, community-based organisations, state energy companies and others, if we want to address this problem substantively. We are publishing a technical annex in order to put into the public domain the data that has been generated as part of the strategy development process. We hope that this will be of assistance to those with an interest in the area. The publication of this document marks the delivery of an important Programme for Government commitment. I would like to thank the Inter- Departmental Group on Affordable Energy for its work in developing this strategy, along with the stakeholders who made valuable submissions to the consultation exercise. Pat Rabbitte T.D. Minister for Communications, Energy and Natural Resources
Glossary of Terms and Abbreviations CER Commission for Energy Regulation DCENR Department of Communications, Energy and Natural Resources DoECLG Department of Environment, Community and Local Government DSP Department of Social Protection EPBD Energy Performance of Buildings Directive EPSSU Energy Policy Statistical Support Unit (SEAI) IDGAE Inter-Departmental/Agency Group on Affordable Energy IPH Institute of Public Health in Ireland Mean A measure of the average value of a set of numbers, whereby the average equates to the mathematical or arithmetic average of the values, or the sum of the values divided by the number of values. A mean value is subject to greater influence from outlier (very high or low) values in a range of values. Median A measure of the average value of a set of numbers, which separates the higher half of a sample, a population, or a probability distribution from the lower half. SEAI Sustainable Energy Authority of Ireland SVP The Society of St. Vincent de Paul
10 Warmer Homes A Strategy for Affordable Energy in Ireland
Executive Summary Introduction A Vision for Affordable Energy Everybody should be able to afford to heat It is important to set an overarching vision for and power their home to adequate levels. This energy affordability so that it is clear what we fundamental objective is the starting point for Warmer are trying to achieve with the development and Homes – A Strategy for Affordable Energy in Ireland future implementation of this strategy. and acts as the guiding principle for everything that follows. Much has been achieved in recent years through a combination of income supports, programmes to improve the energy efficiency of the Vision for Affordable Energy housing stock and energy awareness initiatives, but in Ireland it is timely to develop and implement an affordable energy strategy given the financial difficulties currently The achievement of a standard of living whereby being experienced by many in society. This strategy households are able to afford all of their energy needs presents a cohesive framework for achieving more and where individuals and families live in a warm and affordable energy, ensuring that existing and future comfortable home that enhances the quality of their measures are targeted at households where the risk lives and supports good physical and mental health and adverse effects of energy poverty are greatest. Associated with this vision are a number of guiding The strategy has been developed by the Inter- principles, which permeate the priorities, actions Departmental/Agency Group on Affordable Energy and delivery approaches set out in this strategy. (IDGAE), which was established in the summer of 2008 Specifically, this strategy will: to serve as the key coordinating body in this area.1 • Focus on improving the thermal efficiency of low- To deliver this strategy will require an integrated income homes. approach, involving extensive coordination amongst a range of actors in both the public and • Focus on maximising the quality of people’s lives private sectors. This reflects the complex nature of through implementation of practical initiatives. the challenge, which necessitates government • Apply a partnership approach, entailing close departments and agencies, local authorities, energy coordination and alignment of policy levers utilities, regulators, non-governmental organisations between stakeholders, including government and community-based organisations all working departments and agencies, local authorities, together, each delivering a part of the solution. This energy utilities, the health and social services spirit of collaboration is essential if we are to effectively providers, non-governmental organisations and implement actions that will have a lasting impact on community-based organisations. the health and wellbeing of households in Ireland. • Promote social inclusion and target social need. • Be integrated within emerging national anti- poverty policy. 1 The IDGAE is chaired by the Department of Communications, • Aim to deliver cost-effective approaches to Energy and Natural Resources and includes the Departments addressing energy poverty. of Public Expenditure and Reform, Taoiseach, Environment, Community and Local Government, Social Protection, Health, • Be consistent with the Government’s wider and Children, in addition to the Commission for Energy climate-change policy, thereby also benefiting the Regulation, SEAI, ESB Electric Ireland, the Institute of Public environment. Health in Ireland, the Energy Poverty Coalition and Bord Gáis.
12 Warmer Homes A Strategy for Affordable Energy in Ireland Defining Energy Poverty afford its energy needs if it is required to spend at a level greater than twice the national average The definition of energy poverty that will be applied (median) share (currently 10%) of disposable by Government departments, agencies and other income spent on energy services to achieve bodies in the implementation of this strategy takes an acceptable standard of warmth. Under this the above factors into account and is as follows: measure, a comprehensive indicator of energy poverty will be developed and implemented over the next 3-5 years. Definition of Energy Poverty By following this approach we will be able to A household is considered to be energy poor if estimate the overall extent of energy poverty in it is unable to attain an acceptable standard of Ireland, before migrating to a more accurate and warmth and energy services in the home at an comprehensive model. It is therefore appropriate affordable cost. to complement the preliminary measure with supporting indicators that capture the severity of energy poverty in terms of households that are most The above definition provides a starting point for critically affected. This is also important from the the ongoing measurement of energy poverty in perspective of prioritising and targeting measures Ireland, which will require the following two-stage and resources at those households that are development process: considered a priority. 1. A preliminary measure of energy poverty will We will, therefore, measure energy poverty by be estimated which compares an individual reference to the following levels of severity: household’s actual expenditure on energy, relative to its income, to the average proportion 1. The core indicator of energy poverty: whereby of income spent on energy across all households a household is considered to be experiencing in the State. Under the preliminary measure, a energy poverty if, in any one year, it spends more household is defined as being unable to afford than 10% of its disposable income on energy its energy needs if it spends at a level greater services in the home. than twice the national average (median) share 2. An indicator of severe energy poverty: whereby (currently 10%) of disposable income spent on a household is considered to be experiencing energy services.2 This is an interim solution which severe energy poverty if, in any one year, it will be used until such time as a comprehensive spends more than 15% of its disposable income measure can be developed. on energy services in the home. 2. A comprehensive measure of energy poverty 3. An indicator of extreme energy poverty: whereby will be developed using a new energy poverty a household is considered to be experiencing modelling framework. This approach will extreme energy poverty if, in any one year, it combine a survey of housing conditions with a spends more than 20% of its disposable income formal energy poverty modelling framework to on energy services in the home. estimate what households need to spend, so that a household is defined as being unable to 2 Household Disposable Income equates to total Household Disposable Income and is unadjusted.
Executive Summary 13 Once the comprehensive measure has been Of the actions identified in Chapter 5, the following developed, we will recalibrate the above indicators five are central to the successful implementation of to reflect the need to spend, as opposed to what this strategy: is actually spent. This will provide a more accurate 1. We will actively progress five priority work means of gauging energy poverty. packages: Thermal Efficiency Standards, Energy Suppliers, Area-based Approach, Data and Information, and Communication. Looking Forward 2. We will introduce an area-based approach to Energy poverty is a complex phenomenon, which energy poverty mitigation. necessitates an appropriately nuanced response from Government. It is thus heartening to note that 3. We will ensure greater access to energy many of the organisations that will have a role in efficiency measures. delivering this strategy are already engaged in carrying out a range of initiatives, programmes and 4. We will reform eligibility criteria for energy supports, which deliver important benefits for those efficiency schemes. affected by energy poverty. 5. We will review the National Fuel Scheme and However, we need to be aware that our analysis Household Benefits Scheme to examine the suggests that an estimated one-fifth of households feasibility of aligning income supports with the in Ireland are likely to experience some form of energy efficiency and income of the home. energy poverty, while about 10% of households are likely to be experiencing severe energy poverty. There is an urgent and critical need for a carefully focused plan to address this issue. In the long run, an effective strategy for addressing energy poverty and attaining affordable access to household energy requirements must focus on ensuring that the energy efficiency performance of the housing stock is improved. This is the overarching objective of the strategy and represents the most cost-effective means of protecting priority groups. Moreover, the relationship between energy poverty and energy efficiency clearly points to the fact that the poorest households stand to benefit most from improvements in energy efficiency.
14 Warmer Homes A Strategy for Affordable Energy in Ireland
Chapter 1 Introduction, Policy Context and Vision for Affordable Energy 1.1 Introduction such as electricity or gas disconnections, this strategy is focused on tackling the root causes Ireland’s current economic difficulties bring into of energy poverty, applying a holistic approach, stark relief the challenges faced by everyone active combining national and geographically focused in the area of energy poverty mitigation. A sharp actions in the areas of income supports, targeted increase in the number of domestic electricity energy efficiency improvements, and advice and and gas disconnections is one very visible result information. These measures will be aligned through of a general trend in energy becoming relatively the strategy and their implementation overseen more expensive in the last few years. Likewise, the by the Inter-Departmental/Agency Group on imposition of a carbon tax has had the effect of Affordable Energy (IDGAE). increasing the cost of carbon-intensive fuels, which are often the primary heating source for people on The challenge facing each of the organisations low incomes. While there is an argument to suggest involved in delivering this strategy should not be that the carbon tax should be removed, there are underestimated, particularly as Ireland faces a other pressing priorities, most notably the mitigation period of economic austerity, with pressures on of climate change, that also require immediate public expenditure and against a backdrop of action. The strategy will therefore have to be expected significant increases in the cost of energy. implemented in a complex environment in which It is unlikely that the ultimate goal of this strategy other policy objectives also have to be delivered. can be achieved over the life of the strategy, 2011– 2013; there are simply too many poorly built homes The Government believes that everyone should be to be improved in such a short period of time. able to afford to live in a warm and healthy home. Nevertheless, much can be done over the next While much has been accomplished in recent years three years, including, perhaps most importantly, to support this objective through the expansion better targeting of priority households. The strategy of programmes to improve the energy efficiency will be reviewed in 2014. of the housing stock, energy awareness initiatives and income supports, it is now timely to publish an affordable energy strategy. Warmer Homes – A 1.2 Approach to Formulation of Strategy for Affordable Energy in Ireland presents this Strategy a cohesive governmental framework for achieving energy affordability, ensuring that existing and The strategy has been developed by the IDGAE, future measures are targeted at the most vulnerable which was established in the summer of 2008 to groups in society, where the risk and adverse effects serve as the key coordinating body to ensure the of energy poverty are greatest. cohesiveness of the various actions already under way and those planned under this strategy.3 This strategy is designed to ensure that households can achieve affordable access to their energy requirements through a range of practical initiatives 3 The IDGAE is jointly chaired by the Department of and programmes designed to ultimately reduce Communications, Energy and Natural Resources and their demand for energy, thus protecting those the Department of Social Protection, and includes the considered most at risk of energy poverty. In Departments of Public Expenditure and Reform, Taoiseach, the long run this represents the most sustainable Environment, Community and Local Government, Health, and Children, in addition to the Commission for Energy Regulation, approach to energy poverty mitigation. It is the Sustainable Energy Authority of Ireland (SEAI), ESB Electric important to note that, while attention is often Ireland, the Institute of Public Health in Ireland, The Society of focused on the consequences of energy poverty, St. Vincent de Paul and Bord Gáis.
16 Warmer Homes A Strategy for Affordable Energy in Ireland A steering group, consisting of members of to maintain a comfortable and high-quality the IDGAE, was formed in 2010 to oversee the standard of living”, and “building viable and development of the strategy. The steering group sustainable communities, improving the lives prepared a discussion paper for public consultation, of people living in disadvantaged areas and for which twelve responses were received from building social capital”. These areas include a variety of bodies and NGOs (further details are addressing the challenge of energy poverty. contained in Annex 2). As a result, this document • Delivering a Sustainable Energy Future for Ireland has benefited immensely from the submissions and is the Government’s energy policy framework presentations received from interested parties. for the period 2007–2020. Strategic Goal 5 in this In early 2010, following a competitive tendering White Paper enunciates the Government’s policy process, Indecon International Economic in the area of affordable energy, stating that Consultants were appointed to assist the IDGAE. everyone should be able to afford an adequate energy supply and to live in a warm home.5 • Maximising Ireland’s Energy Efficiency – the 1.3 Policy and Organisational National Energy Efficiency Action Plan, 2009– Context 2020 6 sets out policies and measures that have the potential to contribute towards achieving This strategy is set within the context of, and is Ireland’s national target of a 20% reduction consistent with, broader government policy in in energy demand across the whole of the relation to poverty and social inclusion, and also economy by 2020. The Action Plan devotes a climate change policy. chapter to the issue of affordable energy and Three overarching policy documents are of identifies a number of actions that support particular relevance in setting the context for the improving the energy efficiency of low-income affordable energy strategy, namely the National homes. The plan also sets out a vision for future Action Plan for Social Inclusion, the Energy Policy housing stock where “all new Irish housing will Framework ‘Delivering a Sustainable Energy Future be carbon-neutral” and where “efficiency for Ireland’ and the National Energy Efficiency standards in older homes will be significantly Action Plan. improved through retrofitting actions”.7 • The National Action Plan for Social Inclusion sets out how the Government’s social inclusion strategy will be achieved over the period 2007–2016.4 The plan identifies a number of high-level strategic goals in key priority areas in order to achieve the overall objective of reducing consistent poverty. The areas where the plan focuses its attention include provision of 5 Delivering a Sustainable Energy Future for Ireland – Energy “the type of supports that enable older people Policy Framework 2007–2020. Government White Paper. Department of Communications, Energy and Natural Resources. See: www.dcenr.gov.ie. 4 National Action Plan for Social Inclusion, 2007–2016. 6 Maximising Ireland’s Energy Efficiency – the National Government Publications Office, Dublin, February Energy Efficiency Action Plan, 2009–2020. Department of 2007, or via: http://www.socialinclusion.ie/documents/ Communications, Energy and Natural NAPinclusionReportPDF.pdf. 7 Ibid. Page 75.
Introduction, Policy Context and Vision for Affordable Energy Chapter 1 17 1.4 A Vision for Affordable Energy • Be consistent with the Government’s wider climate change policy, thereby also benefiting By setting an overarching vision for energy the environment. affordability, we can make a clear statement about what we are trying to achieve with the development 1.4.2 Achieving the vision and future implementation of this strategy. Ultimately, the success of this strategy will be judged on the extent to which the overarching vision is realised, and the outcomes of the actions set out Vision for Achievement of in this framework result in improved outcomes for Affordable Energy low-income households. In particular, it is envisaged The achievement of a standard of living whereby that the realisation of this strategy will bring about households are able to afford all of their energy real and lasting benefits, under the following needs and where individuals and families live in headings: a warm and comfortable home that enhances • The relief of hardship and suffering among families the quality of their lives and supports good and individuals experiencing energy poverty. physical and mental health. • The social benefits arising from improved public health and the economic benefits arising from reduced heath service expenditure and the 1.4.1 Guiding principles for this vision reduction of health inequalities. Several guiding principles associated with this vision permeate the priorities, actions and delivery • The benefits to the environment and the approaches set out in this strategy. Specifically, this achievement of Ireland’s climate change policy strategy will: goals through an improvement in the energy efficiency of the housing stock, combined • Focus on improving the thermal efficiency of with better energy consumption behaviour of low-income homes. households. • Focus on maximising the quality of people’s lives This strategy fundamentally tries to do two things: through implementation of practical initiatives. first, to set out a framework for measuring energy • Apply a partnership approach, entailing close affordability and energy poverty (while these are coordination and alignment of policy levers similar concepts, in practice they mean different between stakeholders, including government things), and, secondly, develop a series of measures departments and agencies, local authorities, and actions that will both improve the affordability energy utilities, the health and social services of energy in Ireland and reduce the instances of providers, non-governmental organisations and energy poverty. community-based organisations. One of the first and most important actions will • Promote social inclusion and target social need. be to create a model that can accurately track movements in energy affordability and poverty. • Be integrated within emerging national anti- This is an essential first step to enable the design poverty policy. of fact-based policies. Energy poverty, as with poverty more generally, is a complex phenomenon • Aim to deliver cost-effective approaches to and is influenced by a range of economic and addressing energy poverty; and
18 Warmer Homes A Strategy for Affordable Energy in Ireland social issues. Setting out a formal definition scheme. It is also implementing the new National and measurement approach will facilitate the Energy Retrofit Programme (from 2011), which ongoing assessment and monitoring of the extent brings a new focus to energy-saving programmes and characteristics of energy poverty. However, more generally. the application of a formal definition in line • The Department of Social Protection formulates with international best practice is dependent appropriate social protection policies and upon the availability of detailed information administers and manages the delivery of a wide on the characteristics of households and the range of schemes and supports. These include accommodation in which they live. Unfortunately, schemes such as the National Fuel Scheme not all of this information is available, which makes and Household Benefits Package (electricity/ it difficult to precisely measure and track energy gas component) which are designed to provide poverty in Ireland. Nevertheless, this strategy sets income support to low-income and other out an approach which will see a transition from qualifying households, including to older persons. an interim approach to measurement of energy poverty to a more comprehensive and robust • The Department of Environment, Community mechanism over the next 3–5 years. and Local Government is responsible for funding social housing delivered through local authorities 1.4.3 Requirement for a partnership approach and voluntary and cooperative housing bodies, Effective implementation of this strategy will and the establishment of minimum standards require an integrated approach, involving and regulations for new buildings and private extensive coordination by a range of actors. This rental accommodation. The Department also reflects the complex nature of the challenge, provides supports for structural upgrades of which necessitates government departments homes occupied by older people and for local and agencies, local authorities, energy utilities, authority houses under the Housing Aid for Older regulators, non-governmental organisations People scheme and the Local Authority social and community-based organisations all working housing improvement programme. together; each delivering within its own areas and • The Department of Health is responsible for competencies. This spirit of collaboration is essential government policy on population health and if we are to effectively implement actions that will health services. The Health Services Executive have a lasting impact on the health and wellbeing (HSE) is responsible for the delivery and of at-risk households in society. management of health services, and assists in The main government departments that have a role the Keep Well and Warm initiative. in implementing this strategy, working in partnership • The Department of Public Expenditure and with each other and with other agencies and Reform, which has a key policy role to play in stakeholders, are as follows: relation to the resource implications of delivering • The Department of Communications, Energy and this strategy. Natural Resources has responsibility for the energy portfolio within government and has adopted a leadership role in the area of energy affordability. The Department funds the Sustainable Energy Authority of Ireland (SEAI)’s Better Energy: Warmer Homes scheme and Better Energy: Homes
Introduction, Policy Context and Vision for Affordable Energy Chapter 1 19 In addition to the above government departments, the following agencies and bodies have key roles in implementing this strategy: • The Sustainable Energy Authority of Ireland (SEAI) is responsible for delivering energy efficiency- based support schemes to households. It administers the Better Energy: Warmer Homes scheme, which is the primary mechanism for improving the energy performance of homes occupied by those on low incomes. • The Commission for Energy Regulation (CER) plays a statutory role in protecting vulnerable customers in the energy markets. It has set out guidelines for the protection of household electricity and gas customers, particularly older people, customers relying on life-support equipment and those with disabilities. • Energy suppliers – electricity and gas suppliers have already put in place customer charters and codes of practice. The IDGAE will engage with oil and solid-fuel energy suppliers to ensure that their customers are equally protected. 1.5 Definitions and Nomenclature This strategy sets out formal definitions to facilitate ongoing assessment and monitoring of the extent of energy poverty and the closely related concept of affordable energy. Throughout this document the terms ‘affordable energy’ and ‘energy poverty’ are used to express different concepts and, while related, mean different things. Internationally, the term fuel poverty is often used interchangeably with energy poverty.
20 Warmer Homes A Strategy for Affordable Energy in Ireland
Chapter 2 Understanding and Measuring Energy Poverty 2.1 What is Energy Poverty? 2.3 What are the Causes of Energy poverty can be described as a situation Energy Poverty? whereby a household is unable to attain an Both energy poverty and affordable energy can be acceptable level of energy services (including considered the product of the interaction of three heating, lighting, etc) in the home due to an factors or drivers, namely: inability to meet these requirements at an affordable cost. 1. Household income. 2. The price of energy. 2.2 What is Affordable Energy? 3. The energy efficiency of the dwelling, its energy systems and the household’s energy The terms ‘energy poverty’ and ‘affordable energy’ consumption patterns or behaviour. are often used interchangeably, as they are closely related concepts. Affordability more generally In practice, each of the above factors/drivers measures expenditure relative to a household’s is influenced by a complex mix of economic income. In this context, affordable energy describes and social issues. All households have individual a situation where a household can attain an requirements in relation to heating and energy for acceptable level of energy services at a level of other uses, including electricity for appliances, expenditure that is affordable relative to its overall which are dependent upon factors such as disposable income. In practice, the achievement household occupancy and the characteristics of of achieving more affordable energy equates to a occupants such as their age and behaviour. As a corresponding reduction in energy poverty. result, the nature and extent of energy poverty will vary depending on how these factors interact with This strategy sets out a formal definition that will the above drivers. This makes the development of facilitate the ongoing measurement of energy a comprehensive measure of energy poverty a poverty but also includes a complementary complex process, requiring data from a number affordability index which will enable monitoring of sources in order to create a robust reporting of the extent to which energy is becoming more framework. or less affordable for households from a macro perspective as a result of changes in key drivers Fundamentally, the most effective long-term such as energy prices. solution is ensuring that demand for energy decreases. This is the only mechanism that protects Both indicators will play an important role in against future increases in energy prices, over which understanding the prevalence of energy poverty Ireland has a limited ability to control. Likewise, the but also the number of at-risk households. In effects of extended periods of cold weather, such this way we believe that state bodies and other as those experienced in recent years, can only be organisations will be better placed to respond to mitigated through highly energy efficient homes. further changes in the economic environment.
22 Warmer Homes A Strategy for Affordable Energy in Ireland 2.4 Defining and Measuring Definition of Energy Poverty Energy Poverty A household is considered to be energy-poor if it is unable to attain an acceptable standard of Depending on the precise approach applied to warmth and energy services in the home at an the definition and measurement, varying levels affordable cost. of energy poverty can be reported.8 An effective definition of energy poverty must serve three purposes, namely: 2.4.1 Measuring the extent of energy poverty • To establish the existing position in relation to the The application of a formal definition, in line extent of energy poverty and the groups most with best practice internationally, is dependent affected. upon the availability of detailed information • To facilitate effective policy design to address on the characteristics of households and the the impact of energy poverty. accommodation in which they live. Unfortunately, there are a number of informational deficiencies • To monitor progress and assess the effectiveness that preclude precise measurement, which leads to of policy interventions to address energy poverty difficulties tracking energy poverty on a consistent and improve energy affordability. basis. During the development phase of this strategy, To overcome these informational constraints, a wide range of views and inputs were received this strategy sets out a two-stage approach to regarding the strengths and weaknesses of implementing the above definition of energy alternative approaches to defining and measuring poverty. This involves initially using existing energy poverty and affordability.9 In addition to information to estimate the extent and nature of these inputs, the definition of energy poverty set energy poverty currently affecting Irish households out below reflects and builds upon international but moves, over the next 3-5 years, towards a experience and research, including developments comprehensive data-collection and modelling at European Union level. framework which will enable more precise On the basis of consideration of these factors, the measurement and assessment of energy poverty definition of energy poverty that will be applied on an ongoing basis. Crucially, this will allow us to by government departments, agencies and other take into account the relative thermal efficiency of bodies in implementing this strategy will be as households, combined with occupation patterns, follows: in determining the numbers in energy poverty. This will greatly assist in targeting households for future energy efficiency upgrades. 8 See the technical annex for further information. 9 We are particularly grateful to Dr Sean Lyons, ESRI, and Dr Brenda Boardman, Environmental Change Unit, Oxford University, for their advice and assistance in the formulation of this strategy. Previous research referenced during the development of this strategy included: (a) Scott, S., Lyons, S., Keane C., McCarthy D., and Richard S.J. Tol, Fuel Poverty in Ireland: Extent, Affected Groups and Policy Issues. ESRI Working Paper 262, November 2008, and (b) Boardman, B., 2010. Fixing Fuel Poverty – Challenges and Solutions, Earthscan.
Understanding and Measuring Energy Poverty Chapter 2 23 On the basis of the above two-stage approach, this Estimating Severity of Energy Poverty strategy will measure the extent of energy poverty under the Preliminary Measure as follows:10 The preliminary measure of energy poverty • A preliminary measure of energy poverty will enables the estimation of the overall extent of be estimated which compares an individual energy poverty in Ireland. In practice, some household’s actual expenditure on energy, social groups are likely to be more severely relative to its income, to the average proportion affected by energy poverty than others. As a of income spent on energy across all households result, it is appropriate to complement the core in the State.11 Under the preliminary approach, preliminary indicator of energy poverty with a household is considered to be experiencing supporting indicators which capture the severity energy poverty if, in any one year, it spends of energy poverty in terms of households that are more than 10% of its disposable income on most critically affected. This is critical in order to energy services in the home. This approach prioritise and target measures and resources at will estimate the overall number of households households that are most in need. experiencing energy poverty in addition to indicating, on the basis of the available data, 1. The core indicator of energy poverty: whereby the types of households affected and the risk a household is considered to be experiencing factors associated with energy poverty. The energy poverty if, in any one year, it spends estimates based on this preliminary approach more than 10% of its disposable income on are presented in the next chapter. However, energy services in the home. this approach may underestimate the extent of 2. An indicator of severe energy poverty: energy poverty as low-income households can whereby a household is considered to be under-heat their homes relative to the level that experiencing severe energy poverty if, in would be required based on healthy standards. any one year, it spends more than 15% of its disposable income on energy services in the home. 3. An indicator of extreme energy poverty: whereby a household is considered to be experiencing extreme energy poverty if, in any one year, it spends more than 20% of its disposable income on energy services in the home. Estimates of the extent of energy poverty and 10 For a full description of the methodological and technical severity of energy poverty under the preliminary assumptions underlying the approach to defining and measure are presented in the next chapter. measuring energy poverty set out in this strategy, refer to the supporting document Warmer Homes: A Strategy for Affordable Energy in Ireland – Technical Annex. 11 This preliminary approach represents a partial application of the definition of energy poverty set out in Table 1 on the basis that it measures energy poverty on the basis of a household’s actual expenditures on energy as opposed to required expenditure to achieve pre-defined levels of comfort.
24 Warmer Homes A Strategy for Affordable Energy in Ireland • A comprehensive measure of energy poverty 2. A household is considered to be in severe will be developed using a new energy poverty energy poverty if it must spend at a level modelling framework. This approach will combine equal to or greater than three times the a survey of housing conditions with a formal national average (median) share of energy poverty modelling framework (described disposable income spent on energy services further in Chapter 4 under ‘Information and Data to achieve an acceptable standard of Systems’) to estimate what households need warmth. to spend “to attain an acceptable standard 3. A household is considered to be in extreme of warmth and energy services in the home at energy poverty if it must spend at a level an affordable cost” as per the full definition equal to or greater than four times the of energy poverty set out above. It will define national average (median) share of ‘acceptable standard of warmth’ by reference disposable income spent on energy services to international best-practice standards and will to achieve an acceptable standard of take account of the efficiency of the dwelling, warmth. variations in outside temperatures (particularly during the winter) and energy/fuel costs to determine the required levels of household energy use.12 Combining this information with 2.5 Individual Household-level data on household incomes will assist in the Indicator of Energy Poverty identification of energy-poor households. Under The preliminary measure is based on actual this approach, a formal, comprehensive measure expenditures on household energy and does not of energy poverty will be developed and take account of the actual levels of expenditure implemented over the next 3-5 years. required for households to attain adequate levels of comfort in the home. Estimating Severity of Energy Poverty A key factor missing from the existing information under the Comprehensive Measure sources concerns the availability of datasets which combine information on household income and The comprehensive measure will seek to assess expenditure with data on the physical – including the severity of energy poverty in a household by energy efficiency – characteristics of the dwelling in reference to the following: which the household resides. Detailed information 1. A household is considered to be in energy on household incomes and expenditure patterns poverty if it must spend at a level equal to (including energy expenditures) is available through or greater than twice the national average the Household Budget Survey. In addition, the SEAI’s (median) share of disposable income spent Building Energy Rating (BER) database currently on energy services to achieve an acceptable contains data on the energy rating of some 250,000 standard of warmth. households across the State. However, the two databases are not integrated, precluding the identification of income, expenditure and energy efficiency features for the same household – which 12 The standard approach to defining ‘adequate warmth’ is by is necessary to enable estimation of the extent of reference to World Health Organisation (WHO) guidelines, energy poverty reflecting all three drivers of the which defines ‘adequate’ as equating to a temperature phenomenon. of 21ºC in the main family/living-room and 18ºC in other occupied rooms of a dwelling.
Understanding and Measuring Energy Poverty Chapter 2 25 Estimating the extent of, and risk factors associated with energy poverty based on required, as opposed to actual, expenditures on energy services, necessitates the application of a formal energy poverty and residential fuel cost modelling framework. In advance of the development of this model, it is possible to use information developed by the SEAI as a basis to identify combinations of household income, dwelling type and energy efficiency rating that are associated with a higher or lower risk of energy poverty at the individual household level. This approach is based on the measure of energy poverty where annual required energy costs are greater than 10% of household disposable income. The estimates provide a ‘ready reckoner’ for households to estimate the risk of experiencing energy poverty and are described further below. 2.5.1 Estimates of risk of energy poverty for typical households and dwellings The following table (Table 1) presents the SEAI estimates on annual running costs for principal energy usage for typical dwelling types and BER energy efficiency ratings, based on fuel prices prevailing in July 2010. The running cost estimates are indicative only as additional research is required to fully validate these numbers. In addition, these estimates relate to ‘principal energy usage’, defined for the purposes of calculating a dwelling’s BER rating on the basis of household energy for water and space heating. This does not include energy usage for cooking, lighting and other appliances. The estimates are also based on specific assumptions regarding household heating regimes (and, inherently, occupancy), whereby a dwelling is assumed to be heated to a level of comfort (i.e. the main living-room/area is heated to achieve a temperature of 21oC and the remaining habitable area of the house is heated to a temperature of 18oC). These running cost estimates may therefore need to be adjusted to reflect international norms.
26 Warmer Homes A Strategy for Affordable Energy in Ireland Table 1: Estimated Annual Running Costs for Typical Dwelling Types and BER Ratings based on 2010 Fuel Prices – € per annum BER Rating and 2 bed 3 bed semi- 4 bed semi- Detached Large house Dwelling Type/ apartment detached detached house (300 Sq M) Size (75 Sq M) house house (200 Sq M) (100 Sq M) (150 Sq M) A1 110 150 230 300 500 A2 230 300 450 600 900 A3 280 370 600 700 1,100 B1 340 460 700 900 1,400 B2 440 600 900 1,200 1,800 B3 500 700 1,100 1,400 2,200 C1 600 900 1,300 1,700 2,600 C2 800 1,000 1,500 2,000 3,000 C3 900 1,200 1,700 2,300 3,500 D1 1,000 1,400 2,100 2,700 4,100 D2 1,200 1,600 2,400 3,200 4,800 E1 1,400 1,800 2,800 3,700 5,500 E2 1,600 2,100 3,100 4,200 6,300 F 1,900 2,500 3,800 5,000 7,500 G 2,400 3,100 4,700 6,300 9,400
Understanding and Measuring Energy Poverty Chapter 2 27 The annual household energy running-cost estimates, relative to household disposable income, provide a basis to identify combinations of household income, dwelling type and energy efficiency rating that are associated with a higher or lower risk of energy poverty, based on the comprehensive measure of energy poverty set out in the strategy. In general, for a given level of household disposable income, a household is likely to face a higher risk of energy poverty where they reside in larger and less energy efficient dwellings. This is because such dwellings typically need more energy to achieve an adequate level of heat. In addition, all other factors being equal, the lower a household’s disposable income the higher the risk of the household experiencing energy poverty. Mid-income households The following table (Table 2) considers the position for a reference household at the average (median) level of household disposable income (in this case where a household’s disposable income equates to just under 800 per week). The analysis suggests that a median-income household living in a typical three-bed semi-detached house would, at 2010 energy prices, be likely to escape energy poverty (i.e. required energy spend is not greater than 10% of household disposable income). However, in the case of larger dwellings, the risk of energy poverty increases, particularly where the dwellings in which these households reside have BER ratings towards the bottom end of the scale. For example, a mid-income household living in an older, less energy efficient detached house of 200m2 in size with a BER rating at E2 or below would be likely to experience energy poverty. The risk of energy poverty would increase further for mid-income households living in larger dwellings (e.g. 300m2) with a BER of D2 or below.
28 Warmer Homes A Strategy for Affordable Energy in Ireland Table 2: Risk of Energy Poverty for Typical Dwelling Types and Energy Efficiency Ratings – Annual Energy Expenditure as % of Household Disposable Income: Median Income Household* BER Rating and 2 bed 3 bed semi- 4 bed semi- Detached Large house Dwelling Type/ apartment detached detached house (300 Sq M) Size (75 Sq M) house house (200 Sq M) (100 Sq M) (150 Sq M) Annual Energy Expenditure as % of Household Disposable Income** A1 0.3% 0.4% 0.6% 0.7% 1.2% A2 0.6% 0.7% 1.1% 1.4% 2.2% A3 0.7% 0.9% 1.4% 1.7% 2.7% B1 0.8% 1.1% 1.7% 2.2% 3.4% B2 1.1% 1.4% 2.2% 2.9% 4.3% B3 1.2% 1.7% 2.7% 3.4% 5.3% C1 1.4% 2.2% 3.1% 4.1% 6.3% C2 1.9% 2.4% 3.6% 4.8% 7.2% C3 2.2% 2.9% 4.1% 5.5% 8.4% D1 2.4% 3.4% 5.1% 6.5% 9.9% D2 2.9% 3.9% 5.8% 7.7% 11.6% E1 3.4% 4.3% 6.7% 8.9% 13.3% E2 3.9% 5.1% 7.5% 10.1% 15.2% F 4.6% 6.0% 9.2% 12.1% 18.1% G 5.8% 7.5% 11.3% 15.2% 22.7% Source: Analysis based on SEAI annual running-cost estimates for domestic principal energy usage Notes: * Where estimated median annual household disposable income in 2009 = €41,500 or €798 per week ** Shaded cells refer to households experiencing energy poverty based on annual running costs being greater than 10% of disposable income
Understanding and Measuring Energy Poverty Chapter 2 29 Lower-income households – disposable income level of income, the risk and incidence of energy equal to 1/2 average household income poverty increases. In this case, for example, a The following table (Table 3) presents a similar household living in a three-bed semi-detached analysis for households with disposable income at house of 100m2 would experience energy poverty half the average income across all households, i.e. at these income levels if the dwelling has a BER where household income equals approximately rating of E2 or below, with the incidence of energy €400 per week. This would be likely to closely poverty increasing sharply for similar-income resemble a household comprising, for example, a households living in larger dwellings and or with family where both parents are unemployed and in lower energy efficiency ratings. receipt of welfare supports. For households at this Table 3: Risk of Energy Poverty for Typical Dwelling Types and Energy Efficiency Ratings – Annual Energy Expenditure as % of Household Disposable Income: Household with Income = 1/2 of Median Household Disposable Income* BER Rating and 2 bed 3 bed semi- 4 bed semi- Detached Large house Dwelling Type/ apartment detached detached house (300 Sq M) Size (75 Sq M) house house (200 Sq M) (100 Sq M) (150 Sq M) Annual Energy Expenditure as % of Household Disposable Income** A1 0.5% 0.7% 1.1% 1.4% 2.4% A2 1.1% 1.4% 2.2% 2.9% 4.3% A3 1.3% 1.8% 2.9% 3.4% 5.3% B1 1.6% 2.2% 3.4% 4.3% 6.7% B2 2.1% 2.9% 4.3% 5.8% 8.7% B3 2.4% 3.4% 5.3% 6.7% 10.6% C1 2.9% 4.3% 6.3% 8.2% 12.5% C2 3.9% 4.8% 7.2% 9.6% 14.5% C3 4.3% 5.8% 8.2% 11.1% 16.9% D1 4.8% 6.7% 10.1% 13.0% 19.8% D2 5.8% 7.7% 11.6% 15.4% 23.1% E1 6.7% 8.7% 13.5% 17.8% 26.5% E2 7.7% 10.1% 14.9% 20.2% 30.4% F 9.2% 12.1% 18.3% 24.1% 36.2% G 11.6% 14.9% 22.7% 30.4% 45.3% Source: Analysis based on SEAI annual running cost estimates for domestic principal energy usage Notes: * Where 1/2 of estimated annual median household disposable income in 2009 = €20,744 or €399 per week ** Shaded cells refer to households experiencing energy poverty based on annual running costs being greater than 10% of disposable income
30 Warmer Homes A Strategy for Affordable Energy in Ireland Lower-income households – disposable income equal to 1/3rd average household income Table 4 indicates the likelihood of energy poverty among lower-income households where household disposable income equates to one-third of the average across all households, i.e. equivalent to a weekly disposable income of around €266. In this scenario the risk of energy poverty increases even further compared with the preceding analysis. Table 4: Risk of Energy Poverty for Typical Dwelling Types and Energy Efficiency Ratings – Annual Energy Expenditure as % of Household Disposable Income: Household with Income = 1/3 of Median Household Disposable Income* BER Rating and 2 bed 3 bed semi- 4 bed semi- Detached Large house Dwelling Type/ apartment detached detached house (300 Sq M) Size (75 Sq M) house house (200 Sq M) (100 Sq M) (150 Sq M) Annual Energy Expenditure as % of Household Disposable Income** A1 0.8% 1.1% 1.7% 2.2% 3.6% A2 1.7% 2.2% 3.3% 4.3% 6.5% A3 2.0% 2.7% 4.3% 5.1% 8.0% B1 2.5% 3.3% 5.1% 6.5% 10.1% B2 3.2% 4.3% 6.5% 8.7% 13.0% B3 3.6% 5.1% 8.0% 10.1% 15.9% C1 4.3% 6.5% 9.4% 12.3% 18.8% C2 5.8% 7.2% 10.8% 14.5% 21.7% C3 6.5% 8.7% 12.3% 16.6% 25.3% D1 7.2% 10.1% 15.2% 19.5% 29.6% D2 8.7% 11.6% 17.4% 23.1% 34.7% E1 10.1% 13.0% 20.2% 26.8% 39.8% E2 11.6% 15.2% 22.4% 30.4% 45.6% F 13.7% 18.1% 27.5% 36.2% 54.2% G 17.4% 22.4% 34.0% 45.6% 68.0% Source: Analysis based on SEAI annual running cost estimates for domestic principal energy usage Notes: * Where 1/3 of estimated annual median household disposable income in 2009 = €13,830 or €266 per week ** Shaded cells refer to households experiencing energy poverty based on annual running costs being greater than 10% of disposable income
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