WARMER HOMES - A Strategy for Affordable Energy in Ireland

WARMER HOMES - A Strategy for Affordable Energy in Ireland

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

For those unable to afford to heat or light their home, the effects can be hugely detrimental to their ongoing health and wellbeing.

This document marks the first Government strategy aimed at specifically making energy more affordable for low-income households in Ireland. Up to now, efforts by government departments and agencies have focused on delivering on discrete policy remits; this strategy changes this approach, setting a clear framework for how we will measure, record and report on the numbers of households in difficulty and the actions necessary to improve the quality of life for such households.

The underlying factors that influence energy affordability are well understood and have been subject to extensive scrutiny as part of the development of this strategy. The complex interplay of energy prices, thermal efficiency and incomes mean that no one simple solution can be brought to bear. Each situation is unique, requiring a different set of policy interventions. The way in which Government responds needs to vary according to individual circumstances. We plan to tailor our response to ensure that resources are directed at those most in need.

There is only one long-term solution to making energy more affordable – using less of it.

Improving the thermal efficiency of homes is the most cost- effective way of increasing energy affordability and reducing energy poverty. While income supports such as the National Fuel Scheme and Household Benefits play an important role in reducing the financial burden of energy bills, they represent an expensive way of addressing the real problem – poor quality homes. Since 2004, over €2 billion has been spent on income supports. Over the same period €60 million has been provided for thermal efficiency measures in the private sector, with a further €183 million spent on central-heating upgrades and retrofits in public sector housing.

It is clear that we need to change our priorities if energy poverty is to be tackled in a meaningful way. Our starting point will be to assess whether it is possible to link thermal efficiency to energy-related income supports in a more effective manner, thereby taking into account a household’s need to spend on energy.

In addition to our ongoing commitment to improving energy efficiency in low-income homes, this Government will introduce, and progressively increase, minimum thermal efficiency standards for properties offered for rent. Our focus will be on progressively removing properties in the E, F and G bands from the rental market by 2020. We will also ensure that appropriate standards are set for the Rent Supplement and Rental Accommodation Schemes, for which Government provides financial support. We have looked at the experiences of other countries and taken note of efforts to fully eradicate energy poverty.

In our view this is not a realistic goal for this strategy, as energy poverty is not something that we can overcome today, tomorrow or even in the next few years. The factors that influence vulnerability are numerous and pervasive. What we must do is address each of the underlying causes of vulnerability and systematically remove the barriers that prevent people from benefiting from high quality accommodation. Without an improvement in the quality of homes, this strategy will not be effective.

This strategy will require a cross-departmental and agency response, with identified actions to be delivered in the short, medium and long term, depending on the nature of the change required and the level of analysis to be undertaken. While we have been actively engaged in retrofitting low-income homes since 2000, more recently we have redoubled our efforts. In 2010 close to 25,000 homes benefited from energy efficiency measures, representing an 11-fold increase in programme activity since 2006. However, this level of action will need to continue and will require the ongoing support of the Sustainable Energy Authority of Ireland, the Money Advice and Budgeting Foreword Minister for Communications, Energy and Natural Resources

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

Introduction Everybody should be able to afford to heat and power their home to adequate levels. This fundamental objective is the starting point for Warmer Homes – A Strategy for Affordable Energy in Ireland 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 housing stock and energy awareness initiatives, but it is timely to develop and implement an affordable energy strategy given the financial difficulties currently being experienced by many in society. This strategy presents a cohesive framework for achieving more affordable energy, ensuring that existing and future measures are targeted at households where the risk and adverse effects of energy poverty are greatest. The strategy has been developed by the Inter- Departmental/Agency Group on Affordable Energy (IDGAE), which was established in the summer of 2008 to serve as the key coordinating body in this area.1 To deliver this strategy will require an integrated approach, involving extensive coordination amongst a range of actors in both the public and private sectors.

This reflects the complex nature of the challenge, which necessitates government departments and agencies, local authorities, energy utilities, regulators, non-governmental organisations and community-based organisations all working together, each delivering a part of the solution. This spirit of collaboration is essential if we are to effectively implement actions that will have a lasting impact on the health and wellbeing of households in Ireland. 1  The IDGAE is chaired by the Department of Communications, Energy and Natural Resources and includes the Departments of Public Expenditure and Reform, Taoiseach, Environment, Community and Local Government, Social Protection, Health, and Children, in addition to the Commission for Energy Regulation, SEAI, ESB Electric Ireland, the Institute of Public Health in Ireland, the Energy Poverty Coalition and Bord Gáis.

A Vision for Affordable Energy It is important to set an overarching vision for energy affordability so that it is clear what we are trying to achieve with the development and future implementation of this strategy. Vision for Affordable Energy in Ireland The achievement of a standard of living whereby households are able to afford all of their energy needs and where individuals and families live in a warm and comfortable home that enhances the quality of their lives and supports good physical and mental health Associated with this vision are a number of guiding principles, which permeate the priorities, actions and delivery approaches set out in this strategy.

Specifically, this strategy will: •  Focus on improving the thermal efficiency of low- income homes.

•  Focus on maximising the quality of people’s lives through implementation of practical initiatives. •  Apply a partnership approach, entailing close coordination and alignment of policy levers between stakeholders, including government departments and agencies, local authorities, energy utilities, the health and social services providers, non-governmental organisations and community-based organisations. •  Promote social inclusion and target social need. •  Be integrated within emerging national anti- poverty policy.

•  Aim to deliver cost-effective approaches to addressing energy poverty.

•  Be consistent with the Government’s wider climate-change policy, thereby also benefiting the environment. Executive Summary

12 Warmer Homes A Strategy for Affordable Energy in Ireland Defining Energy Poverty The definition of energy poverty that will be applied by Government departments, agencies and other bodies in the implementation of this strategy takes the above factors into account and is as follows: Definition of Energy Poverty A household is considered to be energy poor if it is unable to attain an acceptable standard of warmth and energy services in the home at an affordable cost. The above definition provides a starting point for the ongoing measurement of energy poverty in Ireland, which will require the following two-stage development process: 1.

A preliminary measure of energy poverty will be estimated which compares an individual household’s actual expenditure on energy, relative to its income, to the average proportion of income spent on energy across all households in the State. Under the preliminary measure, a household is defined as being unable to afford its energy needs if it spends at a level greater than twice the national average (median) share (currently 10%) of disposable income spent on energy services.2 This is an interim solution which will be used until such time as a comprehensive measure can be developed.

2. A comprehensive measure of energy poverty will be developed using a new energy poverty modelling framework. This approach will combine a survey of housing conditions with a formal energy poverty modelling framework to 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. afford its energy needs if it is required to spend at a level greater than twice the national average (median) share (currently 10%) of disposable income spent on energy services to achieve an acceptable standard of warmth.

Under this measure, a comprehensive indicator of energy poverty will be developed and implemented over the next 3-5 years.

By following this approach we will be able to estimate the overall extent of energy poverty in Ireland, before migrating to a more accurate and comprehensive model. It is therefore appropriate to complement the preliminary measure with supporting indicators that capture the severity of energy poverty in terms of households that are most critically affected. This is also important from the perspective of prioritising and targeting measures and resources at those households that are considered a priority. We will, therefore, measure energy poverty by reference to the following levels of severity: 1.

The core indicator of energy poverty: whereby a household is considered to be experiencing energy poverty if, in any one year, it spends more than 10% of its disposable income on energy services in the home.

2. An indicator of severe energy poverty: whereby a household is considered to be experiencing severe energy poverty if, in 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.

Executive Summary 13 Once the comprehensive measure has been developed, we will recalibrate the above indicators to reflect the need to spend, as opposed to what is actually spent.

This will provide a more accurate means of gauging energy poverty. Looking Forward Energy poverty is a complex phenomenon, which necessitates an appropriately nuanced response from Government. It is thus heartening to note that many of the organisations that will have a role in delivering this strategy are already engaged in carrying out a range of initiatives, programmes and supports, which deliver important benefits for those affected by energy poverty.

However, we need to be aware that our analysis suggests that an estimated one-fifth of households in Ireland are likely to experience some form of 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.

Of the actions identified in Chapter 5, the following five are central to the successful implementation of this strategy: 1. We will actively progress five priority work packages: Thermal Efficiency Standards, Energy Suppliers, Area-based Approach, Data and Information, and Communication. 2. We will introduce an area-based approach to energy poverty mitigation. 3. We will ensure greater access to energy efficiency measures. 4. We will reform eligibility criteria for energy efficiency schemes. 5. We will review the National Fuel Scheme and Household Benefits Scheme to examine the feasibility of aligning income supports with the energy efficiency and income of the home.

14 Warmer Homes A Strategy for Affordable Energy in Ireland

Chapter 1 Introduction,Policy Context and Vision for Affordable Energy 1.1 Introduction Ireland’s current economic difficulties bring into stark relief the challenges faced by everyone active in the area of energy poverty mitigation. A sharp increase in the number of domestic electricity and gas disconnections is one very visible result of a general trend in energy becoming relatively more expensive in the last few years. Likewise, the imposition of a carbon tax has had the effect of increasing the cost of carbon-intensive fuels, which are often the primary heating source for people on low incomes.

While there is an argument to suggest that the carbon tax should be removed, there are other pressing priorities, most notably the mitigation of climate change, that also require immediate action. The strategy will therefore have to be implemented in a complex environment in which other policy objectives also have to be delivered. The Government believes that everyone should be able to afford to live in a warm and healthy home. While much has been accomplished in recent years to support this objective through the expansion of programmes to improve the energy efficiency of the housing stock, energy awareness initiatives and income supports, it is now timely to publish an affordable energy strategy.

Warmer Homes – A Strategy for Affordable Energy in Ireland presents a cohesive governmental framework for achieving energy affordability, ensuring that existing and future measures are targeted at the most vulnerable groups in society, where the risk and adverse effects of energy poverty are greatest.

This strategy is designed to ensure that households can achieve affordable access to their energy requirements through a range of practical initiatives and programmes designed to ultimately reduce their demand for energy, thus protecting those considered most at risk of energy poverty. In the long run this represents the most sustainable approach to energy poverty mitigation. It is important to note that, while attention is often focused on the consequences of energy poverty, such as electricity or gas disconnections, this strategy is focused on tackling the root causes of energy poverty, applying a holistic approach, combining national and geographically focused actions in the areas of income supports, targeted energy efficiency improvements, and advice and information.

These measures will be aligned through the strategy and their implementation overseen by the Inter-Departmental/Agency Group on Affordable Energy (IDGAE).

The challenge facing each of the organisations involved in delivering this strategy should not be underestimated, particularly as Ireland faces a period of economic austerity, with pressures on public expenditure and against a backdrop of expected significant increases in the cost of energy. It is unlikely that the ultimate goal of this strategy can be achieved over the life of the strategy, 2011– 2013; there are simply too many poorly built homes to be improved in such a short period of time. Nevertheless, much can be done over the next three years, including, perhaps most importantly, better targeting of priority households.

The strategy will be reviewed in 2014.

1.2  Approach to Formulation of this Strategy The strategy has been developed by the IDGAE, which was established in the summer of 2008 to serve as the key coordinating body to ensure the cohesiveness of the various actions already under way and those planned under this strategy.3 3  The IDGAE is jointly chaired by the Department of Communications, Energy and Natural Resources and the Department of Social Protection, and includes the Departments of Public Expenditure and Reform, Taoiseach, Environment, Community and Local Government, Health, and Children, in addition to the Commission for Energy Regulation, the Sustainable Energy Authority of Ireland (SEAI), ESB Electric Ireland, the Institute of Public Health in Ireland, The Society of St.

Vincent de Paul and Bord Gáis.

16 Warmer Homes A Strategy for Affordable Energy in Ireland A steering group, consisting of members of the IDGAE, was formed in 2010 to oversee the development of the strategy. The steering group prepared a discussion paper for public consultation, for which twelve responses were received from a variety of bodies and NGOs (further details are contained in Annex 2). As a result, this document has benefited immensely from the submissions and presentations received from interested parties. In early 2010, following a competitive tendering process, Indecon International Economic Consultants were appointed to assist the IDGAE.

1.3  Policy and Organisational Context This strategy is set within the context of, and is consistent with, broader government policy in relation to poverty and social inclusion, and also climate change policy.

Three overarching policy documents are of particular relevance in setting the context for the affordable energy strategy, namely the National Action Plan for Social Inclusion, the Energy Policy Framework ‘Delivering a Sustainable Energy Future for Ireland’ and the National Energy Efficiency Action Plan. •  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 “the type of supports that enable older people 4  National Action Plan for Social Inclusion, 2007–2016. Government Publications Office, Dublin, February 2007, or via: http://www.socialinclusion.ie/documents/ NAPinclusionReportPDF.pdf.

to maintain a comfortable and high-quality standard of living”, and “building viable and sustainable communities, improving the lives of people living in disadvantaged areas and building social capital”. These areas include addressing the challenge of energy poverty. •  Delivering a Sustainable Energy Future for Ireland is the Government’s energy policy framework for the period 2007–2020. Strategic Goal 5 in this White Paper enunciates the Government’s policy in the area of affordable energy, stating that everyone should be able to afford an adequate energy supply and to live in a warm home.5 •  Maximising Ireland’s Energy Efficiency – the National Energy Efficiency Action Plan, 2009– 2020 6 sets out policies and measures that have the potential to contribute towards achieving Ireland’s national target of a 20% reduction in energy demand across the whole of the economy by 2020.

The Action Plan devotes a chapter to the issue of affordable energy and identifies a number of actions that support improving the energy efficiency of low-income homes. The plan also sets out a vision for future housing stock where “all new Irish housing will be carbon-neutral” and where “efficiency standards in older homes will be significantly improved through retrofitting actions”.7 5  Delivering a Sustainable Energy Future for Ireland – Energy Policy Framework 2007–2020. Government White Paper. Department of Communications, Energy and Natural Resources. See: www.dcenr.gov.ie.

6  Maximising Ireland’s Energy Efficiency – the National Energy Efficiency Action Plan, 2009–2020. Department of Communications, Energy and Natural 7 Ibid. Page 75.

Introduction, Policy Context and Vision for Affordable Energy Chapter 1 17 1.4 A Vision for Affordable Energy By setting an overarching vision for energy affordability, we can make a clear statement about what we are trying to achieve with the development and future implementation of this strategy. Vision for Achievement of Affordable Energy The achievement of a standard of living whereby households are able to afford all of their energy needs and where individuals and families live in a warm and comfortable home that enhances the quality of their lives and supports good physical and mental health.

1.4.1 Guiding principles for this vision Several guiding principles associated with this vision permeate the priorities, actions and delivery approaches set out in this strategy. Specifically, this strategy will: • Focus on improving the thermal efficiency of low-income homes. • Focus on maximising the quality of people’s lives through implementation of practical initiatives. • Apply a partnership approach, entailing close coordination and alignment of policy levers between stakeholders, including government departments and agencies, local authorities, energy utilities, the health and social services providers, non-governmental organisations and community-based organisations.

• Promote social inclusion and target social need. • Be integrated within emerging national anti- poverty policy. • Aim to deliver cost-effective approaches to addressing energy poverty; and • Be consistent with the Government’s wider climate change policy, thereby also benefiting the environment. 1.4.2 Achieving the vision 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 in this framework result in improved outcomes for low-income households. In particular, it is envisaged that the realisation of this strategy will bring about real and lasting benefits, under the following headings: • The relief of hardship and suffering among families and individuals experiencing energy poverty.

• The social benefits arising from improved public health and the economic benefits arising from reduced heath service expenditure and the reduction of health inequalities. • The benefits to the environment and the achievement of Ireland’s climate change policy goals through an improvement in the energy efficiency of the housing stock, combined with better energy consumption behaviour of households.

This strategy fundamentally tries to do two things: first, to set out a framework for measuring energy affordability and energy poverty (while these are similar concepts, in practice they mean different things), and, secondly, develop a series of measures and actions that will both improve the affordability of energy in Ireland and reduce the instances of energy poverty. One of the first and most important actions will be to create a model that can accurately track movements in energy affordability and poverty. This is an essential first step to enable the design of fact-based policies. Energy poverty, as with poverty more generally, is a complex phenomenon and is influenced by a range of economic and

18 Warmer Homes A Strategy for Affordable Energy in Ireland social issues. Setting out a formal definition and measurement approach will facilitate the ongoing assessment and monitoring of the extent and characteristics of energy poverty. However, the application of a formal definition in line with international best practice is dependent upon the availability of detailed information on the characteristics of households and the accommodation in which they live. Unfortunately, not all of this information is available, which makes it difficult to precisely measure and track energy poverty in Ireland.

Nevertheless, this strategy sets out an approach which will see a transition from an interim approach to measurement of energy poverty to a more comprehensive and robust mechanism over the next 3–5 years. 1.4.3  Requirement for a partnership approach Effective implementation of this strategy will require an integrated approach, involving extensive coordination by a range of actors. This reflects the complex nature of the challenge, which necessitates government departments and agencies, local authorities, energy utilities, regulators, non-governmental organisations and community-based organisations all working together; each delivering within its own areas and competencies.

This spirit of collaboration is essential if we are to effectively implement actions that will have a lasting impact on the health and wellbeing of at-risk households in society.

The main government departments that have a role in implementing this strategy, working in partnership with each other and with other agencies and stakeholders, are as follows: • The Department of Communications, Energy and 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 scheme. It is also implementing the new National Energy Retrofit Programme (from 2011), which brings a new focus to energy-saving programmes more generally.

• The Department of Social Protection formulates appropriate social protection policies and administers and manages the delivery of a wide range of schemes and supports. These include schemes such as the National Fuel Scheme and Household Benefits Package (electricity/ gas component) which are designed to provide income support to low-income and other qualifying households, including to older persons. • The Department of Environment, Community and Local Government is responsible for funding social housing delivered through local authorities and voluntary and cooperative housing bodies, and the establishment of minimum standards and regulations for new buildings and private rental accommodation.

The Department also provides supports for structural upgrades of homes occupied by older people and for local authority houses under the Housing Aid for Older People scheme and the Local Authority social housing improvement programme.

• The Department of Health is responsible for government policy on population health and health services. The Health Services Executive (HSE) is responsible for the delivery and management of health services, and assists in the Keep Well and Warm initiative. • The Department of Public Expenditure and Reform, which has a key policy role to play in relation to the resource implications of delivering this strategy.

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? Energy poverty can be described as a situation whereby a household is unable to attain an acceptable level of energy services (including heating, lighting, etc) in the home due to an inability to meet these requirements at an affordable cost. 2.2 What is Affordable Energy? The terms ‘energy poverty’ and ‘affordable energy’ are often used interchangeably, as they are closely related concepts. Affordability more generally measures expenditure relative to a household’s income.

In this context, affordable energy describes a situation where a household can attain an acceptable level of energy services at a level of expenditure that is affordable relative to its overall disposable income. In practice, the achievement of achieving more affordable energy equates to a corresponding reduction in energy poverty. This strategy sets out a formal definition that will facilitate the ongoing measurement of energy poverty but also includes a complementary affordability index which will enable monitoring of the extent to which energy is becoming more or less affordable for households from a macro perspective as a result of changes in key drivers such as energy prices.

Both indicators will play an important role in understanding the prevalence of energy poverty but also the number of at-risk households. In this way we believe that state bodies and other organisations will be better placed to respond to further changes in the economic environment. 2.3  What are the Causes of Energy Poverty? Both energy poverty and affordable energy can be considered the product of the interaction of three factors or drivers, namely: 1. Household income. 2. The price of energy. 3.  The energy efficiency of the dwelling, its energy systems and the household’s energy consumption patterns or behaviour.

In practice, each of the above factors/drivers is influenced by a complex mix of economic and social issues. All households have individual requirements in relation to heating and energy for other uses, including electricity for appliances, which are dependent upon factors such as household occupancy and the characteristics of occupants such as their age and behaviour. As a result, the nature and extent of energy poverty will vary depending on how these factors interact with the above drivers. This makes the development of a comprehensive measure of energy poverty a complex process, requiring data from a number of sources in order to create a robust reporting framework.

Fundamentally, the most effective long-term solution is ensuring that demand for energy decreases. This is the only mechanism that protects against future increases in energy prices, over which Ireland has a limited ability to control. Likewise, the effects of extended periods of cold weather, such as those experienced in recent years, can only be mitigated through highly energy efficient homes.

22 Warmer Homes A Strategy for Affordable Energy in Ireland 2.4  Defining and Measuring Energy Poverty Depending on the precise approach applied to the definition and measurement, varying levels of energy poverty can be reported.8 An effective definition of energy poverty must serve three purposes, namely: • To establish the existing position in relation to the extent of energy poverty and the groups most affected.

• To facilitate effective policy design to address the impact of energy poverty. • To monitor progress and assess the effectiveness of policy interventions to address energy poverty and improve energy affordability.

During the development phase of this strategy, a wide range of views and inputs were received regarding the strengths and weaknesses of alternative approaches to defining and measuring energy poverty and affordability.9 In addition to these inputs, the definition of energy poverty set out below reflects and builds upon international experience and research, including developments at European Union level. On the basis of consideration of these factors, the definition of energy poverty that will be applied by government departments, agencies and other bodies in implementing this strategy will be as follows: 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. Definition of Energy Poverty A household is considered to be energy-poor if it is unable to attain an acceptable standard of warmth and energy services in the home at an affordable cost.

2.4.1  Measuring the extent of energy poverty The application of a formal definition, in line with best practice internationally, is dependent upon the availability of detailed information on the characteristics of households and the accommodation in which they live. Unfortunately, there are a number of informational deficiencies that preclude precise measurement, which leads to difficulties tracking energy poverty on a consistent basis. To overcome these informational constraints, this strategy sets out a two-stage approach to implementing the above definition of energy poverty. This involves initially using existing information to estimate the extent and nature of energy poverty currently affecting Irish households but moves, over the next 3-5 years, towards a comprehensive data-collection and modelling framework which will enable more precise measurement and assessment of energy poverty on an ongoing basis.

Crucially, this will allow us to take into account the relative thermal efficiency of households, combined with occupation patterns, in determining the numbers in energy poverty. This will greatly assist in targeting households for future energy efficiency upgrades.

Understanding and Measuring Energy Poverty Chapter 2 23 On the basis of the above two-stage approach, this strategy will measure the extent of energy poverty as follows:10 • A preliminary measure of energy poverty will be estimated which compares an individual household’s actual expenditure on energy, relative to its income, to the average proportion of income spent on energy across all households in the State.11 Under the preliminary approach, a household is considered to be experiencing energy poverty if, in any one year, it spends more than 10% of its disposable income on energy services in the home.

This approach will estimate the overall number of households experiencing energy poverty in addition to indicating, on the basis of the available data, the types of households affected and the risk factors associated with energy poverty. The estimates based on this preliminary approach are presented in the next chapter. However, this approach may underestimate the extent of energy poverty as low-income households can under-heat their homes relative to the level that would be required based on healthy standards. 10  For a full description of the methodological and technical assumptions underlying the approach to defining and 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. Estimating Severity of Energy Poverty under the Preliminary Measure The preliminary measure of energy poverty enables the estimation of the overall extent of energy poverty in Ireland. In practice, some social groups are likely to be more severely affected by energy poverty than others. As a result, it is appropriate to complement the core preliminary indicator of energy poverty with supporting indicators which capture the severity of energy poverty in terms of households that are most critically affected.

This is critical in order to prioritise and target measures and resources at households that are most in need. 1. The core indicator of energy poverty: whereby a household is considered to be experiencing energy poverty if, in any one year, it spends more than 10% of its disposable income on energy services in the home.

2. An indicator of severe energy poverty: whereby a household is considered to be experiencing severe energy poverty if, in 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 severity of energy poverty under the preliminary measure are presented in the next chapter.

24 Warmer Homes A Strategy for Affordable Energy in Ireland • A comprehensive measure of energy poverty will be developed using a new energy poverty modelling framework.

This approach will combine a survey of housing conditions with a formal energy poverty modelling framework (described further in Chapter 4 under ‘Information and Data Systems’) to estimate what households need to spend “to attain an acceptable standard of warmth and energy services in the home at an affordable cost” as per the full definition of energy poverty set out above. It will define ‘acceptable standard of warmth’ by reference to international best-practice standards and will take account of the efficiency of the dwelling, 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 data on household incomes will assist in the identification of energy-poor households.

Under this approach, a formal, comprehensive measure of energy poverty will be developed and implemented over the next 3-5 years. Estimating Severity of Energy Poverty under the Comprehensive Measure The comprehensive measure will seek to assess the severity of energy poverty in a household by reference to the following: 1. A household is considered to be in energy poverty if it must spend at a level equal to or greater than twice the national average (median) share of disposable income spent on energy services to achieve an acceptable standard of warmth.

12  The standard approach to defining ‘adequate warmth’ is by reference to World Health Organisation (WHO) guidelines, which defines ‘adequate’ as equating to a temperature of 21ºC in the main family/living-room and 18ºC in other occupied rooms of a dwelling. 2. A household is considered to be in severe energy poverty if it must spend at a level equal to or greater than three times the national average (median) share of disposable income spent on energy services to achieve an acceptable standard of warmth.

3. A household is considered to be in extreme energy poverty if it must spend at a level equal to or greater than four times the national average (median) share of disposable income spent on energy services to achieve an acceptable standard of warmth.

2.5  Individual Household-level Indicator of Energy Poverty The preliminary measure is based on actual expenditures on household energy and does not take account of the actual levels of expenditure required for households to attain adequate levels of comfort in the home.

A key factor missing from the existing information sources concerns the availability of datasets which combine information on household income and expenditure with data on the physical – including energy efficiency – characteristics of the dwelling in which the household resides. Detailed information on household incomes and expenditure patterns (including energy expenditures) is available through the Household Budget Survey. In addition, the SEAI’s Building Energy Rating (BER) database currently contains data on the energy rating of some 250,000 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 is necessary to enable estimation of the extent of energy poverty reflecting all three drivers of the phenomenon.

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 21o C and the remaining habitable area of the house is heated to a temperature of 18o C). These running cost estimates may therefore need to be adjusted to reflect international norms.

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