What is energy poverty?
For some disadvantaged households in Australia, paying gas and electricity bills means sacrificing other essentials such as food, medical care, and transport, and/or self-rationing their heating, hot water and electricity. Energy bills take up a larger percentage of the total pay-check for lower income households, even though they use less electricity and gas.
The reasons behind this are many and complex.
Energy is an essential service
It has been asserted that energy is an essential service, insofar as everybody requires energy to live a decent life. Energy means we can keep cool in hotter seasons and warmer in colder seasons. It also allows us to cook, to refrigerate food, and to create light in our homes, letting us expand our productivity (including education) beyond sunset.
Energy being an essential service means that people can’t easily reduce the amount of energy they need to buy, even when the price goes up. Due to the market structure in the energy sector, the government needs to regulate prices so providers can’t charge excessive prices.
Australia’s household energy demands, overall, are not growing very fast, despite population growth and wider use of technology. This is because the housing and technology we use has become more energy efficient. When new houses are built they are more energy efficient, and developments in refrigeration, air conditioning, computing and other technologies have meant that each piece of technology uses less energy to perform the same task.
Unfortunately, there are times when Australia uses more energy in a given hour than we ever have before. For example, during periods of intense heat, the increased population and increased uptake of air conditioning mean that we are using much greater amounts of energy. Times like this are labelled Peak Demand.
Peak Demand is the largest amount of energy that an energy company will have to produce at any time, and on a per-day basis that usually happens in the mornings before people leave for work, and in the evenings when people come home and cook, use the dishwasher, watch television, and turn on the air conditioning or heating.
The way that energy companies work at the moment is that each company needs the infrastructure and generating power to cover more than the maximum amount of energy they’ll need to provide, and infrastructure is expensive. These costs are forwarded on to the consumers.
Essentially, despite lower energy use overall, Australians are paying more for their energy, and since it’s the infrastructure and not the energy itself that is pushing the prices up, disadvantaged homes that use less energy will still pay more. Using less energy as a household doesn’t make as much of a difference to their energy bill as it once did.
This leads to circumstances where lower income households cannot afford sufficient food or medical attention due to prioritising their energy bills.
On top of this, newer houses are built to be more energy efficient, in that they can be cooled or warmed more easily and with less escape of energy. This is a good development, but older houses are not as energy efficient, and these are the houses usually inhabited by disadvantaged people who cannot afford to rent newer houses.
Currently, both the state and federal government regulate energy prices. The bodies that regulate energy prices include the Standing Council on Energy and Resources (SCER), the Australian Energy Market Regulator (AER), the Australian Energy Market Commission (AEMC) and the Australian Energy Market Operator (AEMO).
There are three major groups involved in getting energy to your home. Generators generate electricity. Networks take the energy from the generators and distribute it via poles and wires. Retailers are the companies who sell the energy and connect it to your home.
Due to the method the government uses to regulate energy bill prices, companies must predict their required repairs and infrastructure upgrades in five year increments, meaning they are encouraged to focus on expanding the current infrastructure to allow for increases in peak demand rather than invest in newer, riskier and more efficient systems.
In many industries, prices are kept low by competition, wherein multiple companies provide comparable and competitive products, meaning each company is motivated to keep their prices as low as possible in order to keep selling their products.
Energy companies do not have as much competition, though, as it is an expensive industry to enter, requiring a large capital expenditure, and sharing markets in the energy industry doesn’t make financial sense.
The possible solutions to energy poverty include the continued improvement of government regulation. Regulation of the various parts of the supply chain (Generators, networks, distributors and retailers), including regulation of shared assets (assets used to generate electricity as well as for profit in other fields), retail margins, infrastructure budgeting, and energy efficiency could potentially help reduce the strain on lower income families.
Direct assistance helps those in need, protecting and strengthening the help available for families who simply can’t pay their bills. This can include helping families to make their houses more energy efficient to lower their bills, as well as government concessions.
In many areas of energy supply, technological advances could help alleviate some of the causes of price increases.
Almost 75% of Australia’s energy comes from coal power, which is a non-renewable resource. Most renewable forms of energy such as solar and wind power are currently in their infancy, but could potentially become a more viable source of energy in the future, if the technology advances to that level.
As well as this, advances in housing technology should continue to make our houses more energy efficient, thereby reducing peak demand.
In some cases, it may even help for government regulations to require energy companies to allow for developments in technology in the chain of supply. As it is, without regulation this simply isn’t a viable option for them.
In future posts, we will discuss how to get involved in the regulation process so that you can have your say on energy poverty in Australia.