Energy AFFORDABILITY
EPRI Insights | February 2024
Low-income households and those facing systemic barriers to building wealth, including households of color and indigenous households, are more likely to experience energy poverty and the negative health, safety, and well-being outcomes associated with it.
In efforts to ensure equitable outcomes from the energy transition, more dollars than ever are being aimed to help households afford the energy they need. The Inflation Reduction Act (IRA) offers $8.8 billion in home energy rebates alone, and Low Income Home Energy Assistance Program (LIHEAP) funds for 2023 were up to $6.1 billion.
European countries have also seen an increase in public funding to €651 billion for energy costs in response to the energy crisis that began in 2021.
What are the keys to ensuring all customers can afford the energy they need in a decarbonizing world?
Affordability Keys
How do we measure what is affordable?
The U.S. Energy Burden
An Energy Wallet is one approach to evaluating a household’s total energy cost. This not only accounts for fuel and electricity bills, but also the appliances necessary to deliver the energy services and maintenance costs.
Expanding the definition of energy bills to energy wallet can help consumers and power companies more easily view overall outcomes.
Metrics of Affordability
Efficiency Opportunities
Poorly insulated spaces and less-efficient tools contribute to the seasonality of high energy bills.
Those facing high energy burdens are less likely to be able to pay up front for the equipment to sufficiently improve the efficiency of their home.
Utility Interventions
Utility customer assistance programs for low and moderate income (LMI) households play a vital role in promoting energy affordability and accessibility.
Participation rates among eligible customers, however, remain low in many areas.
Retail Rate Structures
How do evolving rate structures affect affordability?Understanding Rate Types
Despite varying rate schemes, high costs for utilities are ultimately borne by the rate-payer, meaning volatility in energy markets affects consumer prices. The EU has responded to extreme volatility in the natural gas market in recent yearsby proposing a mechanism to correct for these types of regionally specific record-setting gas prices.
Future of Using DER/VPP
$8.1Bn
$16.1Bn
Arrearages for U.S. Electricy and Heating Bills
December 2019
August 2022
6%
8.6%
Income spent on energy by energy-stressed U.S. households
Income spent on energy by
low-income
U.S households
Energy Costs
Vehicle Costs
Maintenance Costs
$3500
$3900
$2500
Energy Wallet for Average U.S. Household
with $35K Annual Income (2021)
15%
Household heating and cooling bill savings from insulating and air sealing
10%
Average household total income variance from month to month on energy spending
50%
LMI households implement efficiency retrofits less often than the national average
45%
22%
34%
23%
LMI households reporting energy insecurity
All households reporting inability to pay energy bills
All households foregoing other necessities
Households keeping homes at unsafe temperatures
40%
30%
20%
10%
0%
Share of household income spent on gasoline and utilities by income quintile
Quintiles:
Bottom
Second
Third
Fourth
Top
Rates change based on the time of day with the goal of reducing peak energy demands.
This financial incentive pushes LMI households to adjust their lifestyles to use less on-peak and more off-peak electricity, despite their own time constraints or inconvenience.
Time-of-Use
(TOU)
Real-time
Pricing
(RTP)
Varies over time based on supply and cost of production, such that as demand increases, prices increase.
Customers may take advantage of lower rates during low-demand times, but it also ensures households are charged more when they need more.
An extra amount added on to the customer’s bill to cover some of the fixed costs involved with the provision of energy.
If all customers pay the same fixed costs, they are considred regressive becuase customes with lower incomes pay a larger proportion of their income.
Fixed Charge
Adds a fixed amount on top of a consumer’s bill based on their tax bracket.
LMI households pay relatively less to cover the provision of energy to the entire system.
Income-graduated fixed charge
Prepaird meters may promote conservation. One study showed a 14% decrease in electric consumption after switching to prepaid metering.
However, the rate per kilowatt-hour may be higher than in a traditional rate structure. This scheme may also force households at the end of their prepaid allotment to choose between necessities.
Enabling LMI consumers to realize savings from technologies like community solar, efficiency measures, managed EV charging and enroll in Virtual Power Plants (VPPs) unlocks combined grid and social benefits.
Distributed Energy Resources (DER)
Flexible capacity globally by 2030
180 GW
Accessibility
Internet access
A lack of broadband access can limit the participation in energy efficiency programs. This may be from lacking technology or access to information on the program.
A lack of internet can also prevent households from using mobile applications which ease bill pay, data collection, and communication.
Reducing access barriers
Providing multiple platforms such as call centers, mailing options, online chat, mobile apps, or customer portals allow all customers an entryway to discuss their needs with their provider and receive important information regarding their services and billing.
Smart meters
They give utilities and customers granular and instantaneous data on energy consumption that may help identify areas of high usage and best ways to lower the bill.
As of 2022 there were about 119 million smart meter installations in the US totaling about 72% capacity.
Tenants’ access inequalities
The split owner renter incentive dilemma leads to high bills for tenants who lack the control to install energy efficient equipment or perform retrofits.
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Metrics of Affordability
Affordability Keys
Efficiency Opportunities
Utility Interventions
Rates
Future of Using DER/VPP
Accessibility
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They give utilities and customers granular and instantaneous data on energy consumption that may help identify areas of high usage and best ways to lower the bill.
As of 2022 there were about 119 million smart meter installations in the US totaling about 72% capacity.
Instantaneous Access to data
Providing multiple platforms such as call centers, mailing options, online chat, mobile apps, or customer portals allow all customers an entryway to discuss their needs with their provider and receive important information regarding their services and billing.
Allowing an Entryway
Financial Assistance
Accessibility for Renters
Community Aggregation
Smart Meters
Grid Service Revenue
Utility Partnerships
Reduced Access Barriers
SOLUtions
The split owner renter incentive dilemma leads to high bills for tenants who lack the control to install energy efficient equipment or perform retrofits.
In multi-family buildings, neither landlords nor tenants may have the incentive to adopt DERs. The split owner-renter incentive dilemma leads to high bills for tenants who lack the control to install energy-efficient equipment or perform retrofits.
Potentially Higher Bills
smart meters
reducing access barriers
SOLUTIONS
CHALLENGES
Accessibility
Potential metric options include:
Bills that are affordable across the year may be unaffordable in the Southwest in summer months or in the Northeast in winter months, especially when fuel prices peak as they did in 2021.
The dollar difference between actual energy bills and what the household can afford.
Home Energy Affordability Gap (HEAG)
Energy consumed per square foot provides an estimate of the efficiency of the home. Low-income households often are poorly insulated, with leaky windows and doors.
Energy Use Intensity (EUI)
Energy consumed per square foot, which provides an estimate of the efficiency of the home. Low-income households often are poorly insulated, with leaky windows and doors.
Definition of the energy poor as those having higher than median energy expenditures for the customer’s area and falling below the national income poverty line after paying their energy bills.
Low-Income-High-Cost (LIHC) Indicator
Seasonal Variation Energy Bills
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Historically, most program dollars aimed to make energy more affordable have come in the form of bill payment assistance. While bill assistance programs help households retain access to power, they do nothing to fix the underlying issues causing the high bills or ensure homes are comfortable.
Energy efficiency improvements improve comfort, reduce energy use, and lower energy bills.
Prepaid Meters
Policy innovations that provide funding, favorable electricity rates, and inclusive customer engagement for low- to moderate-income (LMI) households can overcome initial informational and cost hurdles.
Utilities and public purpose programs fund bill credits. They provide a way to subsidize LMI customers' bills that spread the cost of assistance across the customer base.
PIPP programs cap an LMI customer's utility bill at a fixed percentage of income, usually 6-8%. The difference between the PIPP payment and the actual bill is subsidized, often by utility revenues.
Allows LMI customers to postpone a portion of their utility bill past the due date. Customer must repay the postponed balance at a later date, but it presents immediate service disconnection.
Removes up-front cost barriers for efficiency upgrades by providing financing that is repaid through utility bills. Repayments are tied to the meter, so that the repayment obligation remains with the meter.
Provides long-term, flexed-rate financing that is repaid through a special assessment added to the property's tax bill. The assessment stays in place even if the property is sold.
Bill Credits
Percentage of Income Payment Plan (PIPP)
Deferred Payment Arrangements
Pay As You Save (PAYS)
Property Assessed Clean Energy (PACE)
Examples of Bill Assistance Programs
(click below to reveal)
(click below to reveal)
VPPs can target peak load reduction and relieve congestion, postponing the need for costly infrastructure upgrades to meet peak demand spikes. This can help lower the cost for consumers.
Deferred Upgrades
By leveraging flexible loads and storage, VPPs can maximize the use of renewable energy even when supply fluctuates. This can provide low-cost clean energy to participants.
Increased Renewable Energy Usage
Peak Shaving
VPPs can shift consumption away from peak times to help lower high-demand charges, especially for commercial/industrial customers. Leveling a customer's load profile may reduce peak demand costs.
By aggregaring and coordinating assets such as batteries, EVs, and smart devices, VPPs can earn revenue by providing grid services. This value can then be shared with customers to lower bills.
Optimized and Monetized DERs
(click below to reveal)
VPP for Affordable Energy
Volatile Markets
August 2022
December 2019
Arrearages for U.S. Electricy and Heating Bills
$16.1Bn
$8.1Bn
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Low and moderate income (LMI) households implement efficiency retrofits less often than the national average
50%
Increased risk of disconnection in California for each day above 95 degrees
1.2%
Average household total income variance from month to month on energy spending
10%
Household heating and cooling bill savings from insulating and air sealing
15%
Efficiency Opportunities