Energy poverty

The International Energy Agency (IEA) estimates that around 2 billion people worldwide experience energy poverty. Data from the EU Energy Poverty Observatory indicate that the estimated number of energy-poor citizens in the European Union varies between 50 and 125 million people.

EU definition vs Member States definitions

At the EU level, the European Commission started including consumer protection and supporting energy poor consumers about 20 years ago, then introducing in the third energy package in 2009 the concept of energy poverty, though letting the final responsibility to each Member State.

Although the number of countries that recognize energy poverty formally in legislation or policy is rising, the majority of Member States do not have yet a formal definition, and many policymakers struggle to grasp the multi-dimensional concept of energy poverty.

Energy poverty is broadly understood as the inability of households to maintain adequate levels of energy services at an affordable cost. It is caused by the interaction of 3 factors:

Low incomes

High energy needs (due to energy inefficient housing)

High energy prices

As the indicators used are too generic to be effectively applied and hard to get at large scales, especially due to new regulations protecting this data, other factors impacting energy poverty levels should be considered, such as climatic variation, fuel availability, stock type and performance, tenure, high living costs, etc. Utilities and energy providers, holding such data, become key players.

One of the ENPOR objective is to reach a clear and agreeable definition for energy poverty in the private rented sectors in the EU.

The definition of energy poverty is not yet harmonized across Europe. For the purposes of ENPOR, it is defined as the inability to secure sufficient energy services in the home.

Energy poverty is linked to vulnerability, which in the context of the EU policy discourse, relates to limited ability of households to fully access the benefits provided by the internal energy markets.

ENPOR will move beyond the thinking of energy poverty as a function of income and energy efficiency and will address structural factors (framework conditions beyond the scope of action of the individual household), which are often neglected in the policy debate, and not sufficiently included in policy design, but which create significant lock-in effects.

The EC assessment of the 2019 integrated National and Energy Climate Plans (NECPs) observes that energy poverty should be addressed in a more structured way by Member States, who should identify indicative objectives to reduce energy poverty coupled with relevant target groups, policies and measures as well as potential funding sources.

ENPOR contributes to this effort through data collection, the creation of an Energy Poverty Dashboard to identify and monitor energy poverty in the PRS, the design of tailored policies, and well-documented implementation with published guidelines for the policies’ replication across the EU. The goal is to develop a common measurement and monitoring framework leading to nationally-applicable definitions of energy poverty.

In the law

At the EU level, the Clean Energy for All Europeans package, a set of eight legislative acts related to energy and the European consumers with main objectives to put energy efficiency first, achieve global leadership in renewable energies and provide a fair deal for consumers, was first published by the European Commission in November 2016, and completed by the publication of its final texts in the Official Journal of the European Union in June 2019, after a trialogue between the European Commission, the Council and the Parliament.  

The package includes several provisions on energy poverty in the Directives:

  • the Energy Performance of Buildings Directive (EPBD) requires relevant actions to alleviate energy poverty to be outlined in national renovation strategies, and that the least efficient buildings should be first in line for renovation. It requires Member States to promote equal access to finance for renovation for the energy poor. Member States should also apply requirements for a certain level of energy performance for rental properties.
  • the Energy Efficiency Directive (EED) requires a share of measures under Article 7 (energy efficiency obligations or alternative measures) to be implemented amongst vulnerable households, including those affected by energy poverty. Investments in renovation will deliver multiple benefits, for the energy poor households as well as for the efficiency and climate goals. The directive also specifies that Members States should create programmes at Member State level that will provide financial support for efficiency measures: energy poor households should have access to these schemes.
  • the Electricity Directive aims to redesign the electricity market to be more flexible and better integrating renewable energy sources, as well as ensure consumers are well protected and empowered in electricity markets across Europe. They should have access to smart metering and be protected from peaks in electricity prices. Article 28 mentions the need for countries to adopt the concept of vulnerable customers. Article 29 requires Member States to develop a set of criteria to identify energy poor households within their countries to be able to provide targeted support. Members States are further encouraged to share good practices in doing so.
  • the Renewable Energy Directive (RED) encourages access to renewables to low income and vulnerable consumers through measures with information available to all consumers, including the low income and vulnerable ones. Article 21 specifies that unjustified barriers to financing should be addressed in order to facilitate access. Renewable energy communities will be open to all consumers, tools will be implemented to facilitate access to information and financing.
  • the Governance Regulation requests Members States to identify energy poverty levels and outline solutions to tackle this in their National Energy and Climate Plans (NECPs).

At the EU level, the concept has therefore been included in many provisions of all 5 legislations.

However, as mentioned in the definitions section, Member States still have work to do to ensure energy poverty is tackled in policies, financing programmes, and more.

To read in detail the provisions on energy poverty in each of the 5 legal acts of the Clean Energy package as well as their timeline for implementation, see the STEP project. Additional projects work on the topic of article 7 and the EED, see Social Watt and ENSMOV.

Energy vulnerability in the PRS

Energy-poor households are a heterogeneous target group. Economically vulnerable and / or socially disadvantaged households often face a combination of stagnating low-level incomes, rising fuel and electricity prices, and homes and technical appliances that are not energy-efficient. Together with other individual problems (e.g. poor education, mental and/or physical health issues) and structural drivers (e.g. regulatory barriers to switch suppliers) this can lead to over-indebtedness and energy poverty. Who is most affected by energy poverty / vulnerability? Households receiving social benefits, so-called “working poor“, single parents and pensioners are among the most vulnerable groups with their risk-of-poverty rate being clearly above average.

Energy poor households may comprise people on social benefits, or living in precarious socio-economic conditions, due to precarious work conditions such as part-time work, limited / temporary contracts, low / no protection against dismissal, low incomes (i.e. working poor with no social benefits) and / or individual circumstances (e.g. health issues or disabilities; family structure (single parents). 

The main target group of ENPOR is energy-vulnerable households in the PRS (Private Rented Sector), who will receive support from 10 policies in 7 MS to improve their situation. ENPOR will engage directly around 140,000 households and indirectly around 123,000 more households in countries outside ENPOR that can implement relevant policies in the PRS after the project end.

The PRS in the EU is fragmented and presents a challenge to the full integration of energy policy. There are two well-known barriers to energy efficiency in the PRS related to energy poverty:

  1. Split incentives, which occur when the party responsible for paying the energy bills (tenant) differs from the party that undertakes the energy efficiency capital investments (landlord); and
  2. Lock-in effect, where tenants are locked into their current residential situation, or where energy efficiency investments meet legal or technical barriers, thus undermining the status of households as free market agents. Most supporting policies build on the premise that residential choices of energy poor households mainly depend on financial concerns. Addressing lock-in emphasizes structural challenges in the housing sector as a reason for energy poverty, or for poverty in general.

ENPOR aims to build on a wealth of knowledge on policy design to support authorities in setting up appropriate policies to alleviate energy poverty in the PRS, such as:

Energy Efficiency Lease contracts

Energy Efficiency Mortgages

On-bill financing

Low-income rented mandates

Weatherization assistance program

Concierge services and others