energy affordability and public policy responses jean constantinescu & michael j. g. cain...
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Energy Affordability and
Public Policy Responses
Jean Constantinescu & Michael J. G. CainRomanian Energy Program, Phase III
International Resources Group1211 Connecticut Avenue
Washington DC 20036
Main Problem• Energy sector restructuring requires significant price
increases to households in the Black Sea region.
• Price increases will make it more difficult for (low income) households to afford energy and can potentially undermine reform efforts.
– Energy is the largest expense, after food, for both poor and low income households in the region
• How can low-income households be helped with increasing energy costs?
Main Topics
What is ‘Energy Affordability’?
How Can Governments Respond to Energy Affordability?
Assess the Main Barriers to Energy Affordability
Develop a (National) Affordability Strategy
Develop Specific Policy Measures
Why is Energy Affordability Important?
Energy Affordability in the Black Sea Region
Connection rates to electric utilities in Black Sea Region are high
Connection rates of rural poor to central gas or heat networks are much lower
Ability of different groups to pay for energy can differ by employment, income source, type of energy consumption, etc.
Affordability (percentage) thresholds differ
International benchmarks: 10-20% of total household expenditure
World Bank, EBRD, IMF, WHO
Identify Characteristics of Low-Income Families
Poverty Profiles and Dynamics
Income Sources and Consumption Patterns
Energy Sources and Energy Usage
Housing Size and Types
Distribution of persons belonging to different consumption groups by heating system
Deciles District heatingIndividual gas station/ gas
stovesStoves withwood/ coal
Without heating or unconnected
from public system
1 6 4 88 3 100
2 11 9 77 3 100
3 13 15 69 2 100
4 19 19 59 3 100
5 19 24 53 3 100
6 25 27 45 2 100
7 28 32 39 1 100
8 32 35 31 2 100
9 35 36 27 1 100
10 44 39 16 1 100
total 23 24 50 2 100
Data source: CASPIS (ABF, 2004)
Note: the difference to 100 represents ‘other heating system’
Persons living in HH with different heating systems% of total persons
Total Urban Rural
District heating (public or local) 29.2% 55.4% 0.5%
Individual heating station, of which: 6.1% 10.4% 1.3%
- with natural gas 5.5% 9.8% 0.8%
- with solid fuel 0.5% 0.5% 0.5%
- with liquid fuel 0.1% 0.2% 0.1%
Stove heating, of which: 62.7% 30.7% 97.6%
- with natural gas 8.9% 11.4% 6.1%
- with solid fuel 53.6% 19.1% 91.3%
- with liquid fuel 0.2% 0.3% 0.2%
Other heating system 2.1% 3.5% 0.5%
Total 100% 100% 100%
Population and dwelling census, 2002
To Improve AffordabilityConsider Three Factors
Energy UsageEnergy Usage Energy PricesEnergy Prices
HouseholdHousehold ResourcesResources
Energy Requirements for Poor Households
Assess Main Barriers To Affordability
Legal Barriers
Lack of Legal Definition and Allocation for Services of General Interest (SGI)
Inadequate financing of SGI
Structural Obstacles
Improper Market Surveillance
Multi-sector problems
Different ministries
Financial and Investment Barriers
Energy Investments
Cost of Energy Efficiency
Inflexibility of Loan Criteria for New Projects
Behavioral Changes
Energy Efficiency Education at all levels
Develop a Strategy to Improve AffordabilityDevelop a Strategy to Improve Affordability• Increase Resources to Low-Income FamiliesIncrease Resources to Low-Income Families
– Targeted energy assistanceTargeted energy assistance
• Set Appropriate Prices for EnergySet Appropriate Prices for Energy
– Competitive pricesCompetitive prices
– Lifeline (block) tariffsLifeline (block) tariffs
– Binomial tariffsBinomial tariffs
• Provide Means to Save EnergyProvide Means to Save Energy
– Supply-side energy efficiencySupply-side energy efficiency
– End-user energy efficiencyEnd-user energy efficiency
Develop Appropriate Policy MeasuresREP 3 Responses
• Technical Support for Market Surveillance Strategy
• Technical Support for Tariff Reforms
• Technical Support for Targeting Assistance Payments
• Technical Support Thermal Rehab. of Buildings
• Financing through European Union and World Bank
• Provide policy alternatives for rural energy efficiency
• Public information campaign.
• Promotes Welfare of Poor
– Energy access is welfare enhancing
– Energy access improves health and safety
• Strengthens the Energy Sector
– Improves market liquidity and stability
– Reduces risk of non-payment
– Limits collection and program costs to utility
– Proper incentives for consumption
– Customer retention
Why Is Energy Affordability Important?
One part of Strengthening Markets
One part of Social Protection & Poverty Reduction
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