When I moved back to the United States in 2002, following 14 years living in Europe, I was shocked to see that poverty was rampant. Having focussed on climate policy and clean energy in the developing world and emerging markets for the past 15 years, I hadn’t expected to see homeless people, malnourished children and families living out of cars.
In 2016, over 44 million US citizens(14% of the total U.S. population) had income below their respective poverty thresholds, with poverty rates ranging from a low of 7.3% in New Hampshire to a high of over 20% in Louisiana and Mississippi, not to mention 43.5% in Puerto Rico . And the poverty thresholds are low; try living on $25,100 a year for a family of four.
Energy Burden Inequities
The cost of energy that wealthier folks tend to take for granted represents a real burden for low- and moderate-income households. Lower-income households spend a larger share of their income on energy bills; the 27.3 million households with annual incomes between $20,000 and $39,000 spend 4% of their income to pay energy bills, while the 22.9 million earning under $20,000 spend over 7% of annual income for energy . Together, these income segments account for 42% of US households.
It should therefore come as no surprise that nearly one-third of U.S. households (31%) reported facing a challenge in paying energy bills or sustaining adequate heating and cooling in their home in 2015 . Only minor differences were found across geographic regions of the country and between urban and rural respondents.
Government data also show that people living in apartments and mobile homes end up paying more for air conditioning, because they rely on window units, which are less efficient than central AC systems. In the hot-humid climate region spanning the Gulf Coast and coastal Carolinas, people relying on window AC units pay more than twice as much per square foot cooled as those with central AC systems .
Climate Change Can Make Things Worse
The California Energy Commission found that rising temperatures are expected to deepen the economic burden, especially on low-income communities in Southern California . The economic burden was pronounced in more than 140 low-income tracts in Southern California Edison’s service territory — where the average August electricity bill was greater than $300 in 2014, compared with an average for all customers of only $157 during the same period. And many communities in the San Joaquin Valley have high levels of asthma-related emergency room visits and heat-related illness, which will be exacerbated by even warmer temperatures going forward.
Inclusive and Innovative Energy Efficiency
The good news is that energy efficiency, done right, can be a boon for low-income households and disadvantaged communities, extending from more affordable energy services and improved health to job creation.
Enervee’s contribution to the 2018 ACEEE Summer Study on Energy Efficiency in Buildings centered around a proposal to expand retail product efficiency programs to empower income-constrained households and the building owners who house many of them to purchase the most efficient products to keep energy bills low.
With income constrained households already using less energy than they would prefer to and adopting energy saving practices — such as turning off lights when not in use and limiting showers to 5 minutes — one of the biggest opportunities to address the root causes of energy burden is to ensure that 1-time consumer product purchases are as energy efficient as possible.
Our paper was presented to a spillover crowd, as part of a session on inclusive and innovative approaches to drive energy efficiency. As an aside, the equity track (Energy Efficiency and Equity: Addressing the Underserved) was so popular that it had to be moved to a larger venue and is destined to be a fixed feature of the program going forward. Thanks to ACEEE and the panel leaders, Lauren Ross (ACEEE) and Jen Somers (Energy Foundation), for their enthusiasm and success in prioritizing these important discussions!
Moderated by Charles Taylor, One Voice Jackson, my session included great contributions by Brooks Winner of the Island Institute about his work to facilitate home weatherization for remote communities in coastal Maine and Holmes Hummel on the advantages of inclusive energy efficiency financing schemes, designed to benefit all customers, and results from existing pay-as-you-save on-bill financing programs.
Status Quo & Fresh Approaches for Plug Loads
Traditionally, the bulk of funds intended to address energy poverty have been invested in siloed “low-income programs”, predominantly bill subsidies and direct-install programs at no cost to the participating household. Short-comings of existing low-income efficiency programs include:
- Limited plug load category coverage;
- High cost per kWh saved (>$1/kWh) and limited economies of scale;
- Failure to address barriers that prevent low-income households from making efficient product purchases themselves.
In addition, residential rebates don’t address the up-front purchase price barrier, and regulatory barriers can also hinder utility and private investment into low-income plug load energy efficiency. Various jurisdictions are therefore concluding that new approaches are needed. New York, for example, has committed to moving away from direct financial assistance to a focus on innovative approaches to ensure energy affordability that address root causes .
It might surprise you that appliances, electronics and other gadgets that plug into electrical outlets (plug loads) are a major contributor to energy bills across all income groups, accounting for roughly 1/3 of the total, excluding lighting.
This is why the California Energy Commission called out the importance of ensuring “…that low-income persons have product selection options and information necessary to avoid driving up their plug-load energy use” . Striving to empower low-income customers to buy efficient products is a radical conceptual leap from existing low-income rate discount and energy savings assistance programs, with great potential to benefit all ratepayers.
A Retail Product Approach that Pays for Itself in Avoided Subsidies
Our paper considered how online utility marketplaces could be leveraged to empower low-income households to shop energy-smart at scale.
On the one hand, the zero to 100 Enervee Score allows people to choose efficient products that don’t cost more (leading to more private investment, without incentives).
TVs were presented as a good example, with no incremental cost for efficiency and a 3X range in consumption among ENERGY STAR qualified models.
On the other hand, targeting incentives at super-efficient products to benefit low-income households can be an attractive strategy, particularly when implemented via retail channels. An indicative $1 million targeted incentive scheme in California would have the following benefits, based on assumptions outlined in the full paper:
- Avoided cost of low-income bill subsidies ($1,004,213) exceeds total program cost
- 10,670 MWh of lifetime electricity savings achieved
- Participating households see $1,457,560 in bill savings
- Ratepayers avoid $1,280,340 in energy costs.
With this approach, one of the root causes of energy burden – inefficient consumer products – can be treated at no net cost to ratepayers, rather than continuously subsidizing inefficient use of energy via bill subsidies.
We also talked about program execution, using the online marketplaces as a delivery mechanism for targeted incentives (tying high incentives to only super-efficient products with Enervee Scores above 90, while maintaining a commitment to consumer choice that’s lacking in direct-install programs). The technology Enervee has developed to support instant point-of-sale discounts for income-qualified customers, whether purchasing online or in-store, overcomes the up-front purchase price barrier that limits participation in downstream rebate programs.
If you’d like to dig into the details, you can download the full paper here.
The discussions on equity and energy efficiency throughout the week weren’t just about saving energy; they were also about economic opportunity, energy democracy and the importance of voices outside of our typical circles. For Enervee to deliver the greatest possible impact from our data and technology, it’s clear that we need partnerships going forward. This is as challenging for a startup company as it is for a community based organization, but I left beautiful Asilomar feeling energized and optimistic, and we’ll be working hard, so we have some exciting results to share at the next Summer Study!