From Residential Energy Demand to Fuel Poverty: Income-induced Non-linearities in the Reactions of Households to Energy Price Fluctuations

Abstract

The residential energy demand is growing steadily and the trend is expected to continue in the near future. At the same time, under the impulse of economic crises and environmental and energy policies, many households have experienced reductions in real income and higher energy prices. In the residential sector, the number of fuel-poor households is thus expected to rise. A better understanding of the determinants of residential energy demand, in particular of the role of income and the sensitivity of households to changes in energy prices, is crucial in the context of recurrent debates on energy efficiency and fuel poverty. We propose a panel threshold regression (PTR) model to empirically test the sensitivity of French households to energy price fluctuations-as measured by the elasticity of residential heating energy prices-and to analyze the overlap between their income and fuel poverty profiles. The PTR model allows to test for the non-linear effect of income on the reactions of households to fluctuations in energy prices. Thus, it can identify specific regimes differing by their level of estimated price elasticities. Each regime represents an elasticity-homogeneous group of households. The number of these regimes is determined based on an endogenously PTR-fixed income threshold. Thereafter, we analyze the composition of the regimes (i.e. groups) to locate the dominant proportion of fuel-poor households and analyse their monetary poverty characteristics. Results show that, depending on the income level, we can identify two groups of households that react differently to residential energy price fluctuations and that fuel-poor households belong mostly to the group of households with the highest elasticity. By extension, results also show that income poverty does not necessarily mean fuel poverty. In terms of public policy, we suggest focusing on income heterogeneity by considering different groups of households separately when defining energy efficiency measures. We also suggest paying particular attention to targeting fuel-poor households by examining the overlap between fuel and income poverty.

Energy Poverty and Low Carbon Just Energy Transition: Comparative Study in Lithuania and Greece

“…However, it is also literature-proven that win–win policies in terms of social, health and environmental objectives may be achieved in the short-term, improving the public policies related to environmental sustainability, GHG mitigation, access to clean energy (De Martino Jannuzzi, 2010 ; Drosos et al, 2020 ; Huang et al, 2020 ; Serrano-Medrano et al, 2018 ; Zamparas, Kyriakopoulos, et al, 2019 ). It has been also literature argued that additional policies to improve access, availability and affordability of electricity and increased awareness on energy conservation are necessary in developing nations to ensure reduction in energy poverty and greenhouse gas(GHG) emission (Yadav et al, 2019 ; Boemi et al, 2020 ; Sharma et al, 2019 ; Charlier & Kahouli, 2019 ; Romero Rodríguez et al, 2018 ). Most of those studies analysing energy poverty issues and interaction of these with climate change mitigation policies, they stressed importance of behavioral changes, education, awareness rising and training to achieve success in both policy fields (Awaworyi Churchill & Smyth, 2020 ; Gouveia et al, 2018 ; Huang et al, 2020 ; Middlemiss & Gillard, 2015 ; Nathan & Hari, 2020 ; Scarpellini et al, 2015 ; Sharma et al, 2019 ).…”

Households’ Energy Autonomy: Risks or Benefits for a State?

“…In this regard, an increase in the number of energy-poor households is expected. In addition to the study, a regression model of panel shutdown can be used to experimentally diagnose the sensitivity of households to fluctuations in energy prices due to their flexibility [20]. Therefore, in the long term, this study should be aimed at identifying the factors that determine the demand for energy in the residential sector, while special attention is to be paid to the analysis of income distribution and household vulnerability to the impact of changes in energy prices.…”

“…At the same time, energy poor households mainly belong to the group of households with the highest elasticity. Income insecurity does not necessarily mean fuel poverty [20]. At the same time, fluctuations in the development of energy companies are possible [21], which also affects the motivation for energy autonomy of households.…”

Access to Energy at Household Level

“…This strategy compacts with each segments of the economic side and largely pursues to improve energy selfsufficiency, lessening greenhouse gas releases by, among others, increasing energy effectiveness, and deliver the essential apparatuses to participants to upkeep green progress. In a setting of a stable intensification in energy charges and to confirm societal adequacy and improve the application of ETGG events, the French government encompassed a societal factor in the ETGG Act, aiming the stoppage of energy deficiency, a condition in which some families have severe problems in fulfilling their energy requirements (Charlier and Kahouli 2018).…”

“…In the housing segment, the quantity of energy-poor homes is therefore likely to increase. An enhanced consideration of the factors of domestic energy need, especially of the function of income and the understanding of ménages to transformations in energy charges, is vital in the framework of persistent arguments on energy productivity and energy poverty (Charlier and Kahouli 2018). Energy facility need is a purpose of people and revenue, aside from technology.…”