Energy equity is more complicated than it first sounds. And just to keep things interesting, it can also mean very different things to different people.
In general, a high level of energy equity means that customers across a utility service territory share the costs and benefits of the grid relative to their usage and have access to affordable energy. Let’s unpack this by looking at some of the key concepts and definitions surrounding energy equity.
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Energy Burden is the ratio between annual energy expenses and gross annual income for a household. It is a percentage that typically ranges from close to zero to over 15%. In a given service territory, the distribution of energy burden among customers is usually heavily weighted towards the left (low energy burden) and has a long tail consisting of the lowest-income, highest burden households.
Energy Affordability is an indicator of whether energy costs are low enough to allow a household to pay for other basic needs (food, shelter, clothing and medical care). Two households in different parts of the country can have identical incomes and energy costs, but one of them could consider their energy costs unaffordable if the cost of living is relatively higher in their area.
A quantitative way to capture energy affordability is by setting an energy burden threshold that is specific to a particular area. If the energy burden for a household exceeds this threshold, then their energy costs are considered unaffordable. In essence, this serves as a quantitative proxy for energy insecurity.
Energy Insecurity is related to the vulnerability of a household to making delayed bill payments, having late payment fees and being disconnected from utility services.
In general, we can expect energy insecurity to be highly correlated with energy burden. But this correlation is not perfect; households with low energy burden can have high energy insecurity due to external factors (job loss, high medical bills etc.), while households with a high energy burden can have a low level of energy insecurity if they have access to energy assistance programs. Energy insecurity can be much more subjective than energy affordability and burden, so it is more difficult to quantify.
Energy Poverty is defined by the U.N. Development Program as the “inability to cook with modern cooking fuels and the lack of a bare minimum of electric lighting to read or for other household and productive activities at sunset.” The Energy Information Administration has estimated that half a million Americans, mostly in U.S. territories or on American Indian reservations, live without access to basic electricity services.
Energy Assistance is a blanket term that encompasses initiatives and programs aimed at reducing energy insecurity and burden, and increasing energy affordability. These typically take the form of direct cash assistance (bill discounts, low income rates, donation programs, crisis assistance), conservation (low income energy efficiency, weatherization) or arrearage management (payment plans that assist customers with repayment of overdue energy bills).
Energy Assistance Need is the total dollar amount of unaffordable customer energy bills. In other words, it’s the portion of customer energy bills that exceed a set energy burden threshold on an annual basis. If you could cut a check and bring all customer energy bills to an affordable level for each customer, how big would that check need to be?
If you could write a check today and make energy bills affordable for all customers, how big would that check need to be?
Each utility’s energy equity and needs landscape is different, and its energy assistance strategy should be optimized for its unique situation. Step one is to decide where to focus: energy poverty, affordability, insecurity or overall energy burden. Then, utilities can build a business case for specific energy assistance programs and judge their feasibility and ROI.
Interested in learning how these concepts can be quantified for your service territory?
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