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Measures to protect vulnerable consumers in the energy sector: an assessment of disconnection safeguards, social tariffs and financial transfers

Description

Energy is central to driving not only productivity in the broader economy, but has a fundamental role for enabling minimum living standards in the residential sector through the energy services provided. These energy services are crucial to ensure warm homes, provide water supply and cooking, lighting, refrigeration and the operation of other electrical appliances. However, some households across all Member States are increasingly struggling to meet their basic energy needs due to energy prices increasing faster than household budgets, poorly insulated buildings and inefficient household appliances leading to higher energy bills. Estimates based on proxy indicators suggest 10-25% of the European population could already be affected by energy poverty to some extent. Given the rising income inequality across Europe and the associated costs of the energy transition, the share of households experiencing energy poverty is likely to increase. Energy poverty is gaining visibility in European legislation, as is the need to protect vulnerable consumers in the gas and electricity markets. The transition to a liberalised retail market for electricity and gas means that the market system increasingly rules the way retailers and consumers interact with each other, as the use of market distorting measures such as regulated prices or energy subsidies to households are removed. While this should increase opportunity for consumers to find the best deal to suit their needs, some households will need additional protection in such a market. Therefore, protective mechanisms are vital to enabling vulnerable energy consumers to access the full benefits of the market, which may not be otherwise available due to issues such as energy affordability. With over 17% of the European population at risk of poverty and 10% in arrears on utility accounts in 2014, this points towards the need to reevaluate the measures in place to safeguard lower income and other vulnerable households given increasing liberalisation under the Internal Energy Market. The objective of this report was to appraise measures associated with ensuring vulnerable consumers are able to afford and maintain a connection to electricity and gas with a particular view of supporting the European Commission’s directorate of Internal Energy Market in assessing which legislative support can be provided across the European Union in the revision of the electricity and gas Directives of the Third Energy Package. This report specifically fed into the impact assessment for the revisions reflected in the European Commission’s proposal for a Clean Energy Package. Firstly, we reviewed how different Member States have implemented specific protection measures (financial transfers, disconnection safeguards and social tariffs). Following this review, an economic assessment compared existing and alternative schemes for the implementation of protective measures across the EU. Finally, recommendations were made regarding the types of measures that provide minimum protection standards for vulnerable consumers in the energy sector.