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Effective support for vulnerable households - closing the gap between capacity to pay and cost of consumption - Part 1

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AGL Energy
16 September 2015

The policy challenge

For some electricity consumers, there is a gap between ongoing consumption costs and capacity to pay. Whilst all three sectors – government, private and the community sector agree that there is a problem to be addressed, neither state governments nor industry are yet to comprehensively and systematically address the issue, largely due to the complexities and mixed incentives for all parties involved.

Recent announcements from state governments such as New South Wales, who have committed $26.8 million to deliver better technologies to low-income households are welcome. AGL has also committed $1.5 million over the next three years, to invest in partnerships which aim to deliver energy saving technologies to vulnerable customers and seeks further collaboration with governments and the community sector alike to develop and deliver an effective program.

The analysis in this series has been prepared to inform policy development and potential solutions to addressing this issue, which over time will only become more acute. With more customers with the capacity to take up new technologies which reduce reliance on grid-connected electricity, there is a risk that customers who cannot participate, particularly vulnerable customers, will end up proportionally bearing a greater burden of the historic system costs. Policy reforms need to be cognisant of the redistributive effects of various measures, particularly ones which are fundamentally regressive.

The two key policy levers that governments have to address these equity concerns are: electricity tariff reform; and the removal of barriers for vulnerable customers wishing to access these technologies. We believe that from a social policy perspective, governments should now be turning their minds to this fundamental intersection of energy and social policy, ahead of greater levels of new technologies making their way to market over the coming decade as technology costs continue to decline at rapid rates.

No single organisation or body holds both the incentive and the power to address the problem on their own. Collectively, however there are shared benefits to be realised across all parties.

This three-part policy blog series explores the evidence, the opportunities and recommendations for new policy and program design.

Key factors: the scale of the problem


Anecdotally, a significant number of vulnerable energy consumers are living in public/community housing or private rental properties. This fact can often limit the ability of these customers to install energy saving technologies and measures to reduce their ongoing consumption. Vulnerable customers, in particular those on low-incomes also often face a capital barrier in being able to afford to install new technologies. Whilst home energy advice, home visits and education often play an important role, the extent to which this will result in any significant consumption reduction is limited to portable and low-impact or behavioural measures as opposed to any changes to the building fabric (such as hot water, heating and cooling, solar PV, insulation).

To build on available anecdotal evidence, we have conducted an analysis of available data to better understand the scale of the problem and the proportion of vulnerable customers who are currently faced with this barrier to accessing new energy technologies.

Factor 1: Home tenure – customers experiencing energy hardship generally live in private rental and public housing properties


Customers living in public housing, community housing and the private rental market often face significant barriers to installing energy saving technologies. This especially applies to measures within the building fabric that make a material difference to energy consumption.

The analysis in this paper shows that customers experiencing energy hardship predominantly live in rental properties and thus as a results of these barriers, are at a disadvantage in terms of managing the ongoing costs of their energy consumption.

Uniting Communities South Australia conducts home visits on behalf of AGL for clients who request assistance with managing their consumption. Below is the split of customers by home tenure type for the 146 clients they have visited over the past year to 30 June 2015 (Table 1).

Similarly, Kildonan UnitingCare in Victoria undertakes home visits on behalf of AGL for customers participating on AGL’s hardship program, offering energy savings advice and in future appliance swaps and retrofits. The below is a snapshot of the home tenure of AGL customers receiving home audits from Kildonan in the six months to July 2015 (Table 2)

Table 1 - Home tenure from South Australian home audits

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Table 2—Home tenure from Victorian home audits

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AGL has also conducted demographic analysis using Mosaic^ looking at customers participating on the hardship program, Staying Connected. Customers participating on the hardship program are allocated to the 49 demographic groups as defined by Mosaic. We are then able to focus on the segments which were over-represented on the hardship program, when compared to the average customer base. The segments of customers which were found to be over-represented and the most common associated home tenure types for those segments can be found at Table 3. The findings stipulate the need for public policy to deliver targeted solutions for customers in all three home tenure groups.

Table 3 - Mosaic demographic groups over-represented on AGL Staying Connected and associated home tenure (AGL Energy customer data, April 2015)

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It's clear to us that effective policy design needs to address all home tenure segments and therefore existing approaches using market mechanisms, such as white certificate schemes alone, will not be effective in delivering new technologies and energy fixtures as stand alone policy. Complementary or alternatives will need to be explored to ensure all customers have the ability to take advantage of new energy technologies which will make a material difference in household energy consumption.

Next week's post will take a closer look at energy consumption profiles of vulnerable customers and some analysis of payment plans which are often established to assist customers experiencing financial difficulty.



^ Mosaic Experian—using ABS, and Census data Mosaic splits the Australian community into 13 groups and 49 different demographic segments.
Part 2/articles/2015/09/effective-support-for-vulnerable-households-closing-the-gap-between-capacity-to-pay-and-cost-of-consumption-part-2/
Part 3 - /articles/2015/10/effective-support-for-vulnerable-households-closing-the-gap-between-capacity-to-pay-and-cost-of-consumption-part-3/