Energy poverty in New Zealand

This Issue This is a part of the Climate change feature

By - , Build 174

Paying utility bills is a stretch for many New Zealand households. As we move to a low-carbon economy, a raft of measures may be necessary to ensure that energy costs do not weigh more heavily on those already financially burdened.

Figure 1: Understanding energy hardship.
Figure 2: Running costs of different heating appliances.
(Source: www.energywise.govt.nz/at-home/heating-and-cooling/types-of-heater/)

THE RECENT REVIEW of New Zealand’s electricity market identified energy hardship as a key priority area for New Zealand. Being unable to affordably heat or cool your home or maintain basic energy services such as hot water, lighting and appliances has serious implications for people’s health and wellbeing.

What is energy hardship?

While New Zealand does not have an accepted definition or measure of energy hardship, it can be described as a measure of how much it costs to heat and power a dwelling (provide essential household energy services) relative to household income.

The cost of household energy services will be affected by the cost of fuel ($/kWh) and the performance of the dwelling. The needs of household members will dictate what level of heating or cooling is required (see Figure 1).

The performance of a dwelling – how energy efficient it is – is critical as it affects how much energy is required to achieve adequate warmth. This is a key point to understanding energy hardship as it differentiates what a household is actually spending on fuel and what it needs to spend to maintain a healthy home.

Figure 1: Understanding energy hardship.

Hard to get the true story – many houses still too cold

Analysis using the Household Economic Survey, an annual survey run by Stats NZ that measures the economic wellbeing of New Zealanders, showed that, in 2015/16, over 100,000 households (6.1%) spent more than 10% of their income on domestic energy (Stats NZ, 2017).

This increases to 175,000 (10.4%) when calculating the proportion of income after housing costs – household income remaining after housing costs of rent, mortgage, rates and dwelling insurance are deducted.

While this gives an indication of the level of burden of household fuel costs on New Zealanders, it does not tell the full story. For example, while these households may be spending a disproportionate amount of their income on fuel, this may still be insufficient to achieve adequate warmth and maintain basic household energy services.

Furthermore, the remaining population spending less than 10% of household income on fuel may not appear unduly burdened, but this may be at the detriment to health and comfort. They may be limiting fuel use and putting up with an underheated cold home.

In the Household Economic Survey in 2015/16, 16.1% of households that paid 10% or more of their household income on domestic energy said that heating their house adequately was a major problem in winter.

The World Health Organization recommends a minimum of 18°C in any occupied areas of the home, or warmer for young children, the elderly or those with an illness. How much energy is required to achieve that minimum will depend on the energy performance of the home. A well insulated home fitted with the most efficient and cost-effective appliances will cost less to run per unit floor area than a dwelling lacking these features.

Still need to improve energy efficiency

When considering energy hardship in New Zealand, evidence suggests there are still a significant number of properties that could benefit from energy efficiency improvements, such as topping up insulation in the roof space and subfloor and installing more efficient, fixed heating appliances (see Build 161, Are we warm, dry and healthy? pages 87–89).

The cost per unit of heat output varies substantially by appliance type (see Figure 2). Heat pumps and wood burners are some of the more cost effective, while unflued gas heaters are one of the most expensive and are unhealthy as they release moisture and noxious gases into the home. These appliances can be an attractive option for households on a constrained budget, however, as the gas is paid for upfront, eliminating the risk of an unaffordable bill at the end of the month.

Figure 2: Running costs of different heating appliances.
(Source: www.energywise.govt.nz/at-home/heating-and-cooling/types-of-heater/)

Cost of fuel varies between households

The cost of fuel – how much you pay for each kWh consumed – will also vary at the household level depending on payment method (for example, direct debit, prepay) and energy retailer/payment plan.

A deregulated electricity market assumes competition, but this relies on consumers participating. While those who actively shop around seeking out the best tariff and payment plan enjoy the benefits of competition, those who don’t pay higher prices.

Choosing the best plan and active participation can seem complex, and for some consumers, access can be limited by circumstances such as fuel debt, financial literacy, banking and internet availability.

Different methods of payment can also attract different costs per kWh. For example, prepayment meters often attract a higher rate due to costs to serve. Prepay options are sometimes preferred for households on a constrained income as they offer a level of control and security, eliminating the risk of an unaffordable bill. They may also be the only option available for some households for the reasons outlined previously – fuel debt and lack of access to a bank account.

While lower-income households are more vulnerable to energy hardship, income is only one part of the issue. Energy hardship is a complex mix of household income, energy needs, housing quality and performance, heating type and energy prices.

Targeted policies needed

With better understanding of the extent, distribution and causes of energy hardship in New Zealand, policies can be more effectively designed and targeted. This is particularly important as we move towards a low-carbon economy.

Improving the energy efficiency of our housing stock can help in reducing energy demand, thereby helping alleviate energy hardship while also reducing emissions.

However, mitigating our contribution to climate change and investing in energy efficiency programmes comes at a cost. How these costs are managed and distributed across the population is essential to ensuring fair and just access to affordable energy and healthy homes.

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Articles are correct at the time of publication but may have since become outdated.

Figure 1: Understanding energy hardship.
Figure 2: Running costs of different heating appliances.
(Source: www.energywise.govt.nz/at-home/heating-and-cooling/types-of-heater/)

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