The economic crisis, unemployment and electricity prices
Raúl Castaño-Rosa, University of Seville & Marilyn Smith, EnAct
When the economic crisis started to affect Spain (second quarter of 2007), unemployment was at a record low of 7.9%; by the end of 2012, it had skyrocketed to 25.8% (INE, 2015). The number of people unemployed climbed from 1.8 million to 6.1 million people between 2006 and 2013 (INE, 2015). In mid-2016, the rate remains over 20%.
Yet even those who have kept their jobs have been negatively affected. Using data from the Spanish Household Budget Survey (HBS), one study[1] calculated that over the period 2008 to 2012, the average household annual income dropped from EUR 24 474 to EUR 22 413. Additionally, moderate inflation effectively reduced the actual purchasing power of households. In effect, rising prices meant people could acquire less goods and services for the same amount of money.
At the same time, two factors affected household energy costs. Reflecting Spain's aggressive action to transition to a clean energy system (and reduce dependence on fossil fuel imports), a push for 'electrification' of domestic energy services was underway. As a result, electricity consumption per household was rising gradually. More troubling, particularly in the context of the economic crisis, was a 63% increase in price per kilowatt hour (kWh).
The vast majority of apartments have stand-alone air-conditioning units installed in Southern Spain. With the economic crisis and high unemployment, the question is how many people can afford to use them? Photo: R. Cataño-Rosa
These two factors meant annual spending on electricity in the average household rose from EUR 851 to EUR 1 135 – a challenging 33% (by comparison, prices across the European Union rose by about 26%). Researchers anticipate that this figure likely masks the fact that many households, especially vulnerable ones, would have adapted to circumstances of shrinking income and rising energy prices by cutting back on household energy use. This suspicion is borne out by research in Greece, which shows that during the economic crisis, many households sought to decrease actual energy use per square metre of dwelling (Santamouris et al., 2013) and returned to using solid fuels (e.g. firewood) for space heating (Knight, 2014).
Electricity has become – by far – the costliest element of the average Spanish household's energy costs. Many houses without central systems rely on electricity-based heating in winter and the large majority of air-conditioning units run on electricity (Figure 1).
Figure 1 • Evolution of average household income and domestic energy expenditure (total and disaggregated by energy carriers) in Spain 2006-12
Note: Current Euros per year referred to the index 2006 = 100 for comparative purposes.
Source: Tirado Herrero et al., 2014.4
By 2012, 17% of Spanish households were spending more than 10% of their income on domestic energy – almost three times more households than in 2007 before the crisis began (Figure 2). Energy reform measures adopted by the Spanish Government in July 2013 put such households at additional risk: electricity companies are now permitted to cut off users – including essential public services such as hospitals – for not paying their bills.[2]
Figure 2 • Proportion of Spanish households with an energy burden above certain thresholds, 2006-14
Source: Tirado Herrero et al., 2014.4
Despite the substantial price increases, which were approved by the regulatory authority, the energy sector in Spain is facing its own crisis. In a bid to achieve greater energy independence and stimulate a clean energy system, the government offered subsidies to help companies scale up use of renewable energy sources (particularly solar and wind) and co-generation (of heat and electricity).
The stimulus element was effective, but the cost of subsidies has been higher than expected. Since 2000, rates charged to electricity consumers have been below cost-recovery levels. This has created the so-called 'electricity tariff deficit', which reached EUR 30 billion in 2013 (Johanesson Linden et al., 2014). Making up this deficit will be a substantial challenge, even once the economy recovers.
Geography and climate create 'zones' of fuel poverty
Additional research shows that some main factors contributing to fuel poverty in Spain are long-standing and impossible to change. Levels of fuel poverty in Spain tend to be highest in the warmer, drier parts of the country, which opens up the question of how geography and climatic conditions affect vulnerability to fuel poverty.
Peak demand for electricity, for example, varies by region and season. While milder winters might reduce domestic energy use in Southern and Eastern Spain, 91% of homes in these areas were constructed before governments implemented energy efficiency regulation in buildings. These homes are more likely to lack central heating and be poorly insulated. To stay warm, residents in the south use electric heaters, driving up electricity consumption and costs during the winter. Conversely, households in Northern and Western Spain show higher energy consumption expenditure during summer, reflecting high use of electric fans and air-conditioning units to keep adequately cool. With the dramatic electricity price increases in recent years, many households are certain to have seen a larger portion of their household budget going to improve comfort levels.
Action underway, but lacks coordinated, strategic approach
The strong effects of the economic crisis, coupled with energy pricing and reform, might give the impression that fuel poverty was a minor issue in Spain prior to the crisis. This is a false perception: data for 2005, 2006 and 2007 – record years of the Spanish economic 'bonanza' – show persistent levels of fuel poverty associated with persistent structural factors, such as the energy inefficiency of residential buildings and pre-existing levels of poverty and inequality.
But the dramatic uptick after 2008 prompted action. Being a quasi-federal country, a large portion of public services – including social welfare services and energy agencies – in Spain are delegated to the second-tier governance and administrative level, the Autonomous Community. By 2014, regional parliaments in 11 of the 17 Autonomous Communities had registered legislative action explicitly mentioning fuel poverty, with a range of local councils also launching initiatives at the city level ((Tirado Herrero et al., 2014).
In parallel, various advocacy and civil society organisations, such as the Alianza contra la Pobreza Energética[3] and the Plataforma por un Nuevo Modelo Energético[4], have adopted fuel poverty as a core issue within wider demands for a major overhaul of the country's energy system. Highly critical of large energy corporations, such entities are pushing for a renewable-based energy system that is more democratic and decentralised.
Overall, however, the current national policy framework tends to offer linear, short-term and sometimes inadequately-targeted solutions. The bono social (a social electricity tariff) currently offers a 25% rebate on regulated prices and theoretically targets 'vulnerable consumers'. Yet its eligibility criteria do not include household income thresholds or the energy efficiency characteristics of dwellings. Whether resources are well-allocated is questionable. Similarly, energy efficiency schemes financed through public funds very seldom prioritise disadvantaged households (Tirado Herrero et al., 2014).
Many argue that retrofitting residential buildings would be a more effective solution for many reasons, including Raúl Cataño-Rosa, Deputy Network Coordinator for the EU Fuel Poverty Network (www.fuelpoverty.eu).[5] While pursuing his Master's degree,[6] Mr. Cataño-Rosa helped establish the link between fuel poverty and the characteristics of a family's dwelling. His PhD work now aims to promote energy efficiency measurements in vulnerable homes. At the household level, such measures would reduce energy consumption – thus relieving energy bill pressure and effectively boosting real income. At the department and national levels, retrofitting could stimulate economic development through job creation, reduce overall demand (and peak demand on hot days) and relieve pressure on the electricity system.
Spain is not alone in its struggle to better understand and address fuel poverty. Within the European Union, two distinct 'hot spots' for energy poverty have been identified. Rates are much elevated in Mediterranean regions, with the economic crisis and austerity playing important roles. In countries in Central and Eastern Europe, the elevated levels are more associated with emergence from communism and its legacy of poor quality buildings and poorly managed district heating systems. Thus, care is needed at both national and EU levels to ensure policy action is effective in reducing inequalities and vulnerabilities. And to ensure vulnerable households are not overlooked as the short-term effects of economic crisis, high unemployment and energy sector reform eventually subside.
EnAct is grateful to Raúl Cataño-Rosa, Deputy Network Coordinator for the EU Fuel Poverty Network (www.fuelpoverty.eu) for contributing to this blog.
Additional links:
http://transition.web.unc.edu/2015/06/04/spains-energy-poverty/
http://www.energynews.es/english/7000-premature-deaths-are-associated-with-energy-poverty/
http://www.tylerpaper.com/TP-Opinion/238802/climate-change-agenda-brings-about-energy-poverty
http://www.cienciasambientales.org.es/index.php/noticias/95-fuel-poverty-in-spain-fpad.html
[1] Tirado Herero, S. and L. Jiménez Meneses, (2016), "Energy poverty, crisis and austerity in Spain", People, Place and Policy, 10:1, pp 42-56. http://extra.shu.ac.uk/ppp-online/energy-poverty-crisis-and-austerity-in-spain/
[2] http://www.europarl.europa.eu/sides/getDoc.do?pubRef=-//EP//TEXT+WQ+E-2013-011671+0+DOC+XML+V0//EN
[3] http://pobresaenergetica.es/es/
[4] http://www.nuevomodeloenergetico.org/pgs2/
[5] http://www.cienciasambientales.org.es/index.php/tribunas/514-rehabilitacion-energetica-solucion-a-una-problematica-social-la-pobreza-energetica.html
[6] Castaño-Rosa R. Module of Investments for Energy Efficiency of Buildings: Review and Application to Fuel Poverty Indicator. ETSIE, Seville, 2013.