Higher energy prices for low-carbon sources: the impact on EU households

A low-carbon future may be the answer to climate change, however, meeting energy demands from renewable sources is currently more expensive than burning fossil fuels. Improvements to energy efficiency is largely driven by climate policies that aim to reduce energy bills in the long-term. Yet, in the short-term, many EU households are experiencing higher energy prices, which in many cases is plunging people into fuel poverty.

According to a survey carried out by the European Union (EU) in 2020, 8% of the EU population were unable to keep their home adequately warm. Fuel poverty remains a major challenge and the pursuit of net zero will hit low-income households the hardest unless measures are put in place to protect vulnerable EU citizens.

Transitioning to low-carbon energy sources requires significant investment, which, for the most part, is paid for by households and businesses through their energy bills. Let’s take a closer look at the impact of higher energy prices on households and what measures are being taken to ease the pressure:

An overview of Europe’s rising energy prices

The increase in European energy prices can be attributed to the ongoing investment in low-carbon power sources. However, this isn’t the only cause. Stored gas levels in Europe are much lower than normal due to last winter’s relatively weak renewables generation, so demand is currently exceeding supply.

According to Reuters, European gas storage levels are at their lowest in 10 years. This year, in 2021, storage sites are currently around 72% full, compared with 94% full at the same time in 2020.

There has also been increased demand for liquefied natural gas in China, following supply chain issues due to COVID-19, which has driven prices upwards by 250% globally.

As supply tightens, power prices will likely continue to rise throughout 2022 and 2023, as Europe accelerates its environmental targets following this year’s COP26 event. The coming years will see the closure of more thermal and nuclear plants, which won’t be immediately covered by renewable generation. In the short-term, this could lead to weather-related price volatility.

The continued rise in European energy prices will put increased pressure on household energy bills, and especially for vulnerable customers.

In September 2021, the European Trade Union Confederation (ETUC) warned that more than 2.7 million people in Europe could not afford to keep their homes warm, even though they had jobs.

According to the Agency for the Cooperation of Energy Regulators (ACER), 7 million European households already receive energy disconnection notices every year. As prices rise, and as people continue to spend more time at home due to the pandemic, the risk of disconnection will increase significantly.

According to CNN, Bulgaria has the highest number of people living in fuel poverty in Europe at 31%, followed by Lithuania (28%), Cyprus (21%), and Portugal (19%). By comparison, Norway and Switzerland are the least vulnerable to fuel poverty at 0.3%, at 1% respectively.

Support from the European Commission

In order to ease the pressure on households, on the 13th October, the European Commission issued a communication outlining a ‘toolbox’ for action and support, which is projected to last through the winter of 2021. The document outlines measures to address the current price increase and to protect vulnerable households against future rises.

The short-term measures include emergency income support for households, government assistance for companies, and tax reductions. The document also outlines support for investment in renewables, an evaluation of energy storage, an assessment of the design of the electricity market, and energy efficiency measures.

Governments in France, Italy, and Spain have already announced measures to support low-income households. France, for example is offering a €100 energy grant to 5.8 million households throughout December 2021.

Italy’s government has set aside $3.5 billion euros to help more than 5.5 million low-income households by eliminating a series of system charges. Spain also plans to invest €2.6 billion of energy company profits into consumers in order to reduce electricity taxes over the winter months.

The European Commission’s document outlines the need for market monitoring and enforcement. It proposes surveillance mechanisms are put in place to monitor the energy markets of the 27 EU member states. The establishment of an ‘energy poverty and vulnerable consumers coordination group’ has been proposed, and EU countries are being encouraged to promote consumers’ rights to switch energy providers to access better deals.

The acceleration of renewable energy and energy efficiency projects is also being encouraged and a new document is expected to be published in 2022, outlining new permitting procedures for new wind and solar farms.

The EU’s ‘Fit for 55’ package

The European Commission’s document forms part of its ‘Fit for 55’ plan, which was introduced in July 2021. It outlines how the EU can reduce its carbon emissions by 55% by 2030.

To achieve this ambitious target, a €225 billion recovery fund is to be invested over the next three years to support renewable projects and accelerate the electrification of heating and transport.

The package includes several policy revisions, including the EU emissions trading system (EU ETS), the regulation of data sharing between member states, the renewable energy directive, the directive on the deployment of alternative fuels, and the energy tax directive, to name a few.

The future impact of energy prices on EU households

Despite the short-term financial assistance outlined in the European Commision’s communication, it’s likely that households will continue to see energy prices increases for the next few years due to supply and demand balances, and the current lack of infrastructure for low-carbon energy sources.

Likewise, the electrification of heating systems, energy efficiency measures, transport and data centers will likely contribute to a continued rise in prices in the near future.
However, according to research from McKinsey, if energy consumption patterns remain the same in the future, and if decarbonization savings are passed directly to consumers, the cost of living for an average household in the EU would remain the same as today.

Mckinsey predicts that energy bills would be lower, and transport would be more affordable, despite the cost of food and international travel increasing. Overall, costs for lower and middle-income households would slightly decrease, whereas high-income households would see no significant change.

How triPica can help utility companies be more customer-centric

At triPica, we enable utility companies to deliver a fully digital customer experience to their users and regain agility. With the European Commission encouraging its member states to promote consumers’ rights to switch energy suppliers, utility companies with a strong customer focus will have a competitive advantage.

With triPica, companies can manage their whole supplier lifecycle using digital technology, while retaining complete focus on the customer. Our ERP platform enables suppliers to adjust monthly payments with usage graphs, and raise bill alerts to anticipate any unexpected high consumption. Consumers also benefit from being able to access all their energy usage and billing information from a single app.

We helped German utilities company Enercity disrupt the market by providing innovative offers through a completely new digital sales platform. We also helped them migrate hundreds of thousands of customers to the triPica platform.

With triPica, energy suppliers can expect to decrease their cost-to-acquire by up to 50%, while increasing acquisition rates. Likewise, churn rate can be reduced by up to 67%, while encouraging customer loyalty, and cost-to-serve can be reduced by up to 60%, resulting in greater profitability.

Find out more about how triPica can help your company be more customer-centric with our ERP platform technology.