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Energy Affordability and Public Policy Responses Jean Constantinescu & Michael J. G. Cain Romanian Energy Program, Phase III International Resources Group.

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Presentation on theme: "Energy Affordability and Public Policy Responses Jean Constantinescu & Michael J. G. Cain Romanian Energy Program, Phase III International Resources Group."— Presentation transcript:

1 Energy Affordability and Public Policy Responses Jean Constantinescu & Michael J. G. Cain Romanian Energy Program, Phase III International Resources Group 1211 Connecticut Avenue Washington DC 20036

2 Main Problem Energy sector restructuring requires significant price increases to households in the Black Sea region. Price increases will make it more difficult for (low income) households to afford energy and can potentially undermine reform efforts. –Energy is the largest expense, after food, for both poor and low income households in the region How can low-income households be helped with increasing energy costs?

3 Main Topics  What is ‘Energy Affordability’?  How Can Governments Respond to Energy Affordability?  Assess the Main Barriers to Energy Affordability  Develop a (National) Affordability Strategy  Develop Specific Policy Measures  Why is Energy Affordability Important?

4 Energy Affordability in the Black Sea Region  Connection rates to electric utilities in Black Sea Region are high  Connection rates of rural poor to central gas or heat networks are much lower  Ability of different groups to pay for energy can differ by employment, income source, type of energy consumption, etc.  Affordability (percentage) thresholds differ  International benchmarks: 10-20% of total household expenditure  World Bank, EBRD, IMF, WHO

5 Identify Characteristics of Low-Income Families  Poverty Profiles and Dynamics  Income Sources and Consumption Patterns  Energy Sources and Energy Usage  Housing Size and Types

6 Distribution of persons belonging to different consumption groups by heating system DecilesDistrict heating Individual gas station/ gas stoves Stoves with wood/ coal Without heating or unconnected from public system 164883 100 2119773 100 31315692 100 419 593 100 51924533 100 62527452 100 72832391 100 83235312 100 93536271 100 104439161 100 total2324502 100 Data source: CASPIS (ABF, 2004) Note: the difference to 100 represents ‘other heating system’

7 Persons living in HH with different heating systems % of total persons TotalUrbanRural District heating (public or local) 29.2%55.4%0.5% Individual heating station, of which: 6.1%10.4%1.3% - with natural gas 5.5%9.8%0.8% - with solid fuel 0.5% - with liquid fuel 0.1%0.2%0.1% Stove heating, of which: 62.7%30.7%97.6% - with natural gas 8.9%11.4%6.1% - with solid fuel 53.6%19.1%91.3% - with liquid fuel 0.2%0.3%0.2% Other heating system 2.1%3.5%0.5% Total 100% Population and dwelling census, 2002

8 To Improve Affordability Consider Three Factors Energy Usage Energy Prices Household Resources Energy Requirements for Poor Households

9 Assess Main Barriers To Affordability  Legal Barriers  Lack of Legal Definition and Allocation for Services of General Interest (SGI)  Inadequate financing of SGI  Structural Obstacles  Improper Market Surveillance  Multi-sector problems  Different ministries  Financial and Investment Barriers  Energy Investments  Cost of Energy Efficiency  Inflexibility of Loan Criteria for New Projects  Behavioral Changes  Energy Efficiency Education at all levels

10 Develop a Strategy to Improve Affordability Increase Resources to Low-Income FamiliesIncrease Resources to Low-Income Families –Targeted energy assistance Set Appropriate Prices for EnergySet Appropriate Prices for Energy –Competitive prices –Lifeline (block) tariffs –Binomial tariffs Provide Means to Save EnergyProvide Means to Save Energy –Supply-side energy efficiency –End-user energy efficiency

11 Develop Appropriate Policy Measures REP 3 Responses Technical Support for Market Surveillance Strategy Technical Support for Tariff Reforms Technical Support for Targeting Assistance Payments Technical Support Thermal Rehab. of Buildings Financing through European Union and World Bank Provide policy alternatives for rural energy efficiency Public information campaign.

12 Promotes Welfare of Poor –Energy access is welfare enhancing –Energy access improves health and safety Strengthens the Energy Sector –Improves market liquidity and stability –Reduces risk of non- payment –Limits collection and program costs to utility –Proper incentives for consumption –Customer retention Why Is Energy Affordability Important? One part of Strengthening Markets One part of Social Protection & Poverty Reduction


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