Energy poverty: What is it and how do we understand it?

Updated January 26, 2021

[caption id="attachment_9799" align="alignright" width="380"] Energy burden among low/moderate income households. Map courtesy of U.S. Department of Energy (DOE)/NREL/ALLIANCE[/caption]

According to a report from the U.S. Energy Information Administration, nearly 1 in 3 American households reported challenges in paying utility bills in 2015. Keeping electricity bills affordable and providing information to consumers to reduce their energy expenses is the key goal for the Citizens Utility Board. As we work to represent the interests of all Minnesota residential and small business consumers, we continue to develop a sensitivity to the needs of the many Minnesotans who struggle to pay their energy bills. This blog post will define and explain the terms like energy burden and energy poverty and discuss some statistics on energy poverty. It will also highlight programs that can help you if you struggle to pay your energy bills.

Energy Poverty Impacts Minnesotans

There are a lot of terms used to describe situations when people struggle to pay their energy bills. Some common phrases include energy burden, energy insecurity, energy poverty, or fuel poverty. This article only looks at and defines “energy burden” and “energy poverty.”

Energy burden, as defined by a report conducted and published by the American Council of Energy Efficiency Economy (ACEEE) and Energy Efficiency for All, is simply the ratio between annual household income and the amount of yearly energy bills. In other words, the lower your annual income, and the higher your energy bills are, the higher the energy burden.

The average household in the United States pays about 3-4% of their household income on energy costs.  However, there are a lot of people, primarily low-income, who pay substantially more than 3-4%.  When households pay in excess of 6%, the Minnesota Department of Commerce considers this an “energy burden.”

Struggling to pay utility bills is a wide reaching problem across the state of Minnesota. According to the MN Department of Commerce, there are almost 500,000 households in Minnesota eligible for income-based energy assistance.  Eligibility is based on being at or below 50% of the state’s median income. This equates to $25,983 for a household of one and $49,698 for a household of four. Just 25% of those eligible households receive the Low Income Energy Assistance Program, assistance so there is potentially a large number of people who are likely struggling to pay their energy bills.

What is energy poverty?

Energy poverty seems like a straight forward concept, but there are multiple elements or facets that contribute to energy poverty. To understand energy poverty, we need to understand the different elements of energy poverty that contribute to it and create it. A journal article, cited by numerous national reports, defines energy poverty through three facets or elements. The first facet is economic poverty. Economic poverty is the ratio between your annual household income and the amount you spend on utility bills per year, otherwise known as energy burden. Energy burden is the economic facet of energy poverty.

Second, there is the structural facet of energy poverty. The structural facet of poverty refers to the building you live in and the energy efficiency of that building. Energy inefficiency in the home like drafty windows, poor insulation, inefficient appliances, and faulty heating and cooling, can make energy bills a lot more expensive.

The third facet of energy poverty is behavioral. It results from the economic and structural aspects of energy poverty. Behavioral results from, “households impacted by the economic and/or structural facets of energy insecurity prompt behavioral responses to cope with these adverse conditions using approaches such as extreme energy conservation, seeking fuel assistance, and using improvisational heating alternatives such as space heaters and ovens to supply heat.”

Who experiences high energy burden and poverty?

To help us understand how to best address the problem of energy burden and poverty, we need to understand who it affects and to what extent. To do that, the following section will summarize findings from a report from Energy Efficiency for All and the American Council for an Energy-Efficient Economy. The report, titled “Lifting the High Energy Burden in America’s Largest Cities: How Energy Efficiency Can Improve Low Income and Underserved Communities” outlines key statistics in addressing questions relating to the demographics of energy burden and energy poverty.

According to the report, low-income households, living in both single-family and multifamily, are more likely to experience energy burden.

• “Median energy burdens in low-income single-family households were more than three times higher than in non-low-income households (7.2% and 2.3%, respectively). Higher energy burdens result in part from lower income
• “The median low-income multifamily household experienced an energy burden more than three times higher than that of the median non-low-income multifamily household (5.0% and 1.5%, respectively) and had higher utility cost per square foot.” l

The median renter experiences a higher energy burden than that of the median homeowner.

• “The median renter experienced an energy burden greater than that of the median owner (4.0% and 3.3%, respectively).”

Energy burden disproportionally impacts communities of color.

• “On average, African- American and white households paid similar utility bills, but African-American households experienced a median energy burden 64% greater than white households (5.4% and 3.3%, respectively).”
• “Latino households paid lower utility bills, on average than African-American and white households did, yet they experienced a median energy burden 24% greater than white households (4.1% and 3.3%, respectively).”

A different report published by Energy Efficiency for All and the American Council for an Energy-Efficient Economy found that Rural communities are impacted by energy burden as well.

• The report found that “The median energy burden is 3.3% for all US households, 3.1% for metropolitan households, and 4.4% for rural households. Nationally, their analysis, found the median rural household energy burden is 42% greater than the median metropolitan household energy burden.”

If you are experiencing a high energy burden, it’s important to understand why and identify things you can do. A large driver of energy burden is energy inefficiency in the housing stock. Studies show that energy burden can be largely addressed by bringing those impacted by it up to the median efficiency of the population. The “Lifting the High Energy Burden in America’s Cities Largest Cities” report stated that “for all low-income households and for multifamily low-income households, bringing their housing stock up to the efficiency level of the median household would eliminate 35% of their excess energy burden.”

Even more striking was that, for renters, 97% of the energy burden could be eliminated by making their homes as efficient as the median household. Since many aspects of efficiency are out of control of the renter, it makes addressing energy burden something that must target those who own and/or manage buildings as well as those who live in them.

Programs that Help with Energy Poverty

As discussed previously, the issue of energy burden and poverty includes many factors and therefore a variety of solutions. While we don’t have all the tools and resources needed to eliminate the problem, there are currently a variety of programs that can help households who struggle to pay their bills.

Bill assistance programs provide consumers with money to pay their immediate utility bills. The primary source of bill assistance comes from the Low Income Home Energy Assistance Program (LIHEAP). LIHEAP is a federally funded program managed locally that administers grants to homeowners and renters to pay utility bills and furnace repairs for income-qualified households.  County social service departments and other local agencies can also help people navigate resources to help with paying energy bills.

The Weatherization Assistance Program (WAP) is a federal program managed by the Department of Energy (DOE). It provides LIHEAP qualified families the funds to make their home more energy efficient and lower their utility bills long term. For more information on WAP in Minnesota, visit the Minnesota Department of Commerce’s page.

Utility energy efficiency programs vary depending on your utility provider and region. To learn more about your utility’s offerings, use Citizens Utility Board Minnesota’s rebate finder and utility assistance programs finder.

If you ever find yourself overwhelmed or confused by your utility bills, don’t hesitate to reach out to Citizens Utility Board Minnesota by phone at (651) 300-4701 or by email at info@cubminnesota.org.