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Energy Affordability and Public Policy Responses

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. Main Problem.

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Energy Affordability and Public Policy Responses

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  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. To Improve AffordabilityConsider Three Factors HouseholdResources Energy Usage Energy Prices Energy Requirements for Poor Households

  7. 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 Assess Main Barriers To Affordability

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

  9. Develop Appropriate Policy MeasuresREP 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.

  10. Why Is Energy Affordability Important? • 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 • Promotes Welfare of Poor • Energy access is welfare enhancing • Energy access improves health and safety One part of Social Protection & Poverty Reduction One part of Strengthening Markets

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