Objective 6: Affordability and wellbeing
The Strategy states that every householder in New Zealand should be able to heat and light their home. The actions in this section aim to ensure household energy is affordable and that homes are of a thermal quality that can support wellbeing.
The Strategy recognises that the introduction of emissions pricing will raise costs for consumers, so it seeks to help consumers make the transition to a low emissions energy system.
Questions of affordability have become more prominent as the economy has slowed in 2008 and oil prices have risen sharply. As a result, a new project to investigate how to define and tackle household energy affordability is signalled for the next year.
This section reports on the actions in chapter 12 of the Strategy.
2.6.1 Aim and indicators
Aim: Every household in New Zealand is able to heat and light their home.
Graph 8 shows the average percentage of total household income spent by households on both the energy used in the home (i.e. electricity and other fuels) and on vehicle fuels. The average expenditure increased between 2004 and 2007.
Graph 8: Percentage of average household expenditure on energy43
Graphs 9 and 10 show the change in the cost of energy (as a percentage of total household costs) across different income groups (the first decile is the poorest and the tenth is the richest). The dotted lines indicate the average percentage spent across all incomes for each year.
Graph 9 shows that electricity costs are a larger percentage of total household costs in low income households than high income households, and that over time, the percentage of total household income spent by households on electricity and other domestic fuels has been increasing, particularly for lower income households.
Graph 10 shows the percentage spent on vehicle fuels is relatively similar across income groups and the percentage increased for all groups between 2004 and 2007.
Graph 9: Percentage of household expenditure on energy used in the home, by decile group44
Graph 10: Percentage of household expenditure on fuel for vehicles, by decile group45
2.6.2 Activity
Major actions in the eight months to June 2008 were:
Lower fixed electricity charges for some households: The government has decided that more households in the lower South Island should benefit from low fixed charges on their electricity bills, which are set by the Electricity (Low Fixed Charge Tariff Option for Domestic Consumers) Regulations 2004. The average consumption level in the regulations is proposed to be increased from 8,000 kWh to 9,000 kWh per year for homes in the lower South Island,46 in recognition that in colder climates people may require more electricity for basic home heating needs. Draft amendment regulations have been consulted on and are expected to be finalised for approval by Cabinet in August 2008 to take effect from 1 April 2009.
Better insulation saves heating costs: Homes are easier and cheaper to heat when they are better insulated. Through energy efficiency programmes, 13,962 lower income households received fully funded insulation for their homes in the year to 30 June 2008 and another 47 homeowners received subsidies for insulation or more efficient heating systems (reported in Objective 4).
Household energy affordability being investigated: In recognition that an increasing number of households are experiencing higher energy prices and that ways to address household energy affordability need to be investigated, government agencies agreed to commence a research project in July 2008 to examine the extent of energy affordability in New Zealand and possible policy responses. This work is being led by the Ministry of Social Development and EECA.
2.6.3 Supplementary indicator
Graph 11 shows the cost per unit of electricity to various types of consumers from 1974 to 2007 (adjusted for inflation). It shows that prices for industrial consumers have remained fairly constant over the past 30 years, while prices for households have risen and prices for the commercial sector have dropped in real terms.
The Electricity Commission, as regulator of the electricity market,47 is responsible for ensuring all consumers have access to competitive prices and reasonable terms and conditions of electricity supply.
Graph 11: Electricity Consumer Prices (Real 2007 Prices)48
In 2008 the Electricity Commission assessed the levels and the trends in residential prices, and is consulting (through its Market Design Review) on options to ensure prices are competitive for all classes of consumer (see objective 2 for more details).
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