Every fourth household in Germany spends more than ten percent of its income on energy. This is the result of a study by the Institute of German Economics. The number of people affected has risen sharply – including in the middle class. What can now be done against the growing “energy poverty” and why the Swedes are doing it better.
It is particularly difficult for those who are unemployed, about to retire or are single parents. Consumer prices are climbing indefatigably. Especially in the field of energy, the costs hit the office. Experts then speak of energy poverty. This refers to households that could slip into financial difficulties due to the enormous increase in energy prices.
Those affected can no longer cover their energy costs without outside help. A new study by the Institute of German Economics shows that the proportion of households at risk of energy poverty rose to 25.2 percent in May 2022. Compared to the previous year, the experts note an increase of around 11 percentage points.
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“For this reason, the measures taken by the federal government in the form of the abolition of the EEG surcharge, the energy price flat rate and the heating cost subsidy for households with low incomes are particularly important,” write the study authors. The graphic shows how the energy poverty risk rate has developed in Germany since 2016.
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The blue curve (“energy expenditure > 10%)” defines a household as affected by energy poverty if it spends more than 10 percent of its net household income on energy expenditure. Expenditures for heating, hot water, cooking and often also electricity are included here. Expenditure on car fuel is not included here.
The green curve (energy expenditure > 10% and income < 60 percent of the median) is a combination of the 10% limit and the relative risk of poverty line. According to the official definition, this is 60 percent of the average needs-weighted net household income of the population. In this way, households with middle and high incomes that do not have to spend a large part of their income on consumer goods and basic goods such as energy can be ignored.
The yellow curve (“energy expenditure > 10% and income < 80 percent of the median”) combines the 10% limit with the “relatively poor” and the “lower middle”. According to the authors, the rise in energy prices also leads to high burdens far into the middle class. The reason for the different approaches: "Both in Germany and internationally there is no universal definition of energy poverty."
From 2016 to 2020, there was initially a decrease in the number of people affected by energy poverty. From around 18 percent of people in private households who spent more than 10 percent of their net household income on energy, the value drops to 13.6 percent in four years. This is shown by the blue curve. According to IW researchers, the reasons for this are higher incomes (0.8 percent) and falling energy prices (-2.2 percent).
In 2021, however, the picture will change. Although incomes continue to climb by 2.5 percent, energy prices are rising all the more (4.7 percent). The economic experts write that the sharp rise in prices on the energy market took place mainly towards the end of the year. An increase in price can also be seen as a result of the CO2 pricing for natural gas and heating oil introduced in 2021. As a result, 14.5 percent of people in Germany were affected by energy poverty in 2021.
Russia’s attack on Ukraine further accelerates the process, raising the number of victims to 25.2 percent in May. The risk of sliding into energy poverty has therefore increased sharply since February 24, 2022, when the war began.
But not only households with lower incomes are affected by the high prices. “Energy poverty also affects the middle class,” says IW economist Ralph Henger. This refers to households that earn between 60 and 80 percent of the median income. Here, the proportion of households affected by energy poverty doubled from 2021 to 2022 to around 41 percent.
The green curve shows: After the rate fell from 8.3 percent in 2016 to 7.2 percent in 2019, the value rose to over 10 percent by May 2022. The proportion of people from the low-income sector with energy expenditure of more than 10 percent increased sharply from 49 percent (2021) to 65 percent (May 2022).
And the yellow curve shows a similar picture. “Here, too, the energy poverty risk rate fell from 13.4 to 10.7 percent between 2016 and 2020. In 2021, the rate rose slightly to 11.3 percent before climbing to 16.8 percent this year,” the researchers explain.
However, households are affected to varying degrees by the price increases in the energy sector that accompanied the war. It depends on the type of heating, the energy supplier and the energetic quality of the building. In addition, households are also reacting by adapting their behavior, for example by paying more attention to saving energy.
One thing is clear: In order to be able to pay electricity, gas and oil bills in the future, many households will need support. The IW researchers advocate targeted help for households that are just above the basic security limit. They are of the opinion that many of the measures in the two relief packages, such as the abolition of the EEG surcharge on July 1, will provide the greatest relief for this group.
They also demand that those who receive housing benefit and a one-off heating subsidy in the next few months should receive more benefits. “A permanent and flexibly adjustable flat-rate heating fee in the housing benefit, as in 2009 and 2010, can support low-income households in a targeted and permanent manner,” says IW economist Ralph Henger.
In Sweden, since 2000, people have taken a completely different route. There, the government introduced the so-called “rents included model” – a success story. Apartments are only rented with a flat-rate rent including heating. This means that the landlord guarantees a fixed rent including heating and, in return, the tenant maintains a certain room temperature. If, as a tenant, you end up heating more than previously agreed, you pay afterwards. And if you heat less than previously agreed, you get money back. Energy poverty, as we are experiencing in Germany, is only possible if you are to blame.
And the Swedish model brings other advantages. It not only offers tenants an incentive to save. The landlord is also well advised to renovate his property in such a way that as little energy as possible is required to maintain the desired temperature – because the price for the room temperature remains the same. And on top of that, the climate also benefits: emissions from Swedish households have fallen by 95 percent since then.
