Needs of low-income households must be addressed as part of electricity grid expansion – report

Berlin-based think tank Zukunft KlimaSozial has called for alternative methods to finance electricity grid expansion in Germany. The current financing of electricity grid expansion via grid fees places a disproportionate burden on low-income households, Zukunft KlimaSozial stated in a new report. In its analysis, the think tank recommended targeted support for low-income households.

With the transformation of Germany’s electricity system in full swing and renewables growing significantly, a high level of investment is required for grid expansion as well as storage technologies and controllable power plants. As this expansion takes place, Zukunft KlimaSozial argued that social aspects must be considered, particularly for households in the lower income bracket, at an early stage and the proper support strategies implemented.

Particularly important is the development of alternatives to pay-as-you-go financing. To date, the expansion, operation and maintenance of the grid has been financed via fees, which are added to the electricity price per kilowatt-hour (kWh). Acting like a consumption tax, they place a greater burden on poorer households, which spend a comparatively higher proportion of their income on energy than financially strong households. The poorest 10 percent spend 12 percent of their income on energy, while the richest 10 percent spend just around 2 percent.

Among the various measures that could strengthen the financial situation of low-income households and make higher electricity costs more affordable would be a reform of the basic social security system to include support to enable participation in the transition, said Zukunft KlimaSozial. This included additional support for housing costs if rents increase due to energy efficient modernisation efforts, special support for Germany's flat rate public transport ticket, and support for energy-efficient household appliances. An expansion of energy-saving advice via consumer and energy agencies would also help improve the financial situation of poorer households, said the report.

Keeping living affordable for the population while transitioning away from fossil fuels will be a central task for the country's next government. The introduction of the new EU emissions trading system ETS 2 for transport and heating fuels is set to increase costs to run fossil-based applications, making electric solutions more appealing. Lowering electricity prices is an additional way to incentivise the switch to EVs and heat pumps.