License article

Cash rich, fuel poor and crazy for gadgets

Have you counted the electrical gadgets in your house recently? There's probably more than you think. As the Herald reported recently, a government survey of ''standby power consumption'' found the average number of appliances in Australian households grew from 46 in 2000 to 67 in 2010. An eye-popping 175 appliances were discovered in some homes.

Our appetite for gadgets is one dimension to the complex economics of electricity prices. Consumer anger at the soaring cost of electricity has made it a white-hot political issue. But at the same time, we're not very savvy when it comes to electricity use.

The survey of standby power consumption found average households spend more than $130 a year keeping devices on standby doing nothing - that's about 10 per cent of all residential electricity consumption.

Home office and home entertainment equipment were the worst offenders, accounting for two-thirds of standby power consumption. Another notorious energy-waster is the proverbial beer fridge. More than 40 per cent of free-standing homes in Australia have a second fridge, one of the highest rates in the world.

The proportion is even higher for low-income two-person households in detached dwellings - exactly the people who are struggling with higher electricity prices. NSW's independent pricing regulator estimates second fridges cost nearly $300 a year to run. The implication is that thousands of asset-rich but cash-poor empty nesters, in relatively big houses, are forking out a lot of money to run gadgets they hardly ever use.

Amid the frustration over electricity prices, not enough attention is given to the nature of electricity demand, or the potential social cost that goes with it.


Rising wealth has meant much bigger houses, more appliances and more energy use. Many advanced economies have winter peaks but gas, in large part, takes care of heating. In Australia there are summer peaks because we tend to use more electricity-hungry gadgets all at once on hot days. Our relatively recent taste for household air-conditioning has exacerbated peak demand. More than 70 per cent of Australian households now have an air-conditioner and in some parts of Australia more than a third of households have two or more air-cooling units.

To cope with these relatively short periods of massive peak demand has required a big investment in generating and network capacity. In the past three years the cost of our attachment to gadgets has started to bite like never before because of unprecedented electricity price rises.

A Sydney University economist, Lynne Chester, estimates that regulated electricity prices rose by nearly 40 per cent in Victoria and 52 per cent in NSW in the four years to June 2011. And there are more increases in the pipeline - the Australian Energy Market Commission projects residential electricity prices will increase by 37 per cent in nominal terms between 2010-11 and 2013-14. Network costs - upgrading and maintaining the ''poles and wires'' - are driving the increases.

Households have responded to the recent price surge by moderating average electricity use through the year. But on the 10 or 12 hottest days of the year, households still cut loose and turn on lots of energy-guzzling devices all at once. This is causing new heights of peak demand, which in turn is driving investment in network capacity and adding to prices.

This pattern of demand - and the price rises now needed to cater for it - has significant social consequences.

For most households, the recent electricity price hikes have been irksome but manageable. But there's growing evidence that many low-income households are facing unsustainable energy costs. They are becoming ''fuel poor''.

Paul Simshauser, AGL Energy's chief economist and a professor of finance at Griffith University, calls this the ''boomerang paradox'' because it's a result of our affluence.

''Rising wealth has actually caused the pre-conditions for fuel poverty,'' he says.

The notion of fuel poverty is well known in the advanced countries of the northern hemisphere which experience long cold winters. In America, there's the ''eat or heat'' syndrome: when poor families must decide between putting food on the table and heating their homes during the dead of winter. In Britain, a household is deemed to be fuel poor when more than 10 per cent of income is spent on fuel to maintain a satisfactory level of heating - usually 21 degrees for the main living area, and 18 degrees for other occupied rooms. The definition focuses on heating but spending on heating water, cooking meals, lighting and appliance usage is also included in the calculation. There are predictions that British households with average incomes will be forking out more than 10 per cent of their incomes on energy by 2015 and therefore will be classified as fuel poor.

There are no such fears for average Australian households but the threat of fuel poverty is getting more attention here.

Lynne Chester and the University of NSW sociologist Alan Morris estimate in a coming paper that 3.5 million low-income Australian households - about one-third of total - are vulnerable to fuel poverty, although they use the term ''energy poverty'' to describe the same thing (they claim it better conveys the ''contemporary multiple household uses of energy''). Chester and Morris found energy use in low-income households does not change much even when prices rise, so poorer families are forced to spend less on other essentials as electricity costs go up. ''An increasing number of vulnerable households are suffering different forms of deprivation and social exclusion directly attributable to higher [electricity] prices,'' they say.

Large families on low incomes are especially vulnerable because family and house size has a significant bearing on power bills. Analysis by NSW's Independent Pricing and Regulatory Tribunal last year found that each extra adult in a household added $260 a year to a typical household bill, and each extra child added $180 a year. Every extra bedroom added about $50 a year and living in a detached dwelling added about $280 a year.

Rural households located away from the coast are also vulnerable because they have higher network costs and typically use more electricity due to more extreme temperatures. There's already strong evidence that fuel poverty is on the rise, especially rural areas.

Last year, the tribunal estimated 8 per cent of country households would spend more than 10 per cent of disposable income on electricity in 2011-12, putting them in the fuel-poor category. In its latest price determination, the tribunal lifted that estimate to 11 per cent of country households for the next financial year. I think we'll be hearing more about fuel poverty.

Ross Gittins is on leave.