What is Fuel Poverty.
It is important to first understand what fuel poverty is in order to calculate it in an accurate and representative way. In general, people understand fuel poverty to be the condition by which a household is unable to heat their home to a satisfactory standard. In its simplest form, this condition is produced by three factors: income of the household, the current fuel prices, and the energy efficiency of the house itself.
These three factors then need to be combined in calculations to produce a yes or no conclusion to determine whether the household is in fuel poverty. The English government use their Low Income Low Energy Efficiency (LILEE) definition. This states that a household has to meet both of two conditions to be considered in fuel poverty: the house must be a Fuel Poverty Energy Efficiency Rating (FPEER) Band D or below and when the household spends the required amount to heat the house to an adequate standard, the residual income is below the official poverty line.
This raises more questions like what is the FPEER? And what is the official poverty line? As a quick aside, the fuel poverty definitions for Scotland, Wales, and Northern Ireland are different to England. These definitions vary very slightly but all say a household is in fuel poverty if the necessary costs to heat a home are more than 10% of the adjusted net income of the household. This is a relatively simple definition when compared to the England definition, and it comes with a host of problems itself, primarily that it is not a relative measurement; neither the energy efficiency of the building, nor the residual income are placed in context.
Calculating Fuel Poverty
Focusing on the England definition as it is more complicated than the 10% indicator above. So to reiterate, the two conditions that are required for a household to be in fuel poverty in England are a fuel poverty energy efficiency band D or below for the building itself, and the disposable income after fuel costs of the household to be below the official poverty line.
The fuel poverty energy efficiency rating is calculated much the same as a SAP rating. The fuel costs are modelled by Table 12 of SAP 2012 v9.92, an energy cost factor is calculated using the floor area of the property, and the rating is calculated based on the energy cost factor before being split into bands. The only change between a SAP rating and the FPEER is that the fuel costs are adjusted before the energy cost factor is calculated. Any direct energy cost intervention values are subtracted from the fuel costs to adjust for any financial aid within the current year. It is worth noting that this is only aid related to fuel prices subtracted directly from the fuel bills. Any benefits, pension, or fuel aid paid to the tenant (like the winter fuel payment) are not counted in this calculation as they are seen to be part of the household’s income.
The second part of the definition is that the equivalised disposable household income is below the official poverty line. So what is the disposable household income and what is the official poverty line? The equivalised disposable household income is the net income of the whole household after housing costs and after fuel bills have been subtracted. The official poverty line is 60% of the median equivalised disposable household income of the current year. Both of these metrics are equivalised meaning they are adjusted for the number of residents of the property; increasing the incomes of single occupants and reducing the incomes of larger households.
To briefly summarise this, the FPEER rating is the same as the SAP rating except with fuel aid subtracted from the fuel costs. And the poverty line is 60% of the median disposable household income of the nation in the current year.
Many ask what information is needed to calculate fuel poverty for your tenants, your clients, or even yourself. The information required specific to each household is:
- The household income
- Any extra income they receive like benefits or pension
- The direct energy cost intervention values received (and this can be very unpredictable)
- The number and age of the occupants
- The SAP rating and total floor area of the property
The general information needed is:
- The current consumer price index ratio for domestic fuels
- What the official poverty line is for the current year
A lot of information is required, some of which is protected. This makes it extremely difficult for a conclusive answer to whether a household is in fuel poverty and clear drawback of the current definition.
Drawbacks of the Current Definition
The FPEER methodology notes that the direct energy cost intervention values need to be adjusted for inflation between the current time period and the SAP 2012 table 12 fuel prices. This makes sense because a £400 warm home discount now is not the same as £400 ten years ago. However, the way it describes doing this adjustment is to look at the domestic fuel component of the consumer price index ratio between the relevant time period and “the time period corresponding to the fuel prices applied in SAP2012 v9.92”. The time period this refers to is a mean calculation of yearly costs of each fuel for the three years preceding the SAP2012 documentation, so how this relates to the monthly updated consumer price index of today is unclear.
Secondly, the consumer price index has a 2-month lag, so we could only recently calculate the FPEER for households in October. This carries further inaccuracies if there was, for example, a price cap increase between then and now (at time of writing).
Focusing on the energy efficiency of the property, the way the FPEER is calculated, it is mathematically impossible for it to be lower than a SAP rating, and usually staying a few points higher. Therefore, a household living in a property in EPC Band C will automatically not be in fuel poverty as they cannot meet the first condition of fuel poverty: being in FPEER Band D or below.
Looking to the future and the social housing goal of EPC Band C by 2030, by the current definition this would mean that no social housing household in England would be in fuel poverty in 2030.
Although on paper this is a nice thought, I cannot see this being true by the real meaning of fuel poverty, only by definition.
So now we have the issues of the fuel prices and inflation adjustments being unclear in the calculations, and the fuel poverty energy efficiency rating itself is not a true representation of fuel poverty… These sound like fundamental problems with this definition. So can we come up with a better one?
I’d like to ask, if you are identifying tenants at the greatest risk, what method are you using to do this? And can we as a collective come up with ideas to accurately represent our sector in this important topic?
Gareth Richardson, Technical Consultant (Sustainability)
For a more technical and in-depth conversation around Fuel Poverty, register now to join Gareth LIVE for our webinar: How to Calculate Fuel Poverty: An Introduction – Thursday 9th February 3pm.
We look forward to seeing you online!