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As retail electricity prices rise, utility companies should review SROI models to combat inequality to provide electricity to all who need it.
In recent decades, retail electricity prices in the US have continuously increased. The price of natural gas, one of the leading sources of electricity generation in the US, will continue to increase with exposure to international market participants willing to pay a higher rate. As the cost of natural gas increases, so too will the price of electricity. The increase in rates year-over-year already affects low-income households as higher rates mean less money for savings, bills, and essentials. The demand for electricity is inelastic with respect to household income. Unfortunately for consumers, utility companies have very little incentives for infrastructure improvements to reduce household cost due to this inelasticity. COVID-19 has exacerbated the problem of higher rates for this population. More time spent at home means more electricity used on remote work and school. Access to affordable electric power is essential now more than ever.
One way of diminishing your electricity bill is to invest in smarter, more energy efficient appliances. Newer and more efficient technologies are taking over the market to help consumers cut the cost of electricity. The caveat is that these appliances tend to be more expensive and may not be affordable to those living in poverty. With the affordability factor considered, a direct relationship exists between financial savings on electricity and household income.
How will society and/or governments work to break this cycle for individuals living in or near poverty? If they cannot afford energy efficient appliances, and electricity is becoming more expensive over time, it seems as though they will continue to pay more over time if there is no intervention. One idea is to encourage energy companies to help break this cycle through corporate social responsibility (CSR) initiatives. Corporate social responsibility is a means to help the company, the company’s stakeholders, and the public.
There is an inherent inequality in the distribution of costs among society. People in or near poverty spend approximately 16.5% of their monthly household income on energy and utilities, whereas it is only 3.5% for affluent households (Brown). Moreover, the structural societal inequalities towards minorities are thus reflected in an inability to adequately meet household energy needs.
Outdated appliances are not only inefficient for consumers, but they also waste energy that affects the environment and the public. Energy companies could create an initiative to recycle outdated appliances and sell newer, more efficient appliances at a reduced cost, like a trade in policy. This program would encourage consumers with less efficient appliances to purchase more efficient appliances. This initiative could reduce consumers monthly cost of electricity and reduce energy waste across the board. With these new appliances, companies can also use applications such as Samsung Connected Appliances, which allows users to turn off appliances while they are not in use.
To assess if a corporate social responsibility (CSR) and trade in program would be beneficial, companies can use a Social Return on Investment (SROI) model to assign a monetary value to a project and calculate the net benefit a program would generate. A company’s SROI is a company value not typically reflected in a traditional cost-benefit analysis such as environmental benefits and financial benefits to customers. For example, an environmental benefit of a trade-in-program could be a reduction in overall wasted energy. According to the Department of Energy, Lawrence Livermore National Laboratory, the United States alone wasted 67.5 (out of 100.2) Quads of all energy generated. Energy companies can attempt to reduce this amount by encouraging consumers to purchase energy efficient products. Financial benefits to consumers, like overall reduction in the cost of bills, are also typical benefits not added into a traditional cost-benefit analysis. A reduction in customers' energy bills could result in less delinquent bills over time and ultimately benefit the company. SROI analysis can be used “Ex-ante”, allowing a company to compare the costs and benefits of each project in a structured manner, making an informed and data-driven decision on which projects create the most value for customers. Additionally, projects can be evaluated post-implementation to inform decisions on how the work should evolve; whether to scale up, change, or discontinue services to continually deliver the most value for money possible.
The SROI model is used most appropriately when measuring benefits where a customer saves or gains money, or society avoids a cost. The model requires four inputs to measure potential benefits. First, you need to input the initiatives Customer Reach, such as many people will be affected by the given initiative. Second, you need to input the Financial Cost required to deliver the specific initiative. Third, you need to measure the Financial Benefits associated with the same initiative. Lastly, the fourth input required is the Social Benefits associated with the given initiative. Below is an example of an SROI Model at work.
Initiative Description: Energy efficiency advice meant to support customers in fuel poverty to increase the disposable income available to them. Avoid the “heat or eat” situation.
Cost: Each year, £20,000 will be set aside for an organization to provide energy efficiency advice to around 1,500 households across the communities we serve.
Financial Benefits: Saving on gas bill after energy efficiency advice.
Social Benefits: Life satisfaction change, Avoided Fuel Poverty fatality, Cost of GP consultation, Ambulance call, Non-elective inpatient stays.
Assumptions: It is estimated that 64% of those receiving advice will apply the knowledge. Those who do will benefit from an increase in health conditions that may be at risk from low energy efficient households and will have higher life satisfaction.
The price of retail electricity will continue to rise as energy sources are exposed to international markets which will further inequality between high- and low-income earners. While there are a few options consumers can explore to save on electric costs, the most sensible thing the industry can do is adopt a SROI model to measure benefits for the consumers, the company, and society.