Energy affordability in low-income households

As written in my post in May, this is part two of the Net Positive Bay Area team’s write-up on energy burdens faced by low-income households as part of the Affordable Solar initiative. Writing credit goes to my staff writer Katyayani R., and my edits are included below.

Grid Alternatives in EPA

Solar installers from GRID Alternatives, an Oakland-based nonprofit solar contractor & Sustainable Silicon Valley’s business partner, working to install solar panels on the rooftop of Betsy Yañez, East Palo Alto community leader and activist. Source: EPA Today


Energy efficiency is no myth. The need for energy efficient homes is more pressing in the case of low income households, given the high energy expenditures in proportion to their incomes. Energy burden is defined as the strain a household endures due to its annual energy expenses. It is calculated by dividing the annual residential energy expenditures by the annual income to determine the percentage of expenditure to income. This important metric determines the impact of energy expenditures on low income households and is a primary factor in determining the federal funding for Low Income Energy Assistance Program (LIHEAP) to the states. 

In low income households, high utility bills become a large energy burden, rendering many households to be financially vulnerable. More overwhelming is the meager income left over after paying state and federal taxes. According to the US Census Bureau on household income data and the Energy Information Administration (EIA) residential energy price projections for 2016, the American Coalition for Clean Coal Electricity (ACCE) estimates that 59 million US households whose annual incomes are less than $50k (pre-tax) will spend approximately 17% of their after-tax income on energy.


Figure 1: Estimated % after-tax income spent on energy cost in US household in 2016, organized by pre-tax income levels. Source: AmericasPower.Org sponsored by ACCE


Table 1: Estimated US household energy cost breakdown by pre-tax income categories, and estimated energy use per category after tax (*Other category includes natural gas, heating oil, LPG, and wood). Source: AmericasPower.Org sponsored by ACCE

In the chart, the average US household is seen to spend an estimated 9% of after-tax income on energy bills. However, the brunt of household income spent on energy costs falls upon on households that make less than $50k annually before taxes. Among the lowest to lower-income strata, energy expenses can climb to a staggering 23% of after-tax income for households that earn less than $30k annually before taxes.

Applying this analysis to the Bay Area, where the income gap is further exacerbated, the median household in East Palo Alto earned less than $50,000 ($48,734 before taxes), wherein monthly income after taxes was $3,683. For the average East Palo Alto resident, energy expenditures of 17-23% can cost anywhere between $625-850 of monthly earnings after taxes, a staggering financial burden each month. Based on the ACCE projections and the 2010 Bay Area Census, a larger proportion and dollar amount of monthly income after taxes is indeed spent on energy expenditures for the average East Palo Alto resident when compared to his neighbors:


Figure 2: Graph showing energy expenses paid as a proportion to average monthly income after tax. Source: AmericasPower.Org sponsored by ACCE and Bay Area Census

The high energy spending figures grappled by low income households point to large potential opportunities in energy savings, and is the primary reason why East Palo Alto is identified as an area of high importance within the Bay Area.
To learn more about the changes to improve energy affordability for low-income residents in East Palo Alto, read the rest of the article here.

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