With rising energy costs and persistent arrears, how can financial supports be better designed to reach those most in need?
Summary
Energy poverty remains a persistent and complex challenge in Ireland, shaped by rising energy costs, structural inequalities, and limitations in existing supports. While measures such as the Fuel Allowance provide important assistance, evidence suggests that significant gaps remain, with many households experiencing ongoing affordability issues. Drawing on international experience, this paper examines the design of financial supports, including social tariffs, and highlights that their effectiveness depends less on format and more on accessibility, targeting, and administrative simplicity. It argues that future policy should focus on automatic, well-targeted, and flexible supports that can respond to diverse household needs and changing energy market conditions.
The Challenge of Energy Poverty
Energy poverty is an increasingly prominent policy concern in Ireland and across Europe, yet challenges remain in accurately assessing its scale and identifying effective policy responses. A key reason for this is the absence of a universally agreed definition or metric. As research in the area has expanded, so too has recognition of its multidimensional nature (Dingley et al., 2025; Kajoskoski et al., 2025). Energy poverty arises from the interaction of several factors including household income, energy prices, and the energy efficiency of dwellings, alongside broader issues such as geography and access to services (Lawlor & Visser, 2022). This complexity means that different households may experience energy poverty in different ways. For example, through an inability to adequately heat their home, difficulties managing energy bill arrears, or being forced to make trade-offs between essential needs such as food, transport, and energy costs (Middlemiss, 2022; Snell et al., 2018). However, despite these uncertainties, what is abundantly clear is the importance of energy in everyday life. Households rely on energy not only for heating and cooking, but also for lighting, communication, and participation in economic and social life. When energy becomes unaffordable, the consequences can be immediate and cumulative, affecting physical health, mental wellbeing, and social inclusion (Khavandi et al., 2024; Liddell et al., 2016; Middlemiss et al., 2019).
Recent years have highlighted the vulnerability of households to energy price shocks. Sharp increases in energy prices following the Russian invasion of Ukraine, combined with more recent instability in global energy markets linked to the conflict in the Middle East, have exposed the extent to which household energy costs are influenced by external factors. At the same time, the transition away from fossil fuels is likely to maintain upward pressure on energy prices, suggesting that affordability challenges may persist for some time (EC, 2025).
Current Supports in Ireland
In this context, financial supports play a central role in addressing immediate energy affordability issues, complementing longer-term structural interventions such as home energy efficiency improvements. In Ireland, financial supports are primarily delivered through the Household Benefits Package (CI, 2026a) and the means-tested Fuel Allowance (CI, 2026b). These measures provide important income supports to eligible households (Pillai et al., 2023). However, there is growing debate as to whether additional or alternative forms of support should be considered such as a system of social energy tariffs (SVP, 2023). While the concept of a social tariff is often presented as a single policy option, in practice it encompasses a range of distinct approaches to reducing energy costs for targeted groups.
What are Social Tariffs?
International experience illustrates that social tariffs can take several forms, each with different implications for households, suppliers, and policymakers. Fixed-value discounts provide a set reduction in energy bills and are generally straightforward to administer and communicate. However, because they are not linked to consumption, they may not adequately reflect differences in household energy needs, particularly for households with higher requirements due to housing characteristics or health conditions. Unit-rate discounts reduce the price per unit of energy consumed and therefore provide greater support to households with higher usage, but they can be more difficult to target effectively and may disproportionately benefit higher-income households if eligibility criteria are not sufficiently stringent. Block tariffs, which apply a reduced rate to an initial level of consumption before reverting to standard rates, attempt to balance these considerations but can disadvantage households whose energy needs exceed the subsidised threshold.
Lessons from Europe
Evidence from other European countries highlight practical challenges and unintended consequences that can arise from different social tariff designs. In the United Kingdom, voluntary social tariffs introduced between 2008 and 2011 were implemented through an agreement between the UK Government and the six largest energy suppliers. Suppliers were given discretion over both eligibility criteria and the level of support provided, resulting in significant variation across the market. This lack of standardisation created complexity for consumers, making it difficult to understand entitlements and compare tariffs across suppliers. In addition, since many of these tariffs were linked to consumption, the level of benefit fluctuated with usage, and this had the potential of reducing predictability for households and complicating cost estimation for policymakers (DECC, 2010). Ofgem identified that some consumers receiving support could have obtained better value by switching supplier, highlighting how the structure of the scheme could inadvertently undermine its objectives (Ofgem, 2010: 18). The subsequent introduction of the Warm Home Discount in 2011 represented a deliberate shift towards a more standardised, fixed-value approach, improving transparency, predictability, and administrative control. Recent advocacy for the introduction of regulated social tariffs in the UK has centred on a form of fixed-value reduced bill discount rather than unit rate social tariff design (e.g. O’Connell et al., 2025).
In France, the regulated social electricity tariff Tarif de Première Nécessité (TPN), was introduced in 2005. The scheme applied a discounted rate (dependant on the number of people within the household) to a capped level of electricity consumption (1,200kWh per annum, a level deemed to be enough to supply a fridge, hob and lighting in the home). However, the scheme was linked to incumbent suppliers, meaning that households wishing to avail of the tariff were effectively tied to a specific provider. This structure resulted in limited consumer choice and reduced the ability of households to benefit from competition in the liberalised energy market when it opened up in 2007. For households with higher energy needs, particularly those reliant on electric heating, the capped nature of the tariff meant that a significant proportion of their consumption was charged at standard rates, which could be higher than those available from alternative suppliers. Administrative challenges further reduced the effectiveness of the scheme. Issues with data sharing between social services and energy suppliers, interruptions in support when households moved or changed supplier, and mismatches between contract holders and taxable households resulted in substantial levels of non-take-up (National Energy Ombudsman, 2017). By 2014, it was estimated that approximately one-third of eligible households were not receiving the social tariff (ibid: 86).
In response to these shortcomings, France replaced the tariff system with the chèque énergie in 2018. This reform marked a significant shift in approach, moving from a supplier-linked, tariff-based model to a supplier-neutral, lump-sum payment. The chèque énergie is automatically sent to eligible households based on tax data and household composition, reducing administrative burden and improving take-up. As with the previous social tariff system, the support is tiered according to income and household size, enabling more vulnerable groups to receive a higher level of support. It is also fuel-neutral, allowing households to use the payment for a range of energy sources including electricity, gas, and heating fuels, or to contribute towards energy efficiency improvements. This transition reveals a recognition that simplicity, automaticity, and flexibility are critical to the effectiveness of financial supports.
In Spain, the Bono Social de Electricidad, introduced in 2009, is another example of a unit-rate discount applied to electricity bills. While the scheme provides meaningful support to eligible households (Bagnoli & Bertoméu-Sánchez, 2022), it has been subject to sustained criticism regarding its targeting and overall effectiveness. The level of support varies depending on the beneficiary category, with one eligibility route based solely on household composition, specifically large families, rather than income. This has resulted in some higher-income households qualifying for support, while certain lower-income groups remain excluded. Evidence on coverage rates highlights these disparities. Analysis for 2022 found that almost eight out of ten potential beneficiaries were not receiving the support. Moreover, uptake varied significantly across groups, with over 60% of eligible medium- to high-income large-family households receiving the benefit, compared to only around 20% of low-income households and less than 10% of eligible pensioners (Van-Baumberghen & Jorge, 2024). These patterns raise concerns about the distributional impact of the scheme and illustrate the difficulty of designing eligibility criteria that accurately capture need. The Spanish experience therefore demonstrates that even where financial support is in place, weaknesses in targeting can significantly limit its effectiveness in reducing energy poverty.
An important lesson emerging from the French and Spanish cases is the role of household composition in shaping energy need. Energy poverty is not solely determined by income, but also by the level of energy demand, which varies across households depending on factors such as family size, age profile, and care responsibilities. Research consistently identifies single-parent households and households with children as being at heightened risk of energy poverty (Middlemiss, 2022), reflecting both financial constraints and higher energy requirements. Incorporating household composition into eligibility criteria can improve targeting by better aligning assistance with need. The French chèque énergie reflects this approach by combining income thresholds with household size in determining eligibility and payment levels. However, the Spanish experience illustrates the risks of applying household composition in isolation. It can result in support being extended to households with relatively higher incomes, while more financially vulnerable groups remain excluded.
Limits of the Current Approach
Turning to Ireland, existing income-based supports such as the Fuel Allowance play an important role in reducing energy poverty among eligible households (Pillai et al., 2023). However, their means-tested nature means that they do not capture all households experiencing affordability pressures. Households just above eligibility thresholds may face significant energy costs without access to support, creating “cliff-edge” effects. Although recent policy changes to the fuel allowance have expanded eligibility and increased payment rates, these measures do not fully address gaps in coverage. Data from the Commission for Regulation of Utilities indicates that approximately 14% of all domestic electricity customers and 26% of gas customers were in arrears by the end of 2025 (CRU, 2026a). In addition, a significant proportion of these arrears were classified as long-term, suggesting persistent rather than temporary financial difficulty.
The structure of the retail energy market places a degree of responsibility on consumers to manage their energy costs through engagement with suppliers, including switching provider or renegotiating contracts. However, available data indicates that a majority of consumers do not actively engage in the market in any given year (CRU, 2024; CRU, 2026b). While switching and renegotiation do occur, a substantial proportion of households remain on less competitive tariffs. This reliance on active engagement is particularly problematic given that vulnerable households are less likely to switch supplier or engage with tariff negotiation. Research from the United Kingdom (Lorenc et al., 2013) shows that older and lower-income households are significantly less likely to switch, even where savings are available. While Irish research from the ESRI highlights the relationship between income, financial preferences, and exposure to energy poverty (Tovar Reaños et al., 2023).
These findings are consistent with a wider body of research on administrative burden, or “sludge” (Lades et al., 2022, Samahita & Lades, 2026), which demonstrates how complexity in accessing services can reduce participation, particularly among those most in need. Administrative frictions such as complex application processes, information barriers, and uncertainty can discourage take-up of supports, leading to gaps between eligibility and actual receipt of benefits. In the context of energy poverty, this suggests that policies which rely on active engagement, whether through switching suppliers or applying for supports, may systematically disadvantage the households most in need.
Conclusion
Overall, the evidence suggests that there is no single optimal model of financial support for energy poverty. Effectiveness depends on a combination of factors, including accessibility, targeting, adequacy, and administrative simplicity. One implication is that future supports should, where possible, be automatically applied, reducing administrative burden and increasing take-up. For Ireland, this would mean moving beyond incremental adjustments to existing schemes towards a more diverse approach to policy design. Fixed-value or tiered lump-sum supports may offer advantages in terms of transparency, predictability, and administrative feasibility, while avoiding some of the complexities associated with unit tariff-based approaches. Consideration should also be given to fuel-neutral supports, reflecting the diversity of heating sources in Ireland, and to mechanisms that allow payments to be used flexibly, including for energy efficiency improvements. Effective targeting will be critical. This may involve combining existing social protection eligibility with Revenue data on taxable income below a defined threshold and tied to household composition. A tiered approach, reflecting differences in income and energy need, could ensure that support is proportionate and responsive to household circumstances. A similar proposal for targeted, tiered, lump-sum supports is being made within the UK (O’Connell et al., 2025). Finally, given the volatility of energy prices, the level of support should be subject to regular review to ensure that it remains adequate over time. Ultimately, the effectiveness of financial supports will depend not only on their generosity, but on their ability to reach those most in need in a timely and accessible way.
Acknowledgements
This policy paper was prepared during research placement with ESB. The research has been informed by engagement with stakeholders in the Irish energy sector, facilitated through the NexSys Strategic Partnership Programme, including work with Electric Ireland examining approaches to supporting customers experiencing energy poverty. These insights provide practical context on the challenges associated with designing effective, targeted, and accessible support measures. NexSys is funded by Research Ireland Grant no. 21/SPP/3756 (NexSys Strategic Partnership Programme). Opinions, findings and recommendations in this paper are those of the author and do not necessarily reflect the views of ESB, NexSys affiliated research organisations, or industry partners.
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