This report analyses the effects of the high electricity prices and the electricity subsidy scheme for households and the agricultural enterprises. The effects for households are discussed based on household income, size and composition, characteristics of the house, geographical location and possibilities for using alternatives to electricity for heating. The report also contains an analysis of how the electricity subsidy scheme and extraordinary housing benefit measures have interacted. For the analyses, we have used data on monthly electricity consumption per meter from the Elhub register linked to household and housing characteristics from the Housing Register.
The high power prices during the winter of 2021-2022 led to a considerable increase in power costs for households in the southern price areas of Norway compared to earlier winters, while costs in central and northern Norway were approximately the same as before. The electricity subsidy scheme reduced the power costs for households in the south considerably. We find that both the consumption of electricity, the expenditure on power and the payments from the electricity subsidy schemes increase on average across income groups, but there is great variation in consumption within each income group and large overlaps between the groups. We also find that until the summer of 2021 the differences in power expenditures between the various income groups were relatively stable, but after the power prices rose sharply, the spread in power expenditures has been steadily increasing. The analyses show that households in the affected price areas have experienced a large increase in the budget share for power. Average expenses for power and support from the electricity subsidy scheme increase with household income, but the importance for the households' finances of increased power expenditure and the electricity subsidies (measured as a budget share) reduces with higher income. We have also looked at how various vulnerable groups (social security recipients, sole income earners and households receiving housing benefit) are affected by the high prices and the electricity subsidy. We see that for all these groups the power expenditure and the electricity subsidy make up a larger proportion of the budget than for the average household and will therefore be of greater importance for these groups' finances. We also find that the extraordinary housing benefit payments are higher than the payments from the electricity subsidy scheme for households that received housing benefit.
We find significant electricity savings on average, but there are large differences in saving levels and patterns between household groups. Electricity saving is e.g. greater for households in detached houses and farmhouses compared to block housing during the winter of 2021-2022, but households living in block housing started saving before households in detached houses, while households in detached houses and farmhouses continued saving throughout the winter and increased electricity savings even after the electricity subsidy was introduced. This implies that we see a weakened connection between electricity savings and the power price faced by the household sector after the electricity subsidy was introduced, especially for households in detached houses. We also see signs that the energy savings made in low-income households, and especially for households in block housing, lead to noticeable reductions in welfare for these households, which is reflected in their behaviour. This is because they already have a lower consumption of electricity and have fewer options for substitution for other energy carriers for heating than households living in detached houses and farm houses.
Since we are only looking at the initial effects for households and not at secondary effects of the households’ price response, the costs for the national economy of the high prices and the electricity subsidy that we are able to quantify will be limited to the loss of consumer surplus for households from higher prices and loss of efficiency because of the electricity subsidy. The electricity subsidy will reduce the utility loss for households because it moderates the effects of high price increase. However, if the electricity subsidy leads to changes in electricity consumption, it will also contribute to a loss of efficiency in the economy as it introduces a price distortion. The less households adjust their consumption because of the electricity subsidy, the smaller this loss of efficiency will be.
We also find that households choose to take out a larger share of the utility loss as increased power expenditures, and thereby reduced consumption of other goods and services, and take out a smaller share as a reduction in utility due to electricity savings. It indicates that for households, the welfare loss is higher when they reduce their consumption of electricity than when they reduce their consumption of other goods and services, probably because a large share of electricity consumption will be necessity consumption that is more difficult to reduce in the short term.
In the agricultural sector, we also see a significant increase in electricity expenditures as a result of the high power prices. In addition, we see a large difference in the level of electricity consumption depending on whether the farmer is involved in animal husbandry or plant production, with animal husbandry having the lowest electricity consumption. This is also reflected in the power expenditures and electricity subsidy payments to these enterprises. There are also clear indications of energy savings in agricultural enterprises because of the high power prices.