Subsidized tariffs for low-income consumers, commonly referred to as lifeline tariffs, are applied in many parts of the world. When developing these approaches to make electricity more affordable, there are two main questions to be addressed:
- what is the mechanism by which financial support will be provided? and
- who will pay for the support?
Generally, the two basic approaches for providing assistance to low-income customers are either through tariffs or through direct payments.
- Tariff solutions entail discounting charges relative to the cost of service. The structure of tariff solutions can vary extensively, including: providing a certain minimum amount of electricity supply for free each month (usually based on the monthly usage needed to meet a basic standard of living); waiving the basic monthly charge; or applying overt discounts to all energy consumed. Some jurisdictions constrain the provision of subsidies to specific seasons, while others supplement the subsidy scheme with an incentive for conservation.
- The direct payment approach is typically implemented as part of a broader social safety net program that helps low-income individuals and households access a minimum level of what are deemed to be essential services. While the direct payment approach is financed by the government (and, ultimately, by taxpayers), subsidies implemented through tariffs can be financed either through a direct subsidy from the government or through cross-subsidies (i.e., where some customers subsidize others by paying higher rates to fund the discount).