Regionally-varying and regionally-uniform electricity pricing policies compared across four usage categories

The objective of our research is to predict how electricity demand varies spatially between status quo regionally-uniform electricity pricing and hypothetical regionally-varying electricity pricing across usage categories. We summarize the empirical results of a case study of electricity demand in South Korea with three key findings and their related implications. First, the price elasticities of electricity demand differ across usage categories. Specifically, electricity demands for manufacturing and retail uses are price inelastic and close to unit elastic, respectively, while those for agricultural and residential uses are not statistically significant. This information is important in designing energy policy, because higher electricity prices could reduce electricity demands for manufacturing and retail uses, resulting in slower growth in those sectors. Second, spatial spillovers in electricity demand vary across uses. Understanding the spatial structure of electricity demand provides useful information to energy policy makers for anticipating changes in demand across regions via regionally-varying electricity pricing for different uses. Third, simulation results suggest that spatial variations among electricity demands by usage category under a regionally-varying electricity-pricing policy differ from those under a regionally-uniform electricity-pricing policy. Differences in spatial changes between the policies provide information for developing a realistic regionally-varying electricity-pricing policy according to usage category.     

Fuel choice and aggregate energy demand in the residential and commercial sectors

The energy demand response of the residential and commercial sectors to fuel price changes is of increasing importance to public policy makers. In this paper, the demands for energy in both sectors are examined separately using a refined data base. For each sector, a multinomial logit formulation is utilized, along with an aggregate demand equation to determine analytically short- and long-run fuel price elasticities of demand for the major fuels consumed. It is found that increases in energy prices have a greater effect on energy demand in the commercial sector. Furthermore, in both sectors, raising electricity prices has a greater effect for conserving energy (both end-use and primary) than do equal price rises for natural gas or heating oils.     

Energy price variation and competitiveness: Firm level evidence from Indonesia

This paper uses firm survey data from the manufacturing and mining sectors in Indonesia, and investigates the extent to which energy prices affect competitiveness (proxied by profitability). Persistent regional price differences due to Indonesia's insular geography enable this study to show that energy prices have a small (but statistically significant) adverse long-run effect on competitiveness – though different energy types matter in different sectors. By estimating cross and own price elasticities and Uzawa-Allen partial elasticities of (inter-fuel) substitution, this study also shows that firms have the ability to respond to higher energy prices by adjusting their energy mix, i.e. substituting certain energy goods for others. Moreover, this study shows that firms also respond to higher energy prices by increasing energy efficiency, and by passing on costs to end-users. Nevertheless, these response measures are not sufficient to fully mitigate the adverse effect of energy prices on firms. Based on these results, policy recommendations are offered which are of immediate relevance for the design of energy pricing reforms.     

How is demand for natural gas determined across European industrial sectors?

This paper estimates the response of manufacturing sectors’ natural gas demand to price and output changes. The average response to future changes in absolute and relative prices of the manufacturing industry in an OECD country depends on the mix of manufacturing industries, particularly with respect to energy intensity and substitution opportunities in production. We estimate short and long run demand elasticities using a shrinkage estimator, which allows heterogeneous demand responses across industries for each country. Our results show that price and output elasticities are heterogeneous within the same manufacturing sector across countries. Furthermore, an output contraction due to e.g. demand shocks will generally have larger negative effects on gas demand than increases in natural gas prices.     

Do manufacturing firms react to energy prices? Evidence from Italy

The reaction of energy demand to price changes is a key policy issue as it describes the economy's response to changes in market conditions or to policy interventions. The issue is even more important for the Italian economy, highly exposed to energy price changes, given its almost complete fossil fuel-related energy dependence, environmental sensitivity and highly fragmented industrial structure. Besides the policy issue, there is also an important methodological debate, concerning the best way to evaluate energy demand elasticities, looking at alternative models, data and elasticity definitions. After a discussion of the main methodological issues and the related empirical literature, this paper presents an estimation of factor and fuel demand elasticities for Italian industrial firms, by using a microeconomic panel in a two-stage translog model. Using cross-price and Morishima elasticities, we obtain information on the magnitude and asymmetry of firms' responses to price changes. Moreover, the use of a micro-dataset allows the high heterogeneity of Italian firms to be considered: the results are discussed according to technology intensity, sector and firm size. Our findings show that energy is the most elastic input for all sectors and that capital and energy are substitutes in the low technology sector and weak complements in all others. Estimated interfuel elasticities show a high degree of demand sensitivity to fuel price changes and the vast majority of cross-price elasticities exhibit substitutability. Appropriate fiscal policies can thus be identified to give an effective impulse in influencing the industrial energy mix by changing relative prices. These findings constitute an important foundation for analysing energy demand by Italian industrial firms, given that empirical literature is particularly rare on the Italian case study.     

Optimal real time pricing in an agent-based retail market using a comprehensive demand response model

In this paper, a weighted combination of different demand vs. price functions referred to as Composite Demand Function (CDF) is introduced in order to represent the demand model of consuming sectors which comprise different clusters of customers with divergent load profiles and energy use habitudes. Derived from the mathematical representations of demand, dynamic price elasticities are proposed to demonstrate the customers’ demand sensitivity with respect to the hourly price. Based on the proposed CDF and dynamic elasticities, a comprehensive demand response (CDR) model is developed in this paper for the purpose of representing customer response to time-based and incentive-based demand response (DR) programs. The above model helps a Retail Energy Provider (REP) agent in an agent-based retail environment to offer day-ahead real time prices to its customers. The most beneficial real time prices are determined through an economically optimized manner represented by REP agent’s learning capability based on the principles of Q-learning method incorporating different aspects of the problem such as price caps and customer response to real time pricing as a time-based demand response program represented by the CDR model. Numerical studies are conducted based on New England day-ahead market’s data to investigate the performance of the proposed model.     

The energy demand in the manufacturing sector of Pakistan: some further results

The purpose of this study was to re-examine the role of energy in the manufacturing sector of Pakistan using a Partial Equilibrium Approach. GL restricted cost function along with the factor demand equations were estimated using Zellner’s iterative procedure. Higher energy prices do not seem to adversely affect investment in capital. Substitution possibilities between energy and non-energy inputs are very limited and therefore energy price hikes may directly affect the cost of production. Inter-fuel cross price elasticities indicate that there are substitution possibilities between electricity and gas.     

Assessing the influence of manufacturing sectors on electricity demand. A cross-country input-output approach

The production and consumption of electricity is a major source of CO₂ emissions in Europe and elsewhere. In turn, the manufacturing sectors are significant end-users of electricity. In contrast to most papers in the literature, which focus on the supply-side, this study tackles the demand-side of electricity. An input–output approach combined with a sensitivity analysis has been developed to analyse the direct and indirect consumptions of electricity by eighteen manufacturing sectors in fifteen European countries, with indirect electricity demand related to the purchase of industrial products from other sectors which, in turn, require the consumption of electricity in their manufacturing processes. We identify the industrial transactions and sectors, which account for a greater share of electricity demand. In addition, the impact of an electricity price increase on the costs and prices of manufacturing products is simulated through a price model, allowing us to identify those sectors whose manufacturing costs are most sensitive to an increase in the electricity price.     

Gasoline demand in Saudi Arabia: are the price and income elasticities constant?

ABSTRACT

The paper investigates gasoline consumption in case of oil-exporting country applying Time-varying Coefficient Cointegration approach to the data from 1980 to 2017. Empirical estimations show that long-run income and price elasticities are not constant and are responsive to price and income fluctuations in the period considered. The income elasticity of gasoline demand increased until 2014, peaking at 0.151, following growth in disposable income, before declining to 0.136 in 2017. However, consumers do not stop driving when their disposable incomes fall, resulting in a less elastic response of gasoline demand to income. Price elasticities sit in the range of ?0.31 to ?0.05, becoming less elastic when prices are low and vice versa.

The findings of the study may be useful in successful implementation of energy price reforms and implementation of environmental policies.     

World crude oil and natural gas: a demand and supply model

This paper examines world markets for crude oil and natural gas over the period 1918–1999; it analyzes the time-series properties of output and prices and estimates demand and supply elasticities during 1918–1973 and 1973–1999. Oil and gas prices were stable during the first period; they became volatile afterwards, reflecting deep changes in the market structure following the oil shock in 1973. Demand price elasticities were too low; however, demand income elasticities were high. Supply price elasticities were also too low. The elasticity estimates help to explain the market power of the oil producers and price volatility in response to shocks, and corroborate elasticity estimates in energy studies.     

Industrial electricity demand in New York State

We will discuss electricity demand in manufacturing industries in upstate New York. Empirical results are presented based on data obtained at the electric utility service area level for the years 1969–1981. The equations are based on a partial adjustment model including relevant input prices and industrial output by SIC group. The estimated coefficients have the expected signs and are for the most part, statistically significant. There is considerable variation in price and output elasticities among SIC groups and between service areas, which suggests that energy policy and industrial policy at the state level should be tailored to specific industries and perhaps to specific subregions within the state. Forecasts of industrial electricity demand are based on assumptions of prices and industrial output growth made by the utility companies themselves. A comparison of these forecasts with those made by the utility companies indicates that electricity demand forecasts are sensitive to the inclusion of alternative fuel prices and to the level of sectoral disaggregation.     

US long-term energy intensity: Backcast and projection

Energy intensity of the economy is often modeled as being determined by the combined effect of a fixed price elasticity of demand, and an exogenously specified, fixed technical change parameter denoted as the autonomous energy efficiency improvement (AEEI). Typically, the AEEI rate is set to 0.5–1.5% improvement per annum. Here, we study historic aggregate energy intensity trends for the US from 1954 to 1994. We show that the historic trends are inconsistent with an autonomous model of improved energy efficiency—especially when the model is used to inform policies that impact energy prices. As an alternative we propose a model of price-induced efficiency, π, in which aggregate energy intensity trends respond to changes in energy prices beyond price elasticity of demand ε.Our exercise reveals that the aggregate price elasticity of energy demand of the US economy has declined by roughly 15% over the past four decades. But beyond this decline, bringing our simulations and historical data into close correspondence requires π to change sign before and after 1974. Before 1974, after accounting for price elasticity of demand, the economy was growing less energy efficient. After 1974, after accounting for the price elasticity of demand, the economy was growing more energy efficient. Furthermore, since 1984, the rate of energy efficiency gain has been declining.When projections of long-term energy use are compared, those with a price-induced energy efficiency formulation generate significantly more price sensitive energy use and emissions trajectories. When in the business as usual scenario energy prices are expected to be rising, climate policies involve lower shadow carbon prices with π than with AEEI formulations. In scenarios where energy prices are relatively flat, energy intensity rises leading to CO₂ emissions far higher than standard business as usual projections utilizing AEEI assumptions.     

Swedish industry and Kyoto—An assessment of the effects of the European CO2 emission trading system

We assess the effects on Swedish industry input demands and output of different climate policy scenarios connected to energy policy induced by the Kyoto protocol. We use a unique dataset containing firm-level data on outputs and inputs between 1991 and 2001 to estimate a factor demand model, which we use to simulate different policy scenarios. Sector-specific estimation suggests that the proposed quadratic profit function specification exhibits properties and robustness that are consistent with economic theory; that is, all own-price elasticities are negative and all output elasticities are positive. Furthermore, the elasticities show that the input demands are, in most cases, relatively inelastic. Simulation of the model for six different policy scenarios reveal that effects on the Swedish base industry of a EU-level permit-trading system depends on (i) the removal or maintenance of the current CO₂ tax, (ii) the price of permits, and (iii) the future price of electricity. Our analysis shows that changes in electricity price may be more important than the price of permits for some sectors.     

Fuel price determination in transportation sector using predicted energy and transport demand

This study determines fuel price based on estimated sectoral energy and transport demand using pumping prices. Three approaches are first used for estimating energy and transportation demand based on linear time series, polynomial time series and genetic algorithm based (GATEDE and GATDETR), as multi-parameter, models. Then, future fuel prices and marginal costs of the energy consumption are obtained. Transport demand-based energy efficiency methods are also developed. The fuel prices (FP) are analyzed under two scenarios: Linear and exponential price scenarios. Results showed that if the FP increases linearly, the marginal cost will slightly decreases from current trend, but will increases if demand increases exponentially. Results also showed that the demand-based pricing policy would help to develop a new pricing policy for fuel use in order to control fast growing demand on this sector. The exponential price increase would also help to locate financial sources to create environmentally friendly transportation systems.     

The impact of ICT investment and energy price on industrial electricity demand: Dynamic growth model approach

The authors investigate the effects of information and communications technology (ICT) investment, electricity price, and oil price on the consumption of electricity in South Korea's industries using a logistic growth model. The concept electricity intensity is used to explain electricity consumption patterns. An empirical analysis implies that ICT investment in manufacturing industries that normally consume relatively large amounts of electricity promotes input factor substitution away from the labor intensive to the electricity intensive. Moreover, results also suggest that ICT investment in some specific manufacturing sectors is conducive to the reduction of electricity consumption, whereas ICT investment in the service sector and most manufacturing sectors increases electricity consumption. It is concluded that electricity prices critically affect electricity consumption in half of South Korea's industrial sectors, but not in the other half, a finding that differs somewhat from previous research results. Reasons are suggested to explain why the South Korean case is so different. Policymakers may find this study useful, as it answers the question of whether ICT investment can ultimately reduce energy consumption and may aid in planning the capacity of South Korea's national electric power.     

Structural change and Thailand energy demand

This paper examines the impact of changes in the structure of the economy, radical changes in economic policy and oil price shocks on the relation between Thailand energy demand and its macroeconomic determinants. The impact of these structural changes on the relationship between energy consumption, income, energy prices and structural variation is examined through unit root and cointegration tests, the cointegration relationship and the error correction model. Methods which endogenize the location of an a priori unknown break point are employed to assess the impact of structural change. In general, the recognition of structural change has lead to some unique insights. In particular, the results of some of the conventional unit root and cointegration tests are reversed once structural changes are recognized. Estimates from the cointegrating regression imply long-run income, price, and structural variation elasticities of 0.568, −0.600 and 1.046, respectively. In comparison, estimates from the error correction model suggest a higher short-run income elasticity (0.788) but lower short-run price and structural variation elasticities (−0.522 and 0.491, respectively). One of the important implications of the estimates pertains to the low price elasticity for aggregate energy demand which implies that the over-pricing of energy as a policy instrument is not likely to be very influential for restraining future energy demand. Additionally, taxes on energy prices are unlikely to achieve government goals for energy conservation and environmental improvement, although they may well be efficient for raising revenue. Copyright © 2006 John Wiley & Sons, Ltd.     

The residential demand for electricity in Australia: an application of the bounds testing approach to cointegration

This paper reports estimates of the long- and short-run elasticities of residential demand for electricity in Australia using the bounds testing procedure to cointegration, within an autoregressive distributive lag framework. In the long run, we find that income and own price are the most important determinants of residential electricity demand, while temperature is significant some of the time and gas prices are insignificant. Our estimates of long-run income elasticity and price elasticity of demand are consistent with previous studies, although they are towards the lower end of existing estimates. As expected, the short-run elasticities are much smaller than the long-run elasticities, and the coefficients on the error-correction coefficients are small consistent with the fact that in the short-run energy appliances are fixed.     

Price elasticities of residential electricity demand: Estimates from household panel data in Bangladesh

We collect a household level panel dataset to estimate the price elasticities of electricity demand for different types of urban households in Bangladesh. We use an instrumental variable estimation strategy which exploits exogenous variation in average electricity prices induced by a value-added-tax shock. The results indicate significant heterogeneity in price elasticities by electricity consumption levels. We conduct a number of simulations under alternative policy scenarios to illustrate how incorporating the heterogeneous nature of price elasticities into pricing policy can help decrease electricity demand-supply mismatch and inequality in electricity consumption. The results have important policy implications for developing countries aiming to address major energy issues by implementing tariff reforms.     

Implications of a US electricity standard for final energy demand

This paper analyzes the emissions impact of an emissions intensity standard (metric tons of CO₂ per MWh of electricity) for the US power sector on US final energy demand — i.e. the manufacturing, residential, commercial, and transportation sectors. An emissions intensity standard, although geared towards the power sector, will have implications for these other sectors of the economy through its effect on economy-wide energy prices. Using a hybrid energy-economy simulation model (CIMS), we find the effect on aggregate emissions from final demand to mostly be small. However, after disaggregating final demand, we find significant changes in CO₂e emissions for several of sub-sectors. Given that emissions reductions in final energy demand are needed alongside power sector reductions for the US to achieve deep emissions cuts, our findings provide needed insight as to whether these eventual reductions will be helped or hindered by a US electricity standard.     

The effects of the energy price reform on households consumption in Iran

The substantial subsidizing of energy prices over the years has led to high energy consumption, inefficiencies, fiscal pressures, and environmental problems in Iran. To address the increasing socio-economic problems associated with the energy subsidies, the government embarked on an aggressive energy price reform through which energy subsidies were removed and cash handouts were given to all households in 2010. In this paper, I analyze the effectiveness of the energy price reform in Iran by estimating energy demand elasticities for households in different income groups. I apply a two-stage consumer optimization model and estimate the system of energy expenditures shares using the household budget survey data for the period 2001–2008. The results show that the overall price elasticities of demand are small, but income elasticities are close to one. The results also indicate heterogeneous responses to energy price and income changes in different income groups. Specifically, the urban households show stronger response to price changes, but rural households, particularly mid-income households, to income changes. These findings suggest that the current policy of price increases would not solely be able to reduce energy consumption and, therefore, it should be geared towards increasing energy efficiency through a series of price and non-price measures.