OPEC and demand response to crude oil prices

This paper investigates demand response to crude oil price movements before and after the recent global financial and economic crisis. It employs several market power indices to structurally estimate price elasticities. A newly developed market power index for crude oil markets is implemented. In this approach OPEC is the central player and acts as a dominant producer in the global oil market. We quantify how a change in market structure (such as changes in marginal cost of production) would contribute to market power exercise of OPEC and have an ultimate impact on price elasticity of demand for oil. Our price elasticity predictions fall in a range reported in the literature, however estimates for pre-crisis deviate from the post-crisis ones. In fact, demand response to crude oil prices has almost doubled during the crisis. This severe change in price response can be associated with record price levels caused by supply shortages and surge in alternative renewable energy resources. The key advantages of this methodology over the existing literature are that it is simple to use and estimates price elasticity using a competition framework without specifying demand/supply function(s), and utilizes commonly observable market variables that can be applied to any admissible data frequency.     

Forecasting electricity price and demand using a hybrid approach based on wavelet transform,ARIMA and neural networks

Demand and price forecasting are extremely important for participants in energy markets. Most research work in the area predicts demand and price signals separately. In this paper, a model is presented which predicts electricity demand and price simultaneously. The model combines wavelet transforms, ARIMA models and neural networks. Both time domain and wavelet domain variables are considered in the feature set for price and demand forecasting. The best input set is selected by two‐step correlation analysis. The proposed model is better adapted to real conditions of an energy market since the forecast features for price and demand are not assumed as known values but are predicted by the model, thus accounting for the interactions of the demand and price forecast processes. The forecast accuracy of the proposed method is evaluated using data from the Finnish energy market, which is part of the Nordic Power Pool. The results show that the proposed model provides significant improvement in both demand and price prediction accuracy compared with models using a separate frameworks approach. Copyright © 2013 John Wiley & Sons, Ltd.     

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.     

Electricity demand for South Korean residential sector

This study estimates the electricity demand function for the residential sector of South Korea with the aim of examining the effects of improved energy efficiency, structural factors and household lifestyles on electricity consumption. In the study, time series data for the period from 1973 to 2007 is used in a structural time series model to estimate the long-term price and income elasticities and annual growth of underlying energy demand trend (UEDT) at the end of the estimation period. The result shows a long-term income elasticity of 1.33 and a long-term price elasticity of −0.27% with −0.93% as the percentage growth of UEDT at the end of the estimation period. This result suggests that, in order to encourage energy efficiency in the residential sector, the government should complement the market based pricing policies with non-market policies such as minimum energy efficiency standards and public enlightenment.     

The energy demand in the British and German industrial sectors: Heterogeneity and common factors

This paper estimates energy demands for the German and British industrial sectors over the 1978–2004 and the 1991–2004 samples. From time series models we can conclude that there is a considerable variation in the value of the coefficients across sectors, even though energy demands with sensible parameters can rarely be estimated. When using a panel approach, the ability of some estimators to allow for diversity across subsectors was an important factor in explaining the estimates for price elasticity. On the other hand, correlation across panel members or common factors did not markedly influence our results. With regard to the estimated parameters, our preferred choice for elasticity of economic activity and price in the longer sample is 0.52 and ? 0.64. Similar values are found in the case of the shorter samples. Bearing in mind the high price elasticity, energy taxes can be considered an effective strategy for reducing energy consumption.     

Import demand of crude oil and economic growth: Evidence from India

This study establishes a long-run equilibrium relationship among quantity of crude oil import, income and price of the imported crude in India for the time span 1970–1971 to 2005–2006 using autoregressive distributed lag (ARDL) bounds testing approach of cointegration. Empirical results show that the long-term income elasticity of imported crude in India is 1.97 and there exists a unidirectional long-run causality running from economic growth to crude oil import. So reduction of crude oil import will not affect the future economic growth in India in the long-run. India should take various energy efficiency and demand side management measures in transport sector along with other measures like expanding and strengthening indigenous resource-base, substituting imported fuels by domestic fuels and de-controlling the price of petroleum products to reduce its import dependence.     

Fostering economic demand response in the Midwest ISO

The Midwest Independent System Operator (MISO) runs the power grid in 14 states and one Canadian province and has a peak demand of some 116,000 MW. Its operational area is richly supplied with reliability-triggered demand response programs such as direct load control of residential appliances and curtailable/interruptible rates for commercial and industrial customers. However, economic demand response programs are lacking. This paper discusses three different ways in which such programs can be introduced in the wholesale energy markets run by MISO. These include, first, an approach in which utilities and load serving entities move retail customers to dynamic pricing and other time-based pricing rates; second, an approach in which these same entities and possibly third-parties bid price responsive demand curves into the wholesale market; and third, an approach in which demand response is bid as a supply resource into the wholesale market.     

Primary energy demand in Japan: an empirical analysis of long-term trends and future CO2 emissions

This paper examines the long-run relationship between energy demand, GNP and the real energy price in Japan using data covering 1887–2001. It is found that, if an Underlying Energy Demand Trend is appropriately incorporated, the resulting econometric model produces a long-run income elasticity of about unity and a long-run price elasticity of about–0.2. The estimated model is utilised to forecast energy consumption and CO₂ emissions up to 2012. It is shown that given current economic conditions and policies there is considerable uncertainty about whether Japan will be able to meet its Kyoto target by reducing CO₂ emissions in 2008–2012 to the 1990 level. It is shown that this uncertainty depends on the strength of the economy and leaves the Japanese government with a difficult policy dilemma. If there is a resurgence in growth to something near the annual average growth rate since the early 1980s a considerable effort will be required in order to meet its Kyoto target; requiring not only using the Kyoto Mechanisms, but also additional tougher domestic policies and measures such as emissions capping, R&D incentives, and education for energy conservation in addition to a pricing and tax policy.     

Electricity demand in industrial and service sectors in Taiwan

The electricity demand in the industrial and service sectors in Taiwan is estimated using a panel dataset, covering 23 industries in the industrial and 9 in the service sectors from 1998 to 2015. Static and dynamic models are studied. Industries are reclassified based on the national accounts and the energy balance sheets. Estimated results indicate the price elasticity is ??0.14 in the short term and ??0.82 in the long term, while the income elasticity is 0.08 in the short term and 0.47 in the long term. The influence of cooling degree days was positive, and substitution effect of electricity with respect to petroleum was proven. In addition, the scenario analysis reveals the gap between the current situation and the policy target of electrical efficiency. This gap can be bridged by economic development and adjustment of industrial structure if Taiwan chooses to stick with low electricity prices.     

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.     

A bilevel model for electricity retailers' participation in a demand response market environment

Demand response programmes are seen as one of the contributing solutions to the challenges posed to power systems by the large-scale integration of renewable power sources, mostly due to their intermittent and stochastic nature. Among demand response programmes, real-time pricing schemes for small consumers are believed to have significant potential for peak-shaving and load-shifting, thus relieving the power system while reducing costs and risk for energy retailers. This paper proposes a game theoretical model accounting for the Stackelberg relationship between retailers (leaders) and consumers (followers) in a dynamic price environment. Both players in the game solve an economic optimisation problem subject to stochasticity in prices, weather-related variables and must-serve load. The model allows the determination of the dynamic price-signal delivering maximum retailer profit, and the optimal load pattern for consumers under this pricing. The bilevel programme is reformulated as a single-level MILP, which can be solved using commercial off-the-shelf optimisation software. In an illustrative example, we simulate and compare the dynamic pricing scheme with fixed and time-of-use pricing. We find that the dynamic pricing scheme is the most effective in achieving load-shifting, thus reducing retailer costs for energy procurement and regulation in the wholesale market. Additionally, the redistribution of the saved costs between retailers and consumers is investigated, showing that real-time pricing is less convenient than fixed and time-of-use price for consumers. This implies that careful design of the retail market is needed. Finally, we carry out a sensitivity analysis to analyse the effect of different levels of consumer flexibility.     

Modelling UK sub-sector industrial energy demand

The importance of considering homogenous economic agents when estimating energy demand functions is recognized in the literature, but so far data availability problems have explained the prevalence of empirical analyses only at an aggregate level. Motivated by the goal of developing the new industrial module to be adopted by the UK government Department of Business, Energy and Industrial Strategy (BEIS) for their econometric Energy Demand Model, we propose the first cointegration analysis that provides evidence on energy demand elasticities with respect to economic activity and energy price at a disaggregated industrial level. While the average of our estimates are comparable to those of the existing literature on the industrial sector as a whole, we find that there is considerable heterogeneity in relation to the long-run impact of economic activity and energy price on energy consumption, as well as to the speed with which firms re-adjust their equilibrium demand of energy in response to economic shocks. Finally, we learn that long-run disequilibria are tackled through altering the level of energy consumption rather than economic activity, a conclusion that has important implications for policy analysis.     

The impact of energy prices on energy consumption and energy efficiency: evidence from Taiwan

This study aims to explore the impact of energy prices on energy consumption and energy efficiency using industry data for Taiwan over the period of 1982–2011. A frontier-based framework is proposed with a microeconomic foundation to measure energy efficiency and decompose energy consumption into energy utilization and energy wastage in the short and the long run. We learn that the traditional energy efficiency indicators are essentially ambiguous measures. In contrast, the frontier-based framework can focus the measure on energy relatively specifically and capture the essence of a proper efficiency measure more precisely. The empirical analyses reveal that the values of short- and long-run energy efficiency in the Taiwan manufacturing sector are on average 0.6016 and 0.8040, respectively. Moreover, energy utilization is price inelastic in the short run, but in the long run, it is elastic at ?0.79. The energy price elasticity of energy wastage in the short run is ?0.61, which is somewhat higher than the ?0.52 in the long run. The energy price elasticity of energy efficiency in the short run is 0.077 and that in the long run is 0.144. All the energy price elasticities obtained using the frontier-based framework are lower than those obtained using the common framework of the past without distinguishing the heteroscedasticity between the energy utilization and energy wastage.     

World transport energy demand modelling : Methodology and elasticities

This paper presents the International Energy Agency's (IEA) approach of modelling transport energy demand. Fuel demand, which is not a demand per se, is derived, whenever possible, from the economic activity in the transport sector and not estimated directly, ie using one equation or (simultaneous) equation system. In general, the transport models employ a ‘two-step-approach’: in the first step, transport activity, the sector's relevant energy service, is estimated econometrically. In the second step, the transport activity projections are then combined with estimates of efficiency improvements, car turnover rates and diesel/gasoline penetration assumptions in order to arrive at projections of fuel demand. The principal advantages of this approach are that the relevant energy services are modelled and that, for model simulation, efficiency improvements can be dealt with explicitly. The effectiveness of economic instruments is a function of the reaction of consumers (and businesses) to income and price changes. An in-depth understanding of income and price elasticities of transport demand and transport energy demand is important in order to be able to assess the effectiveness of policies considered. The paper also shows the underlying long-term income and price elasticities for OECD and non-OECD regions.     

Road transport energy demand in West Africa: a test of the consumer-tolerable price hypothesis

This study estimates road transport energy demand (both aggregate energy fuel and gasoline energy fuel) in West Africa using the Pooled Mean Group Estimate and the Panel FMOLS. Primarily, we test for the nonlinearity in the price effects (hereafter referred to as the consumer-tolerable price hypothesis), which is motivated by Adom (2017. “The long-run Price Sensitivity Dynamics of Industrial and Residential Electricity Demand: The Impact of Deregulating Electricity Prices” Energy Economics 62: 43–60). First, for the baseline model, we find that, in the long-run, the energy conservation potency of pricing tools is restrained due to the presence of a rebound effect. Similar result is obtained in the short-run with evidence of cross-sectional differences. Second, in the long-run, we find that the demand–price relation is an inverted U-shaped, but we could only confirm this for Nigeria and Ghana; this suggests that, in the long-run, price disincentive tools have to be higher than a required price threshold in order to induce energy conservation behaviours in these economies.     

Fuel switching in Harare: An almost ideal demand system approach

In urban areas several energy choices are available and the amount of (a given type of) fuel consumed is based on complex household decision processes. This paper analyzes urban fuel (particularly firewood) demand in an energy mix context by means of an Almost Ideal Demand System based on a survey carried out among 500 households in Harare in 2003. Using a multi-stage budgeting approach, the model estimates the share of energy in total household expenditure and the shares of firewood, electricity and kerosene in total energy expenditure. Using the model results simulations show that the main policy handles to reduce the demand for firewood and to mitigate environmental degradation such as deforestation include decreasing prices of alternative fuels, notably kerosene. Moreover, in the long run sound economic policy will positively impact on the energy budget whereas education and the degree of electrification will contribute to a reduction of the use of firewood.     

Improved technical efficiency and exogenous factors in transportation demand for energy: An application of structural time series analysis to South Korean data

This paper stresses the importance of incorporating the effects of improved technical efficiency and exogenous factors when estimating energy demand functions. Using annual time series data for the period 1973–2007 in the STSM (structural time series model) developed by Harvey et al. [26] the paper estimates price and income elasticities of demand for energy as well as the annual growth of the stochastic trend at the end of the estimation period. The results of the study reveal a long-run income elasticity of 1.37 and a price elasticity of −0.19. In addition, the underlying trend is generally stochastic and negatively sloping during the greater part of the estimation period. Finally, the estimated result from the structural time series is compared with the results from the Johansen Cointegration. These results suggest that income is the dominant factor in energy consumption. In addition, the coefficient of linear trend is negative, supporting the results from the STSM.     

Electricity demand in Kazakhstan

Properties of electricity demand in transition economies have not been sufficiently well researched mostly due to data limitations. However, information on the properties of electricity demand is necessary for policy makers to evaluate effects of price changes on different consumers and obtain demand forecasts for capacity planning. This study estimates Kazakhstan's aggregate demand for electricity as well as electricity demand in the industrial, service, and residential sectors using regional data. Firstly, our results show that price elasticity of demand in all sectors is low. This fact suggests that there is considerable room for price increases necessary to finance generation and distribution system upgrading. Secondly, we find that income elasticity of demand in the aggregate and all sectoral models is less than unity. Of the three sectors, electricity demand in the residential sector has the lowest income elasticity. This result indicates that policy initiatives to secure affordability of electricity consumption to lower income residential consumers may be required. Finally, our forecast shows that electricity demand may grow at either 3% or 5% per year depending on rates of economic growth and government policy regarding price increases and promotion of efficiency. We find that planned supply increases would be sufficient to cover growing demand only if real electricity prices start to increase toward long-run cost-recovery levels and policy measures are implemented to maintain the current high growth of electricity efficiency.     

Price and expenditure elasticities of residential energy demand during urbanization: An empirical analysis based on the household-level survey data in China

Urbanization, one of the most obvious characteristics of economic growth in China, has an apparent “lock-in effect” on residential energy consumption pattern. It is expected that residential sector would become a major force that drives China's energy consumption after urbanization process. We estimate price and expenditure elasticities of residential energy demand using data from China's Residential Energy Consumption Survey (CRECS) that covers households at different income levels and from different regional and social groups. Empirical results from the Almost Ideal Demand System model are in accordance with the basic expectations: the demands for electricity, natural gas and transport fuels are inelastic in the residential sector due to the unreasonable pricing mechanism. We further investigate the sensitivities of different income groups to prices of the three types of energy. Policy simulations indicate that rationalizing energy pricing mechanism is an important guarantee for energy sustainable development during urbanization. Finally, we put forward suggestions on energy pricing reform in the residential sector based on characteristics of China's undergoing urbanization process and the current energy consumption situations.     

Distributed generation and demand response dispatch for a virtual power player energy and reserve provision

Recent changes in the operation and planning of power systems have been motivated by the introduction of Distributed Generation (DG) and Demand Response (DR) in the competitive electricity markets' environment, with deep concerns at the efficiency level. In this context, grid operators, market operators, utilities and consumers must adopt strategies and methods to take full advantage of demand response and distributed generation. This requires that all the involved players consider all the market opportunities, as the case of energy and reserve components of electricity markets.The present paper proposes a methodology which considers the joint dispatch of demand response and distributed generation in the context of a distribution network operated by a virtual power player. The resources' participation can be performed in both energy and reserve contexts. This methodology contemplates the probability of actually using the reserve and the distribution network constraints. Its application is illustrated in this paper using a 32-bus distribution network with 66 DG units and 218 consumers classified into 6 types of consumers.