The long-run price sensitivity dynamics of industrial and residential electricity demand: The impact of deregulating electricity prices

This study examines the demand-side of Ghana's electricity sector. We test two important related hypotheses: (1) deregulation of electricity price does not promote energy conservation, and (2) demand-price relationship is not an inverted U-shaped. The Stock and Watson dynamic OLS is used to address the so-called second-order bias. The result showed that, deregulation of electricity price in Ghana has induced behaviours that are more consistent with energy conservation improvements. The demand-price relationship is an inverted U, which suggests that there is a price range that end-users can tolerate further price rise and still increase their consumption of electricity. However, the degree of price tolerability is higher for residential consumers than industrial consumers. The simulation results showed that, further economic growth is likely to compromise energy conservation but more in the industrial sector than the residential sector. On the other hand, future crude oil price is likely to deteriorate energy conservation in the initial years after 2016, but this trend is likely to reverse after the year 2020. Pricing mechanisms are potent to induce energy conservation but inadequate. The results suggest that they should be complemented with other stringent policies such as a mandatory energy reduction policy, investment in renewables, and personalization of energy efficiency programs.     

Income and price elasticities of electricity demand: Aggregate and sector-wise analyses

Cointegration and vector error correction modeling approaches are widely used in electricity demand analysis. The study rigorously examines the determinants of electricity demand at aggregate and sectoral levels in Pakistan. In the backdrop of severe electricity shortages, our empirical findings give support to the existence of a stable long-run relationship among the variables and indicate that electricity demand is elastic in the long run to both income and price at aggregate level. At sectoral level, long-run income and price elasticity estimates follow this pattern except in agricultural sector, where electricity demand is found elastic to output but inelastic to electricity price. On the contrary, the coefficients for income and price are rather small and mostly insignificant in the short run. We employed temperature index, price of diesel oil and capital stock at aggregate and sectoral levels as exogenous variables. These variables account for most of the variations in electricity demand in the short run. It shows that mechanization of the economy significantly affect the electricity demand at macro level. Moreover, elastic electricity demand with respect to electricity price in most of the sectors implies that electricity price as a policy tool can be used for efficient use and conservation.     

Combining implicit and explicit techniques to reveal social desirability bias in electricity conservation self-reports

While questionnaires are still the most common way to survey consumers’ behaviors, it is known that respondents’ answers can be affected by the social desirability attributed to the behavior under investigation. To check whether a social desirability bias also affects electricity consumption self-reports, a study was carried out adopting an explicit (questionnaire) and implicit measurement technique (the autobiographical Implicit Association Test). Three behaviors were probed in this way, with a sample of 180 participants (60 for each behavior). The analysis of the congruence between explicit and implicit answers confirms that desirability bias is at stake in self-reported measures of electricity conservation; it also shows that different behaviors—in this same domain—can be subject to this bias to a different extent and that a considerable amount of participants need to be considered as ambivalent. The methodological and conceptual implications of these findings and of the method are discussed with respect to pro-environmental studies and interventions.     

Cost minimization for a local utility through CHP,heat storage and load management

The energy-system optimization model MODEST is described, especially heat storage and electricity load management. Linear programming is used for minimization of capital and operation costs. MODEST may be used to find the optimal investments and when to make them. The period under study can be divided into several linked subperiods which may consist of an arbitrary number of years. MODEST is here applied to a municipal electricity and district-heating system during three five-year periods. Each year is divided into three seasons. Demand peaks, as well as weekly and diurnal variations of, for example, costs are considered. The electricity demand is divided into the three sectors households, industries, and service. The electricity demand may be reduced by energy conservation, replacement of electric heating and load management. The profitability of load management, as well as cogeneration with and without heat storage at different prices of purchased power is calculated. At traditional Swedish electricity prices, the local utility should build a woodchips-fired steam-cycle CHP (combined heat and power) plant. Consumers would find it beneficial to reduce their electricity use by conservation and switching from electric heating to oil and biofuel. If just marginal power production costs are paid, the utility should introduce biomass-fired heat-only boilers instead. Electricity conservation is smaller at these lower prices. Load management is mainly profitable at the first price scheme which includes output-power-related charges. The heat storage should be used threefold: to cover demand peaks, as well as to enable increased CHP output when it is limited by the heat demand or to run heat pumps at cheap night electricity instead of in the daytime. © 1998 John Wiley & Sons, Ltd.     

Consumption of electricity in Punjab: Structure and growth

Electricity has played a pivotal role in the development of Punjab economy. Of late there has been a steep rise in the demand for electricity in the state. The present study undertakes a holistic view of growth of demand for electricity in the state. The technique applied is multiple regression and secondary data is used for the purpose of analysis. The study concludes that demand for electricity in the state is price inelastic but income elastic for majority of consuming sectors. An important policy implication thereof is that price hike will be ineffective in regulating and managing demand unless price is varied in an hourly basis. Therefore, the state has to resort to other demand-side management (DSM) measures, such as improving efficiency of electricity use and its conservation. Considering the high income elasticity of electricity demand, sufficient electricity-generating capacity needs to be created, since demand is expected to grow at an accelerated rate in future. This calls for a comprehensive electricity policy. The study further concludes that in the long run, price-demand as well as income-demand relationship in case of electricity is likely to remain uncertain especially in the post-reform era.     

Optimal energy efficiency policies and regulatory demand-side management tests: How well do they match?

Under conventional models, subsidizing energy efficiency requires electricity to be priced below marginal cost. Its benefits increase when electricity prices increase to finance the subsidy. With high prices, subsidies are counterproductive unless consumers fail to make efficiency investments when private benefits exceed costs. If the gain from adopting efficiency is only reduced electricity spending, capping revenues from energy sales may induce a utility to substitute efficiency for generation when the former is less costly. This goes beyond standard “decoupling” of distribution revenues from sales, requiring complex energy price regulation. The models’ results are used to evaluate tests in the 2002 California Standard Practice Manual for assessing demand-side management programs. Its “Ratepayer Impact Measure” test best conforms to the condition that electricity price is too low. Its “Total Resource Cost” and “Societal Cost” tests resemble the condition for expanded decoupling. No test incorporates optimality conditions apart from consumer choice failure.     

Change in consumer sensitivity to electricity prices in response to retail deregulation: A panel empirical analysis of the residential demand for electricity in the United States

About ten years have passed since the deregulation of the U.S. retail electricity market, and it is now generally accepted that the available data is adequate to quantitatively assess and compare conditions before and after deregulation. This study, therefore, estimates the changes in price elasticity in the residential electricity market to examine the changes, if any, in household sensitivity (as a result of retail electricity market deregulation policies) to residential electricity rates. Specifically, six types of panel data are prepared, based on three cross-sections—all states (except for Alaska and Hawaii) and the District of Columbia, deregulated states, and non-deregulated states—and two time series—the period before deregulation and the period after deregulation. The panel empirical analysis techniques are used to determine whether or not the variables are stationary, and to estimate price elasticity. We find that there is no substantial difference in the price elasticity between deregulated and non-deregulated states for both periods—before deregulation and after deregulation. Thus, it can be said that the deregulation of the retail electricity market has not made consumers more sensitive to electricity rates and that retail deregulation policies are not the cause of price elasticity differences between deregulated and non-deregulated states.     

One price doesn't fit all: An examination of heterogeneity in price elasticity of residential electricity in India

Although well-designed consumer electricity pricing can improve access, contribute to higher metering, increase penetration of energy efficient technologies, limit extent of the rebound effect, and influence viability of electricity distribution utilities in India, there has been no comprehensive, policy-relevant assessment of price elasticities of electricity demand in the country. The objective of this study is to estimate price elasticity of residential electricity consumption and disaggregate it by state, rural and urban residence, and income categories to provide evidence for electricity tariff setting in India. We combine survey data from five rounds of nationally-representative household consumption expenditure surveys covering the period 2005–2012 with administrative data on electricity deficit and improve on methods applied in previous studies by estimating price elasticities using a quadratic form to account for constraints in electricity supply. We find that while the average price elasticity at the national level is −0.39 (95% confidence interval: −0.46, −0.31), it varies significantly by state, rural and urban residence, and income categories. Our results indicate that a “one ‘price’ fits all” policy may not be an effective approach to electricity tariff setting in India and a data-driven understanding of heterogeneities in price elasticities can better inform residential electricity tariff design in the country.     

Responsiveness of low-income households to hybrid price/non-price policies in the presence of energy shortages: evidence from Colombia

At the beginning of 2016, Colombia was experiencing an energy shortage, and in order to avoid mandatory power cuts, the government launched an unexpected hybrid price/non-price energy-saving policy. In this paper, I evaluate how low-income households in a major Colombian city respond to this policy. Using hourly household electricity consumption data, I find that, on average, households reduce electricity consumption by 4.5% as a result of the policy. It is striking that even low-income households, who consume relatively small amounts of electricity, respond to energy-saving policies and engage in conservation behaviors in the short term. In my analysis, I also find that the effect is stronger the higher the household pre-treatment electricity consumption levels and smaller among poorer households. However, the heterogeneity in terms of income level vanishes once I control for household pre-program electricity consumption levels. Finally, my point estimates are comparable to the impact estimates of policies that are similar to the one I analyze in this paper.     

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.     

The potential for segmentation of the retail market for electricity in Ireland

We estimate the gross margin that is earned from the supply of electricity to households in Ireland. Using half hourly electricity demand data, the system marginal price (also called the wholesale price) and the retail price of electricity, we analyse how the gross margin varies across customers with different characteristics. The wholesale price varies throughout the day, thus, the time at which electricity is used affects the gross margin. The main factor in determining gross margin, however, is the level of demand.The highest gross margins are earned from supplying customers that have the following characteristics: being aged between 46 and 55, having a household income of at least €75,000 per annum, being self-employed, having a third-level education, having a professional or managerial occupation, living in a household with seven or more people, living in a detached house, having at least five bedrooms or being a mortgage holder.An OLS regression shows that gross margin is partly explained by the energy conservation measures which are present in a household; the number of household members; the number of bedrooms; age; occupation; and accommodation-type.     

For better or for worse? Empirical evidence of moral licensing in a behavioral energy conservation campaign

Isolated environmental campaigns focusing on defined target behaviors are rolled out to millions of households every year. Yet it is still unclear whether these programs trigger cross-domain adoption of additional environment-friendly behaviors (positive spillover) or reduced engagement elsewhere. A thorough evaluation of the real net performance of these programs is lacking. This paper investigates whether positive or perverse side effects dominate by exemplifying the impact of a water conservation campaign on electricity consumption. The study draws on daily water (10,780 data points) and weekly electricity (1386 data points) consumption data of 154 apartments in a controlled field experiment at a multifamily residence. The results show that residents who received weekly feedback on their water consumption lowered their water use (6.0% on average), but at the same time increased their electricity consumption by 5.6% compared with control subjects. Income effects can be excluded. While follow-up research is needed on the precise mechanism of the psychological process at work, the findings are consistent with the concept of moral licensing, which can more than offset the benefits of focused energy efficiency campaigns, at least in the short-term. We advocate the adoption of a more comprehensive view in environmental program design/evaluation in order to quantify and mitigate these unintended effects.     

Estimation of residential electricity demand function in Seoul by correction for sample selection bias

This paper attempts to estimate the residential electricity demand function in Seoul. To this end, we collected the data from a survey of households in Seoul and employed the bivariate model to rectify the undesirable impacts of non-response data. The results show that the size of family, the size of house, dummy for having a plasma display panel television, dummy for having an air conditioner, and the household's income have positive relationships with the residential electricity demand. On the other hand, electricity price contributes negatively to the residential electricity demand. In addition, the price and income elasticities were estimated as −0.2463 and 0.0593, respectively, implying that residential electricity demand in Seoul is price- and income-inelastic. Such useful information is expected to help policy-makers regulate the residential electricity supply and predict the effect of the price on the residential electricity demand in the future.     

Potential impacts of electricity price changes on price formation in the economy: a social accounting matrix price modeling analysis for Turkey

Recent reforms in the Turkish electricity sector since 2001 aim to introduce a tariff system that reflects costs. This is expected to affect the production and consumer prices of electricity. The changes in electricity prices are then reflected in production costs in other segments of the economy. Subsequently, producer and consumer prices will be affected. The potential impact of the changes in electricity prices that the ongoing electricity reforms in Turkey will bring about may have important implications on the price formation in economic activities and the cost of living for households. This paper evaluates the potential impacts of changes in electricity prices from a social accounting matrix (SAM) price modeling perspective. It is found that based on the estimated price multipliers that prices in the energy-producing sectors, mining, and iron and steel manufacturing sectors would be affected more severely than the remaining sectors of the economy. Consumer prices are affected slightly less than producer prices.     

Dynamic demand for residential electricity in Taiwan under seasonality and increasing-block pricing

This paper studies the dynamic demand for residential electricity in Taiwan employing a monthly panel data set, composed of 19 counties and spanning the period from 2007:01 to 2013:12. The partial adjustment model used addresses the endogeneity of the electricity price that results from the increasing-block pricing. The estimated results show that there is a significant seasonal difference in the demand for electricity between the summer and non-summer periods. Both the adjustment speed and own price elasticity during the summer months are found to be lower than those in the non-summer months due to the hot weather in summer. It is easier for consumers to adjust their electricity consumption in response to the changes in electricity pricing during the non-summer time. The estimated inelastic short-run and long-run income effects show that electricity is a necessity for consumers. Moreover, the controversial electricity-conservation policies are found to be ineffective measures for reducing electricity consumption in Taiwan.     

Residential past and future energy consumption: Potential savings and environmental impact

In order to identify main drivers behind changes in electricity and fuel consumptions in the household sector in Jordan, two empirical models are developed based on multivariate linear regression analysis. In addition, this paper analyzes and evaluates impacts of introducing some efficient measures, such as high efficiency lightings and solar water heating systems, in the housing stock, on the future fuel and electricity demands and associated reduction in GHG emissions. It was found that fuel unit price, income level, and population are the most important variables that affect demand on electrical power, while population is the most important variable in the case of fuel consumption. Obtained results proved that the multivariate linear regression models can be used adequately to simulate residential electricity and fuel consumptions with very high coefficient of determination. Without employing most effective energy conservation measures, electricity and fuel demands are expected to rise by approximately 100% and 23%, respectively within 10 years time. Consequently, associated GHG emissions resulting from activities within the residential sector are predicted to rise by 59% for the same period. However, if recommended energy management measures are implemented on a gradual basis, electricity and fuel consumptions as well as GHG emissions are forecasted to increase at a lower rate.     

Residential demand for electricity

Short- and long-run responses by households to changes in the price of electricity are estimated using data which permit measurement of the marginal price of electricity, the infra-marginal demand charge, and estimates of household appliance stocks. The price elasticities of high- and low-level users of electricity are compared. The theoretical bias in price elasticity estimates resulting from neglect of the infra-marginal demand charge is shown to be empirically insignificant.     

Residential energy efficiency investment and behavioural response under different electricity pricing schemes: a physical-microeconomic approach

ABSTRACT

The purpose of this paper is to analyze the effects of electricity price changes and energy efficiency subsidy on household energy efficiency purchase and/or behavioural adjustment decisions. The analysis adds energy efficiency investment to a methodology that merges the physics of energy with microeconomic principles. The physical side informs the amount of electricity used to satisfy services that people desire, while the microeconomic side imposes a utility function that represents a household’s welfare. Several electricity pricing schemes and energy efficiency options are examined, with costs and benefits of each option explicitly modeled in the physical representation. Several insights are derived from performing an analysis for archetypical villas across Saudi Arabia. One, energy efficiency purchases lower the need for energy conservation. Households also lessen the extent to which they practice conservation as energy efficiency subsidies are raised. Additionally, as energy efficiency subsidies and electricity prices rise, the difference in household spending on other goods and services widens between the highest efficiency case and no added efficiency. This indirect rebound causes a situation where firms would increase their production, and thus energy use, to meet the additional demand by households for their goods.     

Causal modeling and inference for electricity markets

How does dynamic price information flow among Northern European electricity spot prices and prices of major electricity generation fuel sources? We use time series models combined with new advances in causal inference to answer these questions. Applying our methods to weekly Nordic and German electricity prices, and oil, gas and coal prices, with German wind power and Nordic water reservoir levels as exogenous variables, we estimate a causal model for the price dynamics, both for contemporaneous and lagged relationships. In contemporaneous time, Nordic and German electricity prices are interlinked through gas prices. In the long run, electricity prices and British gas prices adjust themselves to establish the equilibrium price level, since oil, coal, continental gas and EUR/USD are found to be weakly exogenous.     

Nudges from school children and electricity conservation: Evidence from the “Project Carbon Zero” campaign in Singapore

Can children effectively nudge their parents to change their energy consumption behavior? This study sets up a quasi-experiment using the “Project Carbon Zero” campaign, an energy-saving contest in Singapore, to empirically test the effectiveness of school children nudges in bringing electricity conservation messages home and influencing behaviors of their families and neighbors. Based on the 2 km (km) home–school distance as an identification, our results show that families living within 2 km from participating schools (treatment group) used 1.8% less electricity at the block level than other families outside the 2 km school zone (control group) during the contest period. The electricity savings effects are persistent with an estimated marginal savings 1.6% in the post-campaign months. The results imply that policy makers and advocates for energy conservation could use school children nudges in public campaigns, instead of pecuniary interventions, to drive home behavioral changes in electricity conservation of families.