Modelling industrial energy demand in Saudi Arabia

Between 1986 and 2016, industrial energy consumption in Saudi Arabia increased by tenfold, making it one of the largest end-use sectors in the Kingdom. Despite its importance, there appear to be no published econometric studies on aggregate industrial energy demand in Saudi Arabia. We model aggregate industrial energy demand in Saudi Arabia using Harvey’s (1989) Structural Time Series Model, showing that it is both price and income inelastic, with estimated long-run elasticities of −0.34 and 0.60, respectively. The estimated underlying energy demand trend suggests improvements in energy efficiency starting from 2010.Applying decomposition analysis to the estimated econometric equation highlights the prominent roles of the activity effect (the growth in industrial value added) and the structure effect (the shift towards energy-intensive production) in driving industrial energy demand growth. Moreover, the decomposition shows how exogenous factors such as energy efficiency helped mitigate some of that growth, delivering cumulative savings of 6.8 million tonnes of oil equivalent (Mtoe) between 2010 and 2016.Saudi Arabia implemented a broad energy price reform program in 2016, which raised electricity, fuel, and water prices for households and industry. The decomposition results reveal that, holding all else constant, higher industrial energy prices in 2016 reduced the sector’s energy consumption by 6.9 %, a decrease of around 3.0 Mtoe. Saudi policymakers could therefore build on the current policy of energy price reform and energy efficiency standards to mitigate the rate of growth of industrial energy consumption, increase economic efficiency, and maintain industrial sector competitiveness.     

Response of residential electricity demand to price: The effect of measurement error

In this paper we present an empirical analysis of the residential demand for electricity using annual aggregate data at the state level for 48 US states from 1995 to 2007. Earlier literature has examined residential energy consumption at the state level using annual or monthly data, focusing on the variation in price elasticities of demand across states or regions, but has failed to recognize or address two major issues. The first is that, when fitting dynamic panel models, the lagged consumption term in the right-hand side of the demand equation is endogenous. This has resulted in potentially inconsistent estimates of the long-run price elasticity of demand. The second is that energy price is likely mismeasured.To address these issues, we estimate a dynamic partial adjustment model using the Kiviet corrected Least Square Dummy Variables (LSDV) (1995) and the Blundell–Bond (1998) estimators. We find that the long-term elasticities produced by the Blundell–Bond system GMM methods are largest, and that from the bias-corrected LSDV are greater than that from the conventional LSDV. From an energy policy point of view, the results obtained using the Blundell–Bond estimator where we instrument for price imply that a carbon tax or other price-based policy may be effective in discouraging residential electricity consumption and hence curbing greenhouse gas emissions in an electricity system mainly based on coal and gas power plants.     

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.     

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.     

Short- and long-run demand for energy in Mexico: a cointegration approach

The objective of this paper is to estimate the demands for the different types of energy consumption for the Mexican economy over the period 1965–2001. These demands are modeled as a function of output and the own real price. The Johansen (J. Econ. Dynamics Control 12 (1988) 231) procedure and the likelihood ratio tests indicate the existence of long-run and stable relationships between each type of energy demand and income with the exception of the industrial sector where the cointegrating vector also includes the relative prices. The weak exogeneity tests indicate that energy consumption and income do not reject the null hypothesis of weak exogeneity when relative prices are weak exogenous. The final econometric models show that relative prices in the short run are relevant in all cases, with the exception of the residential sector. These results indicate that in Mexico the demand for energy is fundamentally driven by income and that the effect of the relative prices is basically concentrated on the short run with the exception of the industrial sector, which also shows a long-term price impact. The strong dependence of energy consumption with respect to income and the price inelastic response indicates that it is necessary to introduce strong measures to decouple energy consumption from output in order to obtain sustainable economic growth in Mexico.     

Natural gas consumption and economic growth: Are we ready to natural gas price liberalization in Iran?

This paper examines the relationship between natural gas consumption and economic growth in Iran within a multivariate production model. We also investigate the effects of natural gas price on its consumption and economic growth using a demand side model. The paper employs bounds test approach to level relationship over the period of 1972–007. We find evidence of bidirectional positive relationship between natural gas consumption and economic growth in short-run and long-run, based on the production model. The findings also suggest that real GDP growth and natural gas have positive and negative impacts on gross fixed capital formation, respectively. Employment, however, was found to have negative but insignificant impact on gross fixed capital formation. Moreover, the estimation results of demand side model suggest that natural gas price has negative and significant impact on natural gas consumption only in the long-run, though there is insignificant impact on economic growth. These results imply that the Iranian government's decision for natural gas price liberalization has the adverse effects on economic growth and policy makers should be cautious in doing this policy.     

Short- and long-run time-of-use price elasticities in Swiss residential electricity demand

This paper presents an empirical analysis on the residential demand for electricity by time-of-day. This analysis has been performed using aggregate data at the city level for 22 Swiss cities for the period 2000−2006. For this purpose, we estimated two log–log demand equations for peak and off-peak electricity consumption using static and dynamic partial adjustment approaches. These demand functions were estimated using several econometric approaches for panel data, for example LSDV and RE for static models, and LSDV and corrected LSDV estimators for dynamic models. The attempt of this empirical analysis has been to highlight some of the characteristics of the Swiss residential electricity demand. The estimated short-run own price elasticities are lower than 1, whereas in the long-run these values are higher than 1. The estimated short-run and long-run cross-price elasticities are positive. This result shows that peak and off-peak electricity are substitutes. In this context, time differentiated prices should provide an economic incentive to customers so that they can modify consumption patterns by reducing peak demand and shifting electricity consumption from peak to off-peak periods.     

Energy models for demand forecasting—A review

Energy is vital for sustainable development of any nation - be it social, economic or environment. In the past decade energy consumption has increased exponentially globally. Energy management is crucial for the future economic prosperity and environmental security. Energy is linked to industrial production, agricultural output, health, access to water, population, education, quality of life, etc. Energy demand management is required for proper allocation of the available resources. During the last decade several new techniques are being used for energy demand management to accurately predict the future energy needs. In this paper an attempt is made to review the various energy demand forecasting models. Traditional methods such as time series, regression, econometric, ARIMA as well as soft computing techniques such as fuzzy logic, genetic algorithm, and neural networks are being extensively used for demand side management. Support vector regression, ant colony and particle swarm optimization are new techniques being adopted for energy demand forecasting. Bottom up models such as MARKAL and LEAP are also being used at the national and regional level for energy demand management.     

What drives energy consumption in developing countries? The experience of selected African countries

This study investigates the drivers of energy consumption in Sub-Saharan African countries. It applies the bounds testing approach to cointegration to time series data at individual country levels over the period from 1970 to 2011. The study finds that energy consumption is cointegrated with real GDP per capita, industrial output, imports, foreign direct investment, credit to private sector, urbanization and population. Furthermore, the sign and magnitude of long-run estimates vary significantly for a single country and across countries depending on the energy consumption variable used. Overall, the findings confirm the leading role of economic growth, industrial output, population and urbanization. Economic growth, industrial output and population have positive effects on energy consumption in the majority of countries. Given the urgent need to address climate change, African countries should adopt policies to improve energy efficiency and accelerate transition toward renewable energy. The African Renewable Energy Initiative launched at the 21st session of the United Nations Conference of the Parties (COP21) is an opportunity for African countries to provide and maintain widespread access to reliable and affordable environmentally cleaner energy to meet the requirements of rapid economic growth and improved living standards.     

Residential energy consumption: A convergence analysis across Chinese regions

The process of urbanization and the raise of living standards in China have led an increasing trend in the patterns of residential consumption. Projections for the population growth rate in urban areas do not paint a very optimistic picture for energy conservation policies. In addition, the concentration of economic activities around coastal areas calls for new prospects to be formulated for energy policy. In this context, the objective of this paper is twofold. First, we analyse the effect of the urbanization process of the Chinese economy in terms of the long-run patterns of residential energy consumption at national level. By using the concept of club convergence, we examine whether electricity and coal consumption in rural and urban areas converge to the same long-run equilibrium or whether in fact they diverge. Second, the impact of the regional concentration of the economic activity on energy consumption patterns is also assessed by source of energy across Chinese regions from 1995 to 2011. Our results suggest that the process of urbanization has led to coal being replaced by electricity in urban residential energy consumption. In rural areas, the evidence is mixed. The club convergence analysis confirms that rural and urban residential energy consumption converge to different steady-states. At the regional level, we also confirm the effect of the regional concentration of economic activity on residential energy consumption. The existence of these regional clusters converging to different equilibrium levels is indicative of the need of regional-tailored set of energy policies in China.     

Human capital and export diversification as new determinants of energy demand in the United States

This paper investigates how education and export diversification contribute to energy demand by also incorporating the role of natural resource, oil prices and income in driving energy demand function for the United States (U.S.) economy. In doing so, we apply the unit root test of Kim and Perron (2009) and the bootstrapping autoregressive-distributed lag (ARDL) cointegration approach developed by McNown et al. (2018), which accommodates the presence of a single unknown structural break in the series. The empirical results confirm that the variables are cointegrated in a long-run relationship. Education is negatively linked to energy demand, and export diversification also decreases this demand in the long-run. On the other hand, economic growth increases energy consumption, while oil prices reduce energy demand in the long-run. Natural resource production affects energy consumption positively. Further, the Vector Error Correction Mechanism (VECM)'s Granger causality analysis reveals a feedback effect between education and energy demand. Export diversification causes energy demand, and in return, energy demand causes export diversification. A bidirectional causality also exists between economic growth and energy demand. The paper also discusses the potential implications of the results.     

An empirical analysis of energy demand in Namibia

Using a unique database of end-user local energy data and the recently developed Autoregressive Distributed Lag (ARDL) bounds testing approach to cointegration, we estimate the long-run elasticities of the Namibian energy demand function at both aggregated level and by type of energy (electricity, petrol and diesel) for the period 1980–2002. Our main results show that energy consumption responds positively to changes in GDP and negatively to changes in energy price and air temperature. The differences in price elasticities across fuels uncovered by this study have significant implications for energy taxation by Namibian policy makers. We do not find any significant cross-price elasticities between different fuel types.     

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.     

Residential electricity demand in Spain: New empirical evidence using aggregate data

This paper presents an empirical analysis on residential demand for electricity. This analysis has been performed using aggregate panel data at the province level for 47 Spanish provinces for the period from 2000 to 2008. For this purpose, we estimated a log–log demand equation for electricity consumption using a dynamic partial adjustment approach. This dynamic demand function has been estimated using a two-step system GMM estimator proposed by Blundell and Bond (1998). The purpose of this empirical analysis is to highlight some of the characteristics of Spanish residential electricity demand. Particular attention has been paid to the influence of price, income, and weather conditions on electricity demand. The estimated short and long-run own price elasticities are negative, as expected, but lower than 1. Furthermore, weather variables have a significant impact on electricity demand.     

LMDI decomposition analysis of energy consumption in Andalusia (Spain) during 2003–2012: the energy efficiency policy implications

The aim of this paper is to analyse the changes in final energy consumption in Andalusia through logarithmic mean Divisia index (LMDI) decomposition analysis during the period 2003–2012. The results lead us to conclude that a reduction of final energy (FE) consumption of 1 % took place as a result of a diminishing in structural effect by 11 % and an increase in the activity effect and intensity effect by 7.4 and 3.5 %, respectively. Chain-linked LMDI decomposition shows the existence of two sub-periods, with a turning point in 2008. The first period, coinciding to a great extent with the Andalusian Energy Plan 2003–2006 (PLEAN), showed an increase in final energy consumption, mostly due to the activity effect but also to the intensity effect. The second period, coinciding with the implementation of the Andalusian Sustainable Energy Plan 2007–2013 (PASENER), shows a reduction in the activity, structure and intensity effects. The results allow us to conclude that many of the energy efficiency measures, implemented through the PASENER, are related to sectors that experienced a decline in energy consumption due to the intensity effect, such as transport, primary and service sectors. Additionally, although they were included in PASENER, more policy attention should be given to the energy transformation, residential and industrial sectors which increased the demand for energy due to the intensity effect during this period. Finally, the energy-saving behaviour of economic agents due to the economic downturn should also be considered as an explanation for the diminishing in energy consumption during this sub-period.     

Energy consumption and economic growth: New insights into the cointegration relationship

This paper examines the long-run relationship between energy consumption and real GDP, including energy prices, for 25 OECD countries from 1981 to 2007. The distinction between common factors and idiosyncratic components using principal component analysis allows to distinguish between developments on an international and a national level as drivers of the long-run relationship. Indeed, cointegration between the common components of the underlying variables indicates that international developments dominate the long-run relationship between energy consumption and real GDP. Furthermore, the results suggest that energy consumption is price-inelastic. Causality tests indicate the presence of a bi-directional causal relationship between energy consumption and economic growth.     

International and sectoral variation in industrial energy prices 1995–2015

Energy price rises for industry are a major political concern. Access to cheap energy is often considered a key factor for the competitiveness of industry. To enable international comparisons, and to foster further empirical research on the impacts of energy price or tax differentials on a wide range of outcomes, such as international trade and investment patterns, we construct sector level energy prices for 12 industrial sectors in 48 countries for the period 1995 to 2015. Our prices are constructed as weighted averages of fuel-specific prices by fuel consumption. We provide guidelines for the use of our energy price data, which is made available for download, as well as a set of stylized facts on major trends and variations, and illustrative applications.     

Energy consumption and economic growth: Evidence from the economic community of West African States (ECOWAS)

Access to modern energy is believed to be a prerequisite for sustainable development, poverty alleviation and the achievement of the Millennium Development Goals.However, theoretical models and empirical results offer conflicting evidence on the relationship between energy consumption and economic growth that we remain largely unsure of the cause-and-effect nature of this relationship, if indeed a relationship exists at all.This paper tests, in a panel context, the long-run relationship between energy access, and economic growth for fifteen African countries from 1980 to 2008 by using recently developed panel cointegration techniques.We adopt a three-stage approach, consisting of panel unit root, panel cointegration and Granger causality tests to study the dynamic causal relationships between energy consumption, energy prices and growth as well as relationship between electricity consumption, prices and growth.Results show that GDP and energy consumption as well as GDP and electricity move together in the long-run. By estimating these long-run relationships and testing for causality using panel-based error correction models, we found unidirectional long-run and short-run causality. The causality is running from GDP to energy consumption in the short-run, and from energy consumption to GDP in the long-run. There is also evidence of unidirectional causality running from electricity consumption to GDP in the long-run.This study thus provides empirical evidence of long-run and causal relationships between energy consumption and economic growth for our sample of fifteen countries; suggesting that lack or limited access to modern energy services could hamper economic growth and compromise the development prospects of these countries.