Abstract
This study aims to estimate electricity demand functions in Japan’s industrial and commercial sectors. We adopt data from the Energy Consumption Statistics by Prefecture by the Ministry of Economy, Trade and Industry, Japan, to delineate the demand between the industrial and commercial sector. The results reveal that in both sectors, the price elasticity of demand is extremely low in the short and long run and production elasticity is greater than price elasticity. Thus, price elasticity is not a key determinant in electricity demand fluctuations. Furthermore, an analysis of the factors influencing changes in electricity demand in the industrial sector suggests that the declining demand growth in large metropolitan areas is mainly attributable to declining production factors, not increasing electricity rates. By contrast, the commercial sector is experiencing an increasing demand for electricity and significant growth nationwide, which can be attributed to an increase in commercial floor space and advances in office automation.
Highlights
In Japan, the industrial and commercial sectors account for a significant portion of electricity demand
Kanemoto et al (2006) and Tanaka (2007) conducted simulations using a general equilibrium model for electricity market deregulations and hypothesized a price elasticity of −0.1 for electricity demand, Otsuka Journal of Economic Structures (2015) 4:9 drawing on their assertion that the absolute value of elasticity is extremely low in Japan
The two-step generalized methods of moment (GMM) estimator is more efficient than the one-step GMM estimator, standard errors in the former are downwardly biased in finite samples (Blundell and Bond 1998)
Summary
In Japan, the industrial and commercial sectors account for a significant portion of electricity demand (about 70 %). Kanemoto et al (2006) and Tanaka (2007) conducted simulations using a general equilibrium model for electricity market deregulations and hypothesized a price elasticity of −0.1 for electricity demand, Otsuka Journal of Economic Structures (2015) 4:9 drawing on their assertion that the absolute value of elasticity is extremely low in Japan. Such a hypothesis may be rational in the national aggregated market for electricity, it may not be appropriate when analyzing electricity demand using sectoral data. To empirically validate the price elasticity of electricity demand, a re-evaluation of price elasticity using sectoral data is needed
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