Elasticities of electricity demand in urban Indian households

Abstract

In the past, several electricity demand studies have been published for India based on aggregate macro data at the country or sub-national/state level. Since the underlying theory of consumer demand is based on the behaviour of individual agents, the use of micro data, which reflects individual and household behaviour, more closely, can shed greater light on the nature of consumer responses. In this paper, seasonal price and income elasticities of electricity demand in the residential sector of all urban areas of India are estimated for the first time using disaggregate level survey data for about 30,000 households. Three electricity demand functions have been econometrically estimated using monthly data for the winter, monsoon and summer season in order to understand the extent to which factors like income, prices, household size and other household specific characteristics, influence variations observed in individual households’ electricity demand. The results show electricity demand is income and price inelastic in all three seasons, and that household, demographic and geographical variables are significant in determining electricity demand.