Impact of temperature on electricity demand: Evidence from Delhi and Indian states

Abstract

Electricity for cooling improves health and quality of life and is an important mode of adapting to extreme weather conditions and to climate change. This study measures the change in electricity demand in response to weather shocks at the household level in Delhi, and at various aggregate levels in India. Our econometric analysis uses a semi-parametric model to capture the nonlinearity of short-run temperature response. On average, aggregate electricity demand in India increases by 11% or more at temperatures above 30 °C from demand at temperatures of 21–24 °C, with substantial heterogeneity across states. Aggregate demand in Delhi increases by 30% or more at temperatures above 30 °C. Using rich micro-data on electricity demand in Delhi, we do a first-of-its-kind estimation of household-level temperature response. We find evidence that low-income consumers, especially those living in slums, show limited incremental response to high temperatures, likely due to an absence of cooling options. These findings underscore the need to improve our understanding of the constraints posed by poverty on climate change adaptation, and for interventions to mitigate risks of heat stress among the poor. This also suggests rising affluence will lead to sharp increases in electricity demand for cooling.