Income Residential Demand Elasticities for Electricity: Do We Need to Differentiate the Tariff?

Abstract

This study assesses how the Russian household welfare rate impacts electricity consumption volume. Modeling of Russia Longitudinal Monitoring Survey (RLMS) data provided by the Higher School of Economics (HSE) has revealed a heterogeneous dependency between average per capita family income and electricity consumption volume. Electricity demand is not elastic among both urban and countryside residents. However, urban consumption is better described by a linear function, while rural consumption is better described by a quadratic function. The electricity tariff is not statistically significant for urban residents, whereas the price elasticity of electricity consumption for rural residents is close to 1. Application of lifeline rates for electricity tariffs in certain regions did not affect the level of elasticity of consumption by income, but some anomalies have been identified that indicate forced savings of electricity in order to pay for it at a minimum price. The study provides a divided quantitative assessment of influence of some non-income determinants on electricity demand among urban and countryside residents: number and age of family members, residential property area etc. The conclusion deems increasing block tariffs unreasonable because higher electricity tariffs may affect low-income groups thus raising the national poverty rate. If the cross subsidization problem in Russia is nevertheless addressed by imposing increasing block tariffs, the number of blocks and, respectively, prices must be more than two, while threshold consumption volumes should be estimated taking into account non-income determinants on different levels for different social groups.