Price and Income Elasticity of Residential Electricity Demand in the State of Bahia: 2004 to 2021

Abstract

The main objective of this research is to estimate the price and income parameters of the residential electric power demand of Bahia state, Brazil. For this, monthly data from 2004 to 2021 is used. The consumption is analyzed in terms of the electricity price, income, number of residentials, rainfall, average temperature, and residential index price. Regarding climatic variables, despite being important for the study of the electricity sector, especially rainfall, since Brazil depends on water sources, they are rarely used. After verifying that part of the series is non-stationary, it is decided to use the method of Cointegration and Error Correction Mechanism (ECM). This estimator considers the model variables and their lags, reconciling short-run and long-run trends. The results are consistent with the established hypotheses, proving to be inelastic both in the short and long run. The parameters calculated can serve as another source of information, both for the agents responsible for conducting energy planning in the State of Bahia, and for eventual investors in the private sector.