Residential and industrial electricity consumption in Taiwan: Weather or macroeconomic condition (or both)

Abstract

This study investigates the evolution of electricity consumption across residential and industrial sectors in Taiwan. By applying the dynamic factor model, we classify the fluctuations in electricity consumption into aggregate, regional, and individual factors, which sheds light on the latent dynamics of the electricity market. The empirical result shows that around 73% of residential electricity consumption variations are explained by the aggregate and regional factors. Moreover, the aggregate factor contributes 79% to the industrial electricity consumption variation. Interestingly, this study finds a distinct pattern of latent aggregate factor development across the two sectors. Finally, this study finds that temperature change and business cycle indicator help to predict changes in common elements in the variations in residential and industrial electricity consumption based on the linear and non-linear Granger causality test. This finding suggests that the aggregate factor index, together with temperature change and business cycle indicators would be great indicators for monitoring electricity consumption in Taiwan.