Structural changes in residential electricity demand

Abstract

The purposes of this study are to investigate the structural changes in residential electricity demand parameters and explain the causes for such changes. A dynamic model is specified and estimated using pooled time-series and cross-section (state- level) data for the USA. Changes in demand parameters over time are examined by using successive, over-lapping ten-year sample periods for data from 1955–78 for parameter estimation. The results show that there have been significant structural changes in demand elasticities for several independent variables. These changes can be best explained by changes in household stocks of major electric appliances as new technologies have been developed, improved, and ingrained in consumer lifestyles and preference functions over time. Further inquiry shows no strong evidence of structural changes associated with either the reversal of the declining trend of electricity prices or the 1973 oil embargo. However, more data after the oil embargo may be needed to validate the existence of price asymmetries in electricity demand.