Elasticity Of Electricity Demand Research Articles

A comprehensive study to estimate income and price elasticities of household electricity consumption using Auto-metrics

This study focuses on understanding family electricity consumption behaviors in response to income and price changes from 1994 to 2022 across 12 prominent European countries. We employ a unique econometric approach, Auto-selection Models, to analyze the nuances of energy demand elasticity. Our methodology includes the use of saturation techniques, which are highly effective in identifying anomalies and discontinuities in the data, ensuring the reliability of our results. The Auto-metrics method streamlines the model selection process and enhances the accuracy of elasticity predictions. We use Error Correction Models (ECMs) for each country to examine the long-term equilibrium relationships among key variables such as energy consumption, household income, electricity prices, and weather patterns, taking into account any observed anomalies and significant structural changes. The findings reveal varying levels of income and price elasticity across the countries, reflecting their unique economic and climatic conditions. The study's results hold significant implications for policymaking. By recognizing and adapting to the varied characteristics of electricity demand elasticity, energy policies can be more accurately tailored at both the national and European Union levels.

A temporal and spatial electric vehicle charging optimization scheme with DSO-EVA coordination framework

Burdens of increasing penetration of electric vehicles (EVs) on distribution systems have attracted wide attention to the research of EV charging coordination. Nevertheless, existing coordination lacks the joint consideration of the temporal-spatial flexibility of EVs, which could reduce load fluctuations when meeting the EV charging demands. Moreover, a thorough investigation is required for the coordination of the benefits to the distribution system operator (DSO), EV aggregator (EVA), and EVs. In this paper, a novel EV charging scheme considering the temporal-spatial features of EVs is proposed, achieving the coordination of DSO, EVA, and EVs in two steps. First, a mixed-integer second-order cone programming (MISOCP)-based EV charging schedule is developed for DSO. Second, the temporal-spatial features of EVs are exploited by EVA to track the charging schedule. Specifically, a dynamic charging price mechanism based on active power margin is proposed for public charging facilities and a specific load regulation is designed for private charging facilities. On this basis, the modified adaptive multi-objective particle swarm optimization (AMOPSO) algorithm is proposed, including adaptive flight parameter adjustment and termination mechanisms. Case studies demonstrate the proposed strategy can attenuate load variance and raise EVA revenue. Further, the impact analysis of penalty price and the price elasticity of electricity demand can provide references for stable distribution network operation, higher EVA revenue, and charging cost reduction.

Are the income and price elasticities of economy-wide electricity demand in middle-income countries time-varying? Evidence from panels and individual countries

Understanding the income/GDP and price elasticities of electricity demand is important for forecasting demand and evaluating the potential impact of energy/climate policies. Yet, there has been little work on this topic that focuses on countries outside the OECD. We employ a new database of cross-country real economy-wide electricity prices and apply a set of panel-based and time-series-based methods that together account for temporal heterogeneity and cross-sectional heterogeneity on a group of middle-income/rapidly growing countries. Both our panel results and the eight individual country analyses that applied structural time series modeling determined that both the income and price elasticities of economy-wide electricity demand are stable/effectively constant over time. In addition, our results suggested that the income elasticity of economy-wide electricity demand for these middle-income countries was on average 0.8. The price elasticity—which displayed more movement over time (at least in percentage terms)—was on average -0.09. The results of essentially constant income and price elasticities is analogous to recent findings focused on economy-wide energy demand in middle-income countries.

Price and Income Elasticities of Hungarian Household Energy Demand: Implications for Energy Policy in the Context of the Energy Crisis

The energy crisis that began in the second half of 2021, exacerbated by the Russian-Ukrainian war, created unexpected difficulty for European Union Member States in terms of shaping their energy policies. Hungary was one of the most vulnerable countries, whose economic development was fraught with severe risk due to the strong dependence on Russian energy sources and regulated energy prices for households, significantly slowing down the transition to green energy. The sharp change in energy prices due to the introduction of a price cap in 2013-2014 and the partial adjustment in 2022 draws attention to the situation of Hungarian energy demand. This study describes the absolute short-term price elasticities of Hungarian household natural gas and electricity demand and gas and electricity cross-price and income elasticities of the former for income deciles between 2010 and 2021 using the midpoint percentage method. The results show that electricity demand is more elastic than gas demand, implying that Hungarian household consumers are more responsive to changes in electricity prices than those of gas. In addition, low-income Hungarian households are more sensitive to changes in both of the latter than high-income households, while no consistent pattern is identified in the relationship between income and energy demand. Accordingly, the study recommends the implementation of a multi-tariff pricing strategy based on the energy burden of the income deciles. This should particularly target the first two deciles, which are the most vulnerable and sensitive to energy price changes.

Untangling electricity demand elasticities: Insights from heterogeneous household groups in Pakistan

This study presents a comprehensive analysis of evaluating household energy demand's income and price elasticities by employing micro data from eight independent household surveys spanning 2001–2019. To achieve this objective, a pseudo-panel is employed; therefore, 1200 cohorts are constructed based on various variables such as region, climatic zone, months, and expenditure deciles. The findings reveal a relatively higher own price elasticity, illustrating a decline in household electricity usage with increased electricity prices. Therefore, any policy that tends to increase electricity prices would cut back household electricity usage. The findings of cross-price elasticities demonstrate that electricity is a substitute for gas and firewood in Pakistan. Moreover, quantile regression was utilized to explore the relationship between energy consumption and predictors. The results indicate that elasticities vary significantly at different levels of electricity usage. In addition, electricity elasticities across different heterogeneous groups are also estimated, their results indicating that low-income groups are more price elastic than the high-income group. Furthermore, electricity demand in rural areas is more price elastic than in urban areas. Therefore, policies induced in the energy sector might cause significant redistribution effects. Therefore, the findings of this study provide valuable insights of the determinant of household electricity usage in Pakistan and emphasize the importance of incorporating income and price elasticities in formulating energy policy. By considering households' heterogeneous characteristics, policymakers can formulate equitable and efficient policies, ensuring that the benefits of such policies are distributed fairly for all segments of society.

Price elasticity of electricity demand in China– A new instrument variable based on marketization policy

Estimating the price elasticity of the demand for electricity is important in research on the economics of electricity. However, the conventional approach of using average electricity prices as explanatory variables introduces endogenous challenges, such as measurement errors and reverse causality. In this study, we provide a novel analysis of China's coal and electricity marketization process, investigating the impact of coal marketization on electricity prices. To overcome the endogeneity issue, we employ an instrumental variable (IV) method that leverages exogenous variations in average electricity prices induced by the coal marketization policy. The results indicate that the ordinary least squares (OLS) method underestimates the price elasticity of the demand for electricity by ignoring the fluctuations in coal prices. These results carry significant policy implications for countries considering energy marketization reforms as a solution to their energy challenges. Moreover, our research offers an innovative approach to address endogeneity, contributing to the methodological advancement of the field.

Is timing everything? Assessing the evidence on whether energy/electricity demand elasticities are time-varying

In this review we assess both the reasons/hypotheses for why GDP and price elasticities of energy/electricity demand might change over time, and the evidence from papers that have addressed that issue. We consider papers that have used parametric methods (e.g., endogenous or exogenous breaks, rolling window regressions) and semi- or non-parametric approaches (e.g., structural time series models, local linear estimators). The most convincing reasons for GDP and price elasticities varying over time were: (i) results from reactions to the energy price shocks of the 1970s and early-1980s (that would have affected OECD countries directly and non-OECD countries, possibly, via leapfrogging); (ii) saturation of the demand for energy services (typically at high income levels); and (iii) country-specific events such as policy changes and/or economic crises/recoveries/shocks/transitions. Despite those reasons, the weight of evidence points toward income/GDP and price elasticities of energy/electricity demand that are fairly stable over time. In addition to changes caused by reactions to the energy crises and (other) country specific events, the main exception to effectively constant elasticities is the GDP elasticity of economy-wide electricity demand in OECD countries. This elasticity may have declined substantially over time, perhaps, because the share of energy services provided by electricity has saturated. Lastly, it is recommended that modelers consider a combination of (parametric and nonparametric) approaches and search for consensus among the results.

Why has the OECD long-run GDP elasticity of economy-wide electricity demand declined? Because the electrification of energy services has saturated

Understanding the income/GDP and price elasticities of energy/electricity demand is important for forecasting demand and evaluation of the potential impact of policies. Recent work on the GDP elasticity of economy-wide electricity demand has suggested that this elasticity is both substantially smaller than that of economy-wide energy demand and possibly has declined substantially over time. We assemble the largest OECD country panel to date to analyze the GDP and price elasticities of economy-wide electricity demand. We use an approach that addresses several key aspects of long-panel, macro modeling—cross-sectional dependence, country heterogeneity, and dynamic adjustments—and approximates temporal heterogeneity. We find that: (1) the GDP elasticity of economy-wide electricity demand has declined over time; and (2) that elasticity is now possibly as low as 0.2. In addition, we produce evidence that the reason for that decline is the saturation of the electrification of energy services in OECD countries. Hence, were more energy services to become electrified (e.g., transport), we would expect the GDP elasticity of economy-wide electricity demand to increase (e.g., toward 0.5—the GDP elasticity for gasoline demand). This saturation finding is important for forecasts of electricity consumption as well as for climate change mitigation policy; the finding is important because suggests that substantially increasing the electrification of energy services—one of two prongs in a carbon mitigation strategy—will/may lead to an increase in the GDP elasticity for electricity as well as to the potentially rapid increase in electricity consumption.

Price and income elasticities of industrial electricity demand in Brazil: estimates and implications of COVID-19

PurposeThis study aims to examine the price and income elasticities of short- and long-run industrial electricity demand in Brazil between 2003 and 2020. The research also examines the impacts of COVID-19 in Brazil’s industrial electricity sector, including an analysis in states more and less industrialized.Design/methodology/approachDynamic adjustments models in panel data are used to present robust estimates and analyze the impact of different methodologies on reported elasticities.FindingsThe short-run price elasticity is estimated at −0.448, while the long-run values are around −1.60. Regarding income elasticity, the value is 0.069 in the short-run and is concentrated in 0.25 in the long-run. The inelastic results of income show that the industrial demand for electric energy follows the trend of loss of competitiveness of the Brazilian industry in the past years. In addition, the price of natural gas, the level of employment, and, in specific cases, the level of imports also influence industrial electricity demand.Originality/valueThe research is a pioneer in the investigation of the industrial behavior of electricity of the Brazilian industrial branch, using as control variables, the average temperature, and the level of rainfall, this one, so important for a country whose main source is hydroelectric. In addition, to the best of the authors’ knowledge, it is the first study, which is prepared to analyze the effects of COVID-19 on electric consumption in the industrial sector, investigating these impacts, including in the states considered more and less industrialized. The estimates generated may help in the design of the Brazilian energy policy.

Estimation of income and price elasticities of Indian electricity demand

This study is the first to analyse Indian electricity demand at both the aggregate and sectoral levels between 1981 and 2020. We use a novel autoregressive distributed lag (ADL) cointegration test in the presence of unknown structural breaks. While the income elasticity is close to one in the residential and industrial sectors, it is greater than one in the aggregate and commercial sectors. These results reveal that economy-wide electricity intensity rises with economic expansion in India. The price elasticity is negative and smaller than one in absolute value in the aggregate sector (−0.66), the residential sector (−0.83), and the industrial sector (−0.63), but it is statistically insignificant in the commercial sector. These estimates allow us to provide sector-specific information for policy design and implementation in the power market.

HOUSEHOLD-SPECIFIC SOCIAL NORMS, THE ELASTICITY OF ELECTRICITY DEMAND, AND CARBON EMISSION REDUCTIONS IN THE RESIDENTIAL SECTOR: EVIDENCE FROM A NATURAL EXPERIMENT IN RUSSIA

In this paper, I estimate the price elasticity of residential electricity demand using household-level panel data for Russia. The study takes advantage of the variation in tariffs across regions and over time, as well as the introduction of increasing block rate (IBR) schemes in a number of regions. I show that in those regions consumers appear to be aware of the block cut-offs, even though the latter are based on the prescribed social norms and are household and dwelling specific, to the point that there are up to a total of 31 different tier cut-offs. Based on these results, I estimate the price elasticity of electricity demand to be around −0.1. I also predict the associated changes in electricity consumption, CO2 emissions, and revenues if similar IBR policies are implemented countrywide.

Income and price elasticity of residential electricity demand in Latin America and the Caribbean: a meta-analysis and meta-regression analysis

PurposeThis paper aims to identify the income and price elasticities of demand for residential electricity in Latin America and the Caribbean (LAC) and to verify their main determinants.Design/methodology/approachMeta-analysis and meta-regression methods were applied. After collecting and filtering journal articles, the authors obtained a sample composed of 76 studies covering 1979–2020.FindingsThe results show that the LAC's income elasticity is approximately 0.20 and 0.92 for the short and long term, respectively. The LAC's price elasticity is approximately −0.37 and −0.46 for the short and long term, respectively. Furthermore, the estimates are affected by the data structure, the estimation method used and the sampling period.Originality/valueThe authors close a gap in the literature by analyzing the price and income elasticities of demand through meta-analysis and meta-regression.

Estimation of the price and income elasticities of residential electricity demand in Indonesia using household-level data

This paper presents household-level econometric estimates of the income and price elasticities of residential electricity demand for Indonesia. Using annual household survey panel data of SUSENAS from 2011 to 2013, the estimation controls for household characteristics that significantly affect electricity consumption, such as demographic aspects, house size, and ownership of home appliances. The empirical results show that in Indonesia, the residential electricity is price- and income-inelastic, with price and income elasticities of -0.88 and 0.3, respectively. Urban residents use more electricity than their rural counterparts. Responding to the growing economy, the government should prepare a greater electricity capacity or induce a higher tariff to promote electricity savings.

Research on the Optimal Design of Seasonal Time-of-Use Tariff Based on the Price Elasticity of Electricity Demand

Building a new power system with renewable energy as its main component is a key measure proposed by China to address the climate change problem. Strengthening demand-side management (DSM) is an important way to promote the development of a new power system. As an important economic incentive measure in DSM, the current TOU tariff is faced with the problem of a weak incentive effect due to the small tariff difference between the peak and valley periods. Against this background, a novel hybrid three-stage seasonal TOU tariff optimization model is proposed in this paper. First, the K-means++ algorithm is adopted to select the typical days of the four seasons through load curve clustering. Then, the price elasticity of the electricity demand model is constructed to calculate the self-elasticity and cross-elasticity in four seasons. Finally, the seasonal TOU tariff optimization model is constructed to determine the optimal TOU tariff. Through the proposed model, the tariff in the peak period has increased by 8.06–15.39%, and the tariff in the valley period has decreased by 18.48–27.95%. The result shows that the load in the peak period has decreased by 4.03–8.02% and the load in the valley period has increased by 6.41–9.75% through the proposed model.

Perception and decision-making for demand response based on dynamic classification of consumers

Demand response plays a significant role in improving electricity market efficiency and keeping power system stability. Load aggregators can provide reliable resource for power balance and auxiliary services by integrating dispersed responsive loads. In order to meet the aggregators’ requirement of timeliness and accuracy in the real-time demand response market, a method of perception and decision-making for demand response based on dynamic classification of consumer is proposed. The price elasticity of electricity demand is calculated based on continuously updated trading experience and applied as a classification criterion. Consumers are dynamically classified by self-organizing maps algorithm to perceive consumers’ responsive ability. Furthermore, the interaction model of aggregator and consumers in market environment is constructed, and deep reinforcement learning is applied to solve the trading strategy in the uncertain market with incomplete information. Simulations show that the results of trading partner and reward price gained by the proposed method are appropriate. Therefore, the deviation between response quantity and the bid-winning volume is effectively controlled, and the transaction revenue of the aggregator is improved.

제조부문별 전력수요함수 및 탄력성 추정 연구

본 연구는 최근의 전력소비 환경변화에 따른 산업부문 전력 소비행태를 분석하기 위해 2009년∼2021년까지의 월별 시계열 데이터를 활용하여 우리나라의 산업별 전력수요함수와 탄력성을 산출하였다. 산업용 전체, 산업용(갑), (을)과 함께 제조부문을 13개 그룹으로 분류한 후, 단위근 검정과 공적분 검정을 시행하였고, FGLS와 ARDL모형을 활용하여 전력가격, GDP, 석유가격, 난방도일, 냉방도일의 탄력성을 산출하였다. 분석결과 선행연구 대비 가격, 소득탄력성이 낮게 나타났고, 산업부문에서는 300kW이하의 산업용(갑)이 산업용(을)보다 가격, 소득탄력성이 높게 도출되었다. 업종별로는 전력다소비업종의 가격, 소득탄력성이 저소비업종 대비 높은 결과를 보였는데, 다소비업종에서도 수요관리 및 에너지효율화를 확대하여 과거 대비 전력소비 대응성이 높아진 것으로 판단된다. 일부 업종에서는 요금규제 정책으로 인한 경제적 왜곡과 전전화(Electrification) 현상도 발생하였으며, 코로나19 시기의 분석결과는 통계적으로 유의성이 높은 결과를 나타내지는 못하였으나 산업용(갑)과 전력다소비업종의 소득탄력성이 높게 추정되었다.

Effect of electricity price reform on households’ electricity consumption in urban Ethiopia

Until recently, the price of electricity in Ethiopia was among the lowest in the world. Such low prices have contributed to a substantial financial deficit for the government-owned electric utility and led to a degradation in the quality of electricity services delivered to customers. In December 2018, the utility increased the electricity tariff to help to finance improvements in the quality of electricity services. This paper studies the effect of the revised tariff on urban household electricity consumption and alternative fuel expenditure. The study relied on two rounds of household survey data and six years of electricity consumption data from the utility company. The study finds that prepaid customers reduced their electricity consumption by about 22 kWh per month in the post-tariff-adjustment periods, equivalent to about 10% of electricity expenditure and 14% of daily consumption. In the overall sample, however, consumption slightly increased over time. These results imply that the price elasticity of demand for electricity in urban Ethiopia is highly inelastic. Moreover, households did not shift substantially toward the use of alternative fuels. The findings indicate that governments and utilities in settings where electricity is priced well below cost-covering levels may be able to increase revenues and improve their balance sheets with relatively modest effects on households’ electricity consumption, though effects from more substantial tariff hikes should be examined.

Electricity Demand Elasticity, Mobility, and COVID-19 Contagion Nexus in the Italian Day-Ahead Electricity Market

The magnitude of the impact of the pandemic on key variables, such as electricity demand, mobility of people and number of COVID-19 hospitalization cases, has been unprecedented. Existing economic models have not estimated the impact of sucokh events. This paper fills this gap, investigating the nexus among electricity demand elasticity, shifting behaviors of mobility and COVID-19 contagion with econometric estimation techniques. Firstly, using the single bids to purchase recorded in the Italian day-ahead wholesale electricity market in 2020, we estimate hourly electricity demand and price elasticity directly from short-run consumer behavior. Then, we analyze the effects of the main aspects of the pandemic, the health situation and the mobility contraction at the national level, on the estimated price elasticities. The period of heavy lockdown between 10 March and 3 June recorded a reduction in the price elasticity of electricity demand. However, when the pandemic broke out again at the beginning of October, elasticity increased, highlighting how companies and economic activities had adopted countermeasures to avoid the arrest of the economy and, consequently, the sharp contraction in electricity demand.

The direct rebound effect for two income groups: The case of Paraguay

We estimate the direct rebound effect (DRE) for all energy services requiring electricity for their provision in Paraguayan households. Using recent panel data from 2001 to 2017, we estimate the magnitude of the DRE at the province and municipality levels. Because we estimate the DRE through the own-price elasticity of electricity demand, we not only provide the first empirical evidence of the DRE for Paraguay, a developing country, but also update the study of Paraguay's residential electricity demand. Our findings suggest a positive DRE emerges after an improvement in energy efficiency, but the magnitude of the DRE does not completely reduce the resulting energy savings. We find a lower DRE in low-income households, which may be explained by two factors: electricity is not the main source of energy for most low-income households, and most clandestine electricity connections are from low-income households. Paraguay is one of the countries with the highest generation of electricity per capita through hydroelectric plants. However, this electricity supply does not match electricity consumption, especially in low-income households, because of distribution issues in relation to energy sources. We derive from our findings some policy measures to improve the situation.

Estimating the Short-term Price Elasticity of Residential Electricity Demand in Iran

Excessive electricity consumption causes severe problems in the electricity sector and consequently in load curtailment. This paper estimates the short-term price elasticity of electricity demand for the Iranian household sector by monthly panel dataset. The estimated short-term price elasticity of electricity demand was −0.048. We use abrupt change in electricity price due to targeting subsidy on December 18th, 2010. The results show significant heterogeneity in electricity price elasticity between the various levels of consumption. Due to the heterogeneity of consumers’ electricity price elasticity, we can categorize residential consumers into four groups. Hence, policymakers are suggested to manage peak loads in the electricity network by estimating consumer responsiveness and reforming electricity pricing considering equality issues and tariff design.