We specify a structural asymmetric vector error-correction model to identify and estimate the demand and supply functions in hourly day-ahead wholesale electricity markets. In doing so, we provide, inter alia, new insights into a well-established but unresolved issue concerning the extent of the demand elasticity to price in these markets. We show that whilst demand appears to be inelastic in the short-run, the quantity traded on the market is significantly influenced by the price level and responds to previous disequilibria in the supply curve through an asymmetric error-correction mechanism, reacting to a positive disequilibrium but not to a negative one. [ABSTRACT FROM AUTHOR]
INCOME, ELASTICITY (Economics), ENERGY conservation, PRICES, ELECTRICITY, HOUSEHOLD appliances, and REVENUE
This study employs a generalized functional form to examine demand for residential electricity. The appropriateness of the conventional double-log and linear forms are tested. Time-varying elasticities are estimated. Major findings are summarized as follows: (1) the double-log and linear forms can be rejected at the 0.05 and 0.01 levels, respectively; (2) long-run own-price elasticities declined in absolute value consistently from 2.13 to 1.19 during the period 1950-87; (3) long-run income elasticities also decreased from 1.29 to 0.97 during the same period; and (4) long-run cross-price elasticities with respect to the price of natural gas dropped from 0.40 to 0.29. These results may be helpful to decision makers in determining the change in total revenues owing to the change in prices, pricing strategies, the effectiveness of energy conservation programmes, the effect of rising real income on the demand for residential electricity and future demand. [ABSTRACT FROM AUTHOR]
ELASTICITY (Economics), ESTIMATION theory, PRICES, CORRELATION (Statistics), and ELECTRICITY
In a recent study, Pouris (1987) has estimated the long-run '12-year' price elasticity of demand for electricity in South Africa to be 0.90, but he provides no indication of the reliability of this estimate. In this comment, we use Pouris's data to show that, whilst a statistically significant '12-year' elasticity estimate can be obtained, the observed price-demand correlation arises mainly because it associates a sharp rise in price during 1975-7 with a sudden fall in demand relative to trend after 1981. It is argued that the causal connection between these events is in doubt and therefore the elasticity measurement is unlikely to be a reliable predictor of price response in future periods. Finally, we point out that a '12-year' elasticity value, calculated as a sum of coefficients of lagged price arguments, is anyway not very useful in forecasting. [ABSTRACT FROM AUTHOR]
Analysis of the data generated from various residential time-of-day electricity pricing projects often involves estimation of a system of demand equations. Both ad hoc demand models and neoclassical demand models have been estimated, often resulting in considerably different estimates of price elasticities. In this paper, elasticity estimates are presented from each type of demand model using data from the Arizona and North Carolina rate demonstration projects. The relationship between the elasticities generated from ad hoc models and separable neoclassical models is explored and the divergent price elasticity estimates are reconciled. [ABSTRACT FROM AUTHOR]
DEMAND (Economic theory), ECONOMETRICS, ELASTICITY (Economics), TIME series analysis, PRICES, ELECTRIC power consumption, ELECTRICITY, and HOUSEHOLDS
Measurement of residential demand for electricity has taken on increased importance with the rapid increase in real energy prices and the identification of the electricity sector as a central focus of energy policymaking. Reliable analysis of proposals to revise electricity rate structures and projections of future supply needs must be based on quantitative judgments about price and income elasticities as well as the effects of other major variables. To date, virtually all econometric studies of household demand have used aggregate time-series or cross-section data and some measure of the average residential price per kilowatt -hour of electricity. Because the marginal price per unit of electricity is not constant under the declining-block rates used by utilities, such studies may contain biases that can be especially serious when analyzing the effect of any change in rate structure. The empirical research reported in the article is based on micro-level data for 3825 geographic areas throughout the county of Los Angeles, California. By adopting this disaggregated approach to estimating demand equations, authors are able to measure the marginal price faced by households, control for eight major appliances, and include the important influence of weather.
ENERGY consumption, DEMAND (Economic theory), ELASTICITY (Economics), PRICES, CONSUMERS, CONSUMPTION (Economics), INCOME, and ELECTRICITY
Crucial to the analysis of the residential demand for electricity is the appropriate specification and estimation of the price elasticity both in the long and short-run. Theoretical as well as empirical problems abound because the consumer of electricity faces a schedule of prices from which electricity is purchased at decreasing rates. This paper attempts to overcome some of these difficulties by specifying the residential demand for electricity as a function of three separate 'marginal' prices from this schedule in addition to income, the price of substitutes and a proxy (lagged consumption) for the stock of electrical appliances. Empirically this econometric relationship is estimated from a combined time-series cross-sectional data set using a variant parameters technique. The analysis shows that, not only is the demand for electricity price inelastic, it is more inelastic for lower levels of consumption than for higher ones. The resulting estimates also indicate a smaller discrepancy between the short and long-run price elasticity of electricity than that obtained from other demand studies. Furthermore, the estimated price and income elasticities are robust, consistent and capable of providing a reliable basis for policy formulation. [ABSTRACT FROM AUTHOR]
DEMAND (Economic theory), ENERGY consumption, ELASTICITY (Economics), SUPPLY & demand, ECONOMICS, CUSTOMER satisfaction, PRICES, ELECTRICITY, and SURVEYS
The purpose of this paper is to analyze the short-run residential demand for electricity, where the short run is defined as the period within which a household's stock of electrical appliances and demographic profile is fixed. Authors have developed a model of short run electricity demand which incorporates this fixed configuration and explicitly treats the multi-level nature of electricity rate structures. The existence of the multilevel structure implies that the budget constraint is non-linear and that price and quantity are simultaneously determined. They have estimated the short-run demand parameters using individual household data from a large subset of the 1972-73 Consumer Expenditure Survey sample combined with specific rate schedule information obtained from the Federal Energy Regulatory Commission. This paper contributes to the analysis of electricity demand in several ways. First, the study is the only attempt to analyze micro data which combines specific rate information, a broad geographic focus and substantial sample variation in the important determinants of electricity demand. Second, authors have analyzed not only total electricity consumption, but also the distribution of consumption over various end-use categories such as heating or cooling.
ELASTICITY (Economics), ECONOMICS, PRICES, DEMAND (Economic theory), POLITICAL planning, FORCE & energy, and ELECTRICITY
A serious impediment to the design of appropriate public policies with regard to the energy crisis is the lack of general agreement concerning the determinants of energy demand. This article considers the determinants of residential demand for electric energy. The results indicate that the long-run own-price elasticity of demand is equal to at least unity, contrary to the common assumption that demand is not responsive to price. One method used is to derive the elasticities of demand for a model incorporating marginal price from demand and price equations estimated using data for average price. When both the demand and price equations are log-linear, as is the case here, the elasticities of demand estimated with average price data are equal to those that would be obtained with marginal price. A model has been developed that permits consistent estimation of direct and total elasticities of demand for residential electricity. The estimated direct elasticities are robust and indicate that the long-run direct elasticity of demand with respect to electricity price is at least unitary. The cross-elasticity of demand with respect to gas price is significant but small. The total income elasticity of expenditure on electricity is less than one.