IDEAS home Printed from https://ideas.repec.org/a/eee/enepol/v134y2019ics0301421519305191.html
   My bibliography  Save this article

Household demand for electricity: The role of market distortions and prices in competition policy

Author

Listed:
  • Athukorala, Wasantha
  • Wilson, Clevo
  • Managi, Shunsuke
  • Karunarathna, Muditha

Abstract

This paper examines residential demand for electricity in Sri Lanka using survey data collected over a five-year period between 2011 and 2015. The study finds that the major determinants of demand for residential electricity are the result of price or market distortions (i.e. subsidies), socioeconomic variables and energy saving technology. The effects of these variables are particularly relevant to competition policy. Estimated elasticities with respect to average price, subsidies under marginal cost pricing, subsidies under average cost pricing and income are found to be −0.015, 0.021, 0.036 and 0.046 respectively. We find that demand for electricity is inelastic and is categorised as a normal good. However, elasticities with respect to subsidy variables are found to be higher than the price variable. This implies, that under an increasing block rate system any price change used as a policy measure to control electricity consumption will not be effective. This is because price changes could alter the subsidy received by the consumer and therefore reverse the objective of the price change. Further, results of this study find that price and elasticities with respect to subsidy variables are relatively higher for low income groups while income elasticity is relatively larger for high income groups.

Suggested Citation

  • Athukorala, Wasantha & Wilson, Clevo & Managi, Shunsuke & Karunarathna, Muditha, 2019. "Household demand for electricity: The role of market distortions and prices in competition policy," Energy Policy, Elsevier, vol. 134(C).
  • Handle: RePEc:eee:enepol:v:134:y:2019:i:c:s0301421519305191
    DOI: 10.1016/j.enpol.2019.110932
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0301421519305191
    Download Restriction: Full text for ScienceDirect subscribers only

    File URL: https://libkey.io/10.1016/j.enpol.2019.110932?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Bentzen, Jan & Engsted, Tom, 1993. "Short- and long-run elasticities in energy demand : A cointegration approach," Energy Economics, Elsevier, vol. 15(1), pages 9-16, January.
    2. Jobling, Andrew & Jamasb, Tooraj, 2017. "Price volatility and demand for oil: A comparative analysis of developed and developing countries," Economic Analysis and Policy, Elsevier, vol. 53(C), pages 96-113.
    3. Murata, Akinobu & Kondou, Yasuhiko & Hailin, Mu & Weisheng, Zhou, 2008. "Electricity demand in the Chinese urban household-sector," Applied Energy, Elsevier, vol. 85(12), pages 1113-1125, December.
    4. Anderson, Lisa R. & Mellor, Jennifer M., 2008. "Predicting health behaviors with an experimental measure of risk preference," Journal of Health Economics, Elsevier, vol. 27(5), pages 1260-1274, September.
    5. Holtedahl, Pernille & Joutz, Frederick L., 2004. "Residential electricity demand in Taiwan," Energy Economics, Elsevier, vol. 26(2), pages 201-224, March.
    6. Larry G. Epstein & Stanley E. Zin, 2013. "Substitution, risk aversion and the temporal behavior of consumption and asset returns: A theoretical framework," World Scientific Book Chapters, in: Leonard C MacLean & William T Ziemba (ed.), HANDBOOK OF THE FUNDAMENTALS OF FINANCIAL DECISION MAKING Part I, chapter 12, pages 207-239, World Scientific Publishing Co. Pte. Ltd..
    7. Asian Development Bank (ADB) & Asian Development Bank (ADB) & Asian Development Bank (ADB) & Asian Development Bank (ADB), 2015. "Assessment of Power Sector Reforms in Sri Lanka: Country Report," ADB Reports RPT157618-2, Asian Development Bank (ADB).
    8. Xiaohua, Wang & Zhenmin, Feng, 2001. "Rural household energy consumption with the economic development in China: stages and characteristic indices," Energy Policy, Elsevier, vol. 29(15), pages 1391-1397, December.
    9. Beenstock, Michael & Goldin, Ephraim & Nabot, Dan, 1999. "The demand for electricity in Israel," Energy Economics, Elsevier, vol. 21(2), pages 168-183, April.
    10. Athukorala, P.P.A Wasantha & Wilson, Clevo, 2010. "Estimating short and long-term residential demand for electricity: New evidence from Sri Lanka," Energy Economics, Elsevier, vol. 32(Supplemen), pages 34-40, September.
    11. Silk, Julian I. & Joutz, Frederick L., 1997. "Short and long-run elasticities in US residential electricity demand: a co-integration approach," Energy Economics, Elsevier, vol. 19(4), pages 493-513, October.
    12. Rodney Maddock & Elkin Castano, 1991. "The Welfare Impact of Rising Block Pricing: Electricity in Colombia," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4), pages 65-78.
    13. Mirnezami, Seyed Reza, 2014. "Electricity inequality in Canada: Should pricing reforms eliminate subsidies to encourage efficient usage?," Utilities Policy, Elsevier, vol. 31(C), pages 36-43.
    14. Du, Gang & Lin, Wei & Sun, Chuanwang & Zhang, Dingzhong, 2015. "Residential electricity consumption after the reform of tiered pricing for household electricity in China," Applied Energy, Elsevier, vol. 157(C), pages 276-283.
    15. Filippini, Massimo & Pachauri, Shonali, 2004. "Elasticities of electricity demand in urban Indian households," Energy Policy, Elsevier, vol. 32(3), pages 429-436, February.
    16. James M. Griffin, 1974. "The Effects of Higher Prices on Electricity Consumption," Bell Journal of Economics, The RAND Corporation, vol. 5(2), pages 515-539, Autumn.
    17. Ng, Yew-Kwang, 2018. "Ten rules for public economic policy," Economic Analysis and Policy, Elsevier, vol. 58(C), pages 32-42.
    18. Halvorsen, Bente & Larsen, Bodil M., 2001. "The flexibility of household electricity demand over time," Resource and Energy Economics, Elsevier, vol. 23(1), pages 1-18, January.
    19. Dianshu, Feng & Sovacool, Benjamin K. & Minh Vu, Khuong, 2010. "The barriers to energy efficiency in China: Assessing household electricity savings and consumer behavior in Liaoning Province," Energy Policy, Elsevier, vol. 38(2), pages 1202-1209, February.
    20. Narayan, Paresh Kumar & Smyth, Russell & Prasad, Arti, 2007. "Electricity consumption in G7 countries: A panel cointegration analysis of residential demand elasticities," Energy Policy, Elsevier, vol. 35(9), pages 4485-4494, September.
    21. Bernstein, Ronald & Madlener, Reinhard, 2011. "Responsiveness of Residential Electricity Demand in OECD Countries: A Panel Cointegation and Causality Analysis," FCN Working Papers 8/2011, E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN).
    22. Donatos, George S. & Mergos, George J., 1991. "Residential demand for electricity: The case of Greece," Energy Economics, Elsevier, vol. 13(1), pages 41-47, January.
    23. Sekitou, Mai & Tanaka, Kenta & Managi, Shunsuke, 2018. "Household electricity demand after the introduction of solar photovoltaic systems," Economic Analysis and Policy, Elsevier, vol. 57(C), pages 102-110.
    24. Wang, Zhaohua & Zhang, Bin & Zhang, Yixiang, 2012. "Determinants of public acceptance of tiered electricity price reform in China: Evidence from four urban cities," Applied Energy, Elsevier, vol. 91(1), pages 235-244.
    25. Zachariadis, Theodoros & Pashourtidou, Nicoletta, 2007. "An empirical analysis of electricity consumption in Cyprus," Energy Economics, Elsevier, vol. 29(2), pages 183-198, March.
    26. Burney, Nadeem A., 1995. "Socioeconomic development and electricity consumption A cross-country analysis using the random coefficient method," Energy Economics, Elsevier, vol. 17(3), pages 185-195, July.
    27. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
    28. Johansen, Søren & Juselius, Katarina, 1992. "Testing structural hypotheses in a multivariate cointegration analysis of the PPP and the UIP for UK," Journal of Econometrics, Elsevier, vol. 53(1-3), pages 211-244.
    29. Al-Bajjali, Saif Kayed & Shamayleh, Adel Yacoub, 2018. "Estimating the determinants of electricity consumption in Jordan," Energy, Elsevier, vol. 147(C), pages 1311-1320.
    30. Peter C. Reiss & Matthew W. White, 2005. "Household Electricity Demand, Revisited," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 72(3), pages 853-883.
    31. Hondroyiannis, George, 2004. "Estimating residential demand for electricity in Greece," Energy Economics, Elsevier, vol. 26(3), pages 319-334, May.
    32. Nic Rivers & Mark Jaccard, 2011. "Electric Utility Demand Side Management in Canada," The Energy Journal, , vol. 32(4), pages 93-116, October.
    33. Kamerschen, David R. & Porter, David V., 2004. "The demand for residential, industrial and total electricity, 1973-1998," Energy Economics, Elsevier, vol. 26(1), pages 87-100, January.
    34. Banfi, Silvia & Filippini, Massimo & Hunt, Lester C., 2005. "Fuel tourism in border regions: The case of Switzerland," Energy Economics, Elsevier, vol. 27(5), pages 689-707, September.
    35. Lariviere, Isabelle & Lafrance, Gaetan, 1999. "Modelling the electricity consumption of cities: effect of urban density," Energy Economics, Elsevier, vol. 21(1), pages 53-66, February.
    36. Nakajima, Tadahiro, 2010. "The residential demand for electricity in Japan: An examination using empirical panel analysis techniques," Journal of Asian Economics, Elsevier, vol. 21(4), pages 412-420, August.
    37. Zhou, Shaojie & Teng, Fei, 2013. "Estimation of urban residential electricity demand in China using household survey data," Energy Policy, Elsevier, vol. 61(C), pages 394-402.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Halkos, George, 2020. "Examining the level of competition in the energy sector," MPRA Paper 98343, University Library of Munich, Germany.
    2. Dehghan, Hamed & Amin-Naseri, Mohammad Reza, 2022. "A simulation-based optimization model to determine optimal electricity prices under various scenarios considering stakeholders’ objectives," Energy, Elsevier, vol. 238(PC).
    3. Sijousa Basumatary & Mridula Devi & Konita Basumatary, 2021. "Determinants of Household Electricity Demand in Rural India: A Case Study of the Impacts of Government Subsidies and Surcharges," International Journal of Energy Economics and Policy, Econjournals, vol. 11(6), pages 243-249.
    4. Tao, Chang-Qi & Yi, Meng-Ying & Wang, Chang-Song, 2023. "Coupling coordination analysis and Spatiotemporal heterogeneity between data elements and green development in China," Economic Analysis and Policy, Elsevier, vol. 77(C), pages 1-15.
    5. Zihan Zhang & Enping Li & Guowei Zhang, 2023. "How Efficient China’s Tiered Pricing Is for Household Electricity: Evidence from Survey Data," Sustainability, MDPI, vol. 15(2), pages 1-17, January.
    6. Xin-gang, Zhao & Shu-ran, Hu, 2020. "Does market-based electricity price affect China's energy efficiency?," Energy Economics, Elsevier, vol. 91(C).
    7. Liddle, Brantley & Huntington, Hillard, 2021. "How prices, income, and weather shape household electricity demand in high-income and middle-income countries," Energy Economics, Elsevier, vol. 95(C).
    8. Qiao, Sen & Chen, Hsing Hung & Zhang, Rong Rong, 2021. "Examining the impact of factor price distortions and social welfare on innovation efficiency from the microdata of Chinese renewable energy industry," Renewable and Sustainable Energy Reviews, Elsevier, vol. 143(C).
    9. Jonathan D. Quartey & Wisdom D. Ametorwotia & Prosper B. Laari, 2022. "Household Effective Demand for Electricity in Ghana: Analysis and Implication for Tariffs," Management & Economics Research Journal, Faculty of Economics, Commercial and Management Sciences, Ziane Achour University of Djelfa, vol. 4(2), pages 1-24, September.
    10. Yongxiu He & Meiyan Wang & Fengtao Guang, 2019. "Applicability Evaluation of China’s Retail Electricity Price Package Combining Data Envelopment Analysis and a Cloud Model," Energies, MDPI, vol. 13(1), pages 1-21, December.
    11. Tsao, Yu-Chung & Beyene, Tsehaye Dedimas & Thanh, Vo-Van & Gebeyehu, Sisay Geremew & Kuo, Tsai-Chi, 2022. "Power distribution network design considering the distributed generations and differential and dynamic pricing," Energy, Elsevier, vol. 241(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Athukorala, P.P.A Wasantha & Wilson, Clevo, 2010. "Estimating short and long-term residential demand for electricity: New evidence from Sri Lanka," Energy Economics, Elsevier, vol. 32(Supplemen), pages 34-40, September.
    2. Tiwari, Aviral Kumar & Menegaki, Angeliki N., 2019. "A time varying approach on the price elasticity of electricity in India during 1975–2013," Energy, Elsevier, vol. 183(C), pages 385-397.
    3. Jia, Jun-Jun & Guo, Jin & Wei, Chu, 2021. "Elasticities of residential electricity demand in China under increasing-block pricing constraint: New estimation using household survey data," Energy Policy, Elsevier, vol. 156(C).
    4. Blazquez Leticia & Nina Boogen & Massimo Filippini, 2012. "Residential electricity demand for Spain: new empirical evidence using aggregated data," CEPE Working paper series 12-82, CEPE Center for Energy Policy and Economics, ETH Zurich.
    5. Wasantha Athukorala & Clevo Wilson, 2010. "Demand for electricity: evidence of cointegration and causality from Sri Lanka," School of Economics and Finance Discussion Papers and Working Papers Series 258, School of Economics and Finance, Queensland University of Technology.
    6. Pourazarm, Elham & Cooray, Arusha, 2013. "Estimating and forecasting residential electricity demand in Iran," Economic Modelling, Elsevier, vol. 35(C), pages 546-558.
    7. Blázquez, Leticia & Boogen, Nina & Filippini, Massimo, 2013. "Residential electricity demand in Spain: New empirical evidence using aggregate data," Energy Economics, Elsevier, vol. 36(C), pages 648-657.
    8. Casarin, Ariel A. & Delfino, Maria Eugenia, 2011. "Price freezes, durables, and residential electricity demand. Evidence from Greater Buenos Aires," Energy Economics, Elsevier, vol. 33(5), pages 859-869, September.
    9. Haitao Yin & Hui Zhou & Kai Zhu, 2016. "Long- and short-run elasticities of residential electricity consumption in China: a partial adjustment model with panel data," Applied Economics, Taylor & Francis Journals, vol. 48(28), pages 2587-2599, June.
    10. Halicioglu, Ferda, 2007. "Residential electricity demand dynamics in Turkey," Energy Economics, Elsevier, vol. 29(2), pages 199-210, March.
    11. Sun, Chuanwang & Ouyang, Xiaoling, 2016. "Price and expenditure elasticities of residential energy demand during urbanization: An empirical analysis based on the household-level survey data in China," Energy Policy, Elsevier, vol. 88(C), pages 56-63.
    12. Pellini, Elisabetta, 2021. "Estimating income and price elasticities of residential electricity demand with Autometrics," Energy Economics, Elsevier, vol. 101(C).
    13. Cialani, Catia & Mortazavi, Reza, 2018. "Household and industrial electricity demand in Europe," Energy Policy, Elsevier, vol. 122(C), pages 592-600.
    14. Zhou, Shaojie & Teng, Fei, 2013. "Estimation of urban residential electricity demand in China using household survey data," Energy Policy, Elsevier, vol. 61(C), pages 394-402.
    15. Jamil, Faisal & Ahmad, Eatzaz, 2011. "Income and price elasticities of electricity demand: Aggregate and sector-wise analyses," Energy Policy, Elsevier, vol. 39(9), pages 5519-5527, September.
    16. Rosas-Flores, Jorge Alberto, 2017. "Elements for the development of public policies in the residential sector of Mexico based in the Energy Reform and the Energy Transition law," Energy Policy, Elsevier, vol. 104(C), pages 253-264.
    17. Ziramba, Emmanuel, 2008. "The demand for residential electricity in South Africa," Energy Policy, Elsevier, vol. 36(9), pages 3460-3466, September.
    18. Lee Lian Ivy-Yap & Hussain Ali Bekhet, 2015. "Examining the Feedback Response of Residential Electricity Consumption towards Changes in its Determinants: Evidence from Malaysia," International Journal of Energy Economics and Policy, Econjournals, vol. 5(3), pages 772-781.
    19. Salari, Mahmoud & Javid, Roxana J., 2016. "Residential energy demand in the United States: Analysis using static and dynamic approaches," Energy Policy, Elsevier, vol. 98(C), pages 637-649.
    20. Carlos Enrique Carrasco-Gutierrez & Philipp Ehrl, 2023. "Regional Estimates of Residential Electricity Demand in Brazil," International Journal of Energy Economics and Policy, Econjournals, vol. 13(1), pages 465-476, January.

    More about this item

    Keywords

    Electricity; Different prices; Competition distortions; Panel data;
    All these keywords.

    JEL classification:

    • P18 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Energy; Environment
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:enepol:v:134:y:2019:i:c:s0301421519305191. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/enpol .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.