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Electricity price and residential electricity demand in Vietnam

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  • Le Viet Phu

    (Fulbright University Vietnam)

Abstract

Vietnam’s electricity consumption has increased more than 20 times over the last 3 decades. As a consequence of the low energy price policy, the demand for electricity in both the residential and industrial sectors has risen at twice the rate of annual economic growth. Thus, there is an urgent need to characterize the properties of this demand and its determinants. This study presents a first household-level estimate of the demand for residential electricity in Vietnam using a 2015 World Bank household registration survey. Estimating a demand function with instrumental variables to address the simultaneity of price and quantity demanded due to an increasing-block-rate pricing policy, we find that the demand for electricity is almost unitarily elastic to average price and even more so to marginal price. Both income and substitution elasticities are low but positive, indicating that electricity is a necessity and that there is limited substitutability between electricity and other sources of energy. This finding implies that pricing instruments could be very effective for demand side management in Vietnam.

Suggested Citation

  • Le Viet Phu, 2020. "Electricity price and residential electricity demand in Vietnam," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 22(4), pages 509-535, October.
    • Handle: RePEc:spr:envpol:v:22:y:2020:i:4:d:10.1007_s10018-020-00267-6
    DOI: 10.1007/s10018-020-00267-6
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    Cited by:

    1. Hoai Son Nguyen & Minh Ha-Duong & Xuân Tháng Nguyen, 2023. "Economy of Scale in Electricity Consumption of Households in Vietnam [Tính kinh tế theo quy mô trong tiêu dùng điện của các hộ gia đình tại Việt Nam]," Post-Print hal-04332519, HAL.
    2. Lam Do, Truong Phuong, 2021. "Retail Electricity Subsidy in Vietnam : Review and Welfare Effect Under Reform," Warwick-Monash Economics Student Papers 31, Warwick Monash Economics Student Papers.
    3. Taghizadeh-Hesary, Farhad & Rasoulinezhad, Ehsan & Shahbaz, Muhammad & Vinh Vo, Xuan, 2021. "How energy transition and power consumption are related in Asian economies with different income levels?," Energy, Elsevier, vol. 237(C).
    4. Khuong, Phuong M. & Scheller, Fabian & McKenna, Russell & Keles, Dogan & Fichtner, Wolf, 2020. "Willingness to pay for residential PV: Reconciling gaps between acceptance and adoption," Working Paper Series in Production and Energy 46, Karlsruhe Institute of Technology (KIT), Institute for Industrial Production (IIP).

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    More about this item

    Keywords

    Residential electricity demand; Increasing block rate; Simultaneity; Instrumental variables;
    All these keywords.

    JEL classification:

    • Q21 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Demand and Supply; Prices
    • Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General

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