Estimation of the electricity demand function using a lagged dependent variable model

Abstract

-The demand for electricity has a considerable impact on various energy sectors since electricity is generated from various energy sources. This paper attempts to estimate the electricity demand function and obtain some quantitative information on price and income elasticities of the demand. To this end, we apply a lagged dependent variable model to derive long-run as well as short-run elasticities using the time-series data over the period 1991-2014. Our dependent variable is annual electricity demand. The independent variables include constant term, real price of electricity, and real gross domestic product. The results show that the short-run price and income elasticities of the electricity demand are estimated to be -0.142 and 0.866, respectively. They are statistically significant at the 5% level. That is, the electricity demand is in-elastic with respect to price and income changes in the short-run. The long-run price and income elasticities of the electricity demand are calculated to be -0.210 and 1.287, respectively, which are also statistically meaningful at the 5% level. The electricity demand is still in-elastic with regard to

Impact of Revised Time of Use Tariff on Variable Renewable Energy Curtailment on Jeju Island

“…Reference [18] attempted to estimate the electricity demand function and obtain quantitative values on the price elasticity of the electricity demand to derive long-run and short-run elasticities using the time-series data from 1991 to 2014 in South Korea. The short-run price elasticity of the electricity demand is estimated to be −0.142 and the long-run price elasticity of the electricity demand is calculated to be −0.210.…”

“…The short-run price elasticity of the electricity demand is estimated to be −0.142 and the long-run price elasticity of the electricity demand is calculated to be −0.210. Since the price elasticity is considered from a long-term perspective, the value of long-run price elasticity was taken from reference [18] in this study. A conceptual illustration of the ability of the revised ToU tariffs to mitigate the VRE curtailment is shown in Figure 4 below.…”

“…The ToU tariff rates for the on-peak period in the spring and autumn seasons where the VRE curtailment occurred the most were changed by 5%, 10%, 20%, and 30% in different pricing scenarios. The long-run price elasticity of the electricity demand was calculated by [18] in these scenarios. The self-elasticity (ε S,AA ) is −0.21, which is the ratio of change in relative demand for periods A 1 and A 2 to price changes in periods A 1 and A 2 , respectively.…”

“…Therefore, this paper proposes a systematic procedure for mitigating VRE curtailment by changing the electricity demand through price changes of the time-of-use (ToU) tariffs in the electricity market. This revised ToU tariff rate is suggested by [18] and applied with the price elasticity of electricity demand. Similar to a study on coordination of the charging of electric vehicles by applying the ToU tariffs to reduce wind-energy curtailment, the ToU tariffs can be applied to mitigate VRE curtailment [19,20].…”