Estimating residential electricity demand’s response to price policy and income dynamics in China

Abstract

This paper estimates the residential electricity demand’s response to price policy and income dynamics in China at both national and provincial levels, specifically in Anhui, Guizhou, Zhejiang, Jiangsu, and Jiangxi provinces, using the unbalanced panel partial adjustment model (PAM) and time-series PAM based on monthly data from January 2006 to October 2016. The empirical results show that the income elasticity of demand is inelastic in the short term on the whole while it is elastic in the long term and ranges from 0.807 to 2.371 in different provinces. The own-price elasticity of electricity demand is insignificant in most cases due to the government’s price regulation, leading to that the regulating effect of the electricity price policy, such as the tiered pricing policy, is weak. Overall, the residents’ income and seasonality are the most important driving forces of residential electricity consumption (REC). The price policy for pipeline natural gas has a significant effect on REC, and it would be an effective alternative option to regulate REC in China. This paper recommends reducing the upper limit of REC in each grade under the tiered tariff policy and further promoting the use of energy-efficient household appliances.