PROJECTS
Swiss Residential Demand for Electricity
Elektrizitätsnachfrage der schweizerischen
Haushalte
Investigator
Massimo Filippini
Time Frame
1998 - 2000
Funding
Independent research project
Abstract
A residential demand for electricity is estimated using aggregate
data at a city level for 40 Swiss cities over the period 1987 to
1990. The price elasticity was estimated to be -0.30, which shows
a moderate responsiveness of electricity consumption to changes
in prices. This result indicates a price-inelastic demand for electricity
with a lower price elasticity than those reported in previous studies.
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1 English Summary
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A residential demand for electricity is estimated using aggregate
data at a city level for 40 Swiss cities over the period 1987
to 1990. For this purpose, a log linear stochastic equation for
electricity consumption was estimated. The empirical analysis
has highlighted some of the characteristics of the Swiss residential
electricity market. The price elasticity was estimated to be -0.30,
which shows a moderate responsiveness of electricity consumption
to changes in prices. This result indicates a price-inelastic
demand for electricity with a lower price elasticity than those
reported in previous studies. From an energy policy point of view
this result implies that there is little room for discouraging
residential electricity consumption using price increases.
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2 Project Description
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Inducing consumers to use electricity more efficiently has been
a growing concern of the Federal energy office and electric utilities
since the Swiss people decided in the 1991 referendum to impose
a ten-year moratorium on construction of new nuclear plants, thus
curtailing domestic electricity supply. Economists have suggested
pricing policy as an instrument to improve the efficiency of energy
use. For instance, an increase of the residential price for electricity
may discourage electricity consumption. However, the effectiveness
of such a price policy depends upon the price elasticity of demand
for electricity. Therefore, underlying this energy policy question
is the proper specification and estimation of the electricity
demand equation. The empirical results of previous studies of
the Swiss residential demand for electricity show a price elasticity
varying from -0.50 to -0.70. For example, Spierer (1988) using
data at a national level for 25 years (1960 - 1964), found the
long-run own price elasticity of demand to be -0.50. Whereas Dennerlein
(1990) using data at the household level found the long-run own
price elasticity to be approximately -0.70. The different price
elasticity estimates imply different conclusions about the effects
of electricity pricing policies. The purpose of this paper is
to estimate price and income elasticities of the Swiss residential
electricity demand using aggregate data at a city level and, therefore,
contribute to the rationality of the decision-making process.
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3 Results
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In this study, we have examined the residential demand for electricity
in Switzerland. For this purpose, a log linear stochastic equation
for electricity consumption was estimated employing aggregated
data referring to four years and 40 cities. The empirical analysis
has highlighted some of the characteristics of the Swiss residential
electricity market. The long-run price elasticity was estimated
to be -0.30. This elasticity shows a moderate responsiveness of
electricity consumption to changes in price. Household income,
although imperfectly measured, also seems to affect electricity
demand. From the standpoint of conserving end-use electricity,
it is of interest to know the demand elasticity with respect to
the general electricity price index. The fact that the electricity
price elasticity is smaller than one has an important implication
for conservation. It suggests that there is little room for discouraging
residential electricity consumption using general electricity
price index increases. However, as showed by Filippini (1995),
an alternative pricing policy, time-of-use pricing, can be an
effective instrument for achieving electricity conservation. Therefore,
a widerspread introduction of time-of-use pricing in the residential
sector seems to be a more effective instrument to achieve efficient
utilization of existing production capacity than a general increase
of the electricity price index.
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4 Publications
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Publications Filippini, M., 1999, Swiss Residential Demand for
Electricity. Applied Economic Letters, 6 (8), 533.
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