Estimation of Iranian price elasticities of residential electricity demand

Abstract

This paper presents a study to determine demand for electricity in city of Yazd, Iran over the period of 1998-2008. Using vector error correction model (VECM) based on seasonal information, the study determines that electricity has no elasticity in short term in household expenditure. Therefore, government policy on increasing price of electricity will not influence demand. However, electricity maintains elasticity over the long-term period and an increase on price of electricity could motivate consumers to reduce their consumption by purchasing energy efficient facilities. Therefore, any governmental strategy to increase price may have positive impact on economy. The study also detects a positive and meaningful relationship between temperature and electricity consumption.

Keywords

• Demand for electricity
• VECM
• Energy price