One price doesn't fit all: An examination of heterogeneity in price elasticity of residential electricity in India

Namrata Chindarkar and Nihit Goyal

Energy Economics, 2019, vol. 81, issue C, 765-778

Abstract: Although well-designed consumer electricity pricing can improve access, contribute to higher metering, increase penetration of energy efficient technologies, limit extent of the rebound effect, and influence viability of electricity distribution utilities in India, there has been no comprehensive, policy-relevant assessment of price elasticities of electricity demand in the country. The objective of this study is to estimate price elasticity of residential electricity consumption and disaggregate it by state, rural and urban residence, and income categories to provide evidence for electricity tariff setting in India. We combine survey data from five rounds of nationally-representative household consumption expenditure surveys covering the period 2005–2012 with administrative data on electricity deficit and improve on methods applied in previous studies by estimating price elasticities using a quadratic form to account for constraints in electricity supply. We find that while the average price elasticity at the national level is −0.39 (95% confidence interval: −0.46, −0.31), it varies significantly by state, rural and urban residence, and income categories. Our results indicate that a “one ‘price’ fits all” policy may not be an effective approach to electricity tariff setting in India and a data-driven understanding of heterogeneities in price elasticities can better inform residential electricity tariff design in the country.

Keywords: Price elasticity; Residential electricity demand; Household electricity consumption; Electricity tariff regulation; Survey data; India (search for similar items in EconPapers)
JEL-codes: C01 C55 L94 Q41 Q48 R21 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (15)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:81:y:2019:i:c:p:765-778

DOI: 10.1016/j.eneco.2019.05.021

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