The sensitivity of the South African industrial sector’s electricity consumption to electricity price fluctuations

Roula Inglesi-Lotz

No 201225, Working Papers from University of Pretoria, Department of Economics

Abstract: Numerous studies have assumed that the price elasticity of electricity demand remains constant through the years that is industrial consumers behave the same way to price fluctuations regardless the actual price level. This paper proposes that the price elasticity of industrial electricity demand is time varying. To do so, the Kalman filter methodology is employed in an effort to provide the policy makers with more information on the behaviour of the industrial sector with regards to electricity price changes, focusing on the period from 1970 to 2007. To capture other factors affecting electricity consumption, such as real output and employment are also included in the specification. The findings show that price sensitivity changed since the 1970s: it has decreased in absolute values from -1 in 1980 to -0.953 in 1990 and then stabilised at around -0.95 showing that the industrial sector has experienced an inelastic demand. In other words, the behaviour of the industrial consumers did not vary significantly in the 2000s. In the long run and as the prices increase, probably reaching the levels of the 1970s or even before, the industrial sector’s behaviour might change and the elasticity might end up at levels higher than one (elastic).

Keywords: Electricity consumption; Kalman filter; price elasticity; industrial sector (search for similar items in EconPapers)
Pages: 15 pages
Date: 2012-08
New Economics Papers: this item is included in nep-afr and nep-ene
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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