Elasticities Of Residential Electricity Demand In Chile

Since the early 90s, the electricity demand in Chile has been steadily growing, first at an average rate of 8% from 1990 to 2007 and later at an average of 5.7% between 2008 and 2012. In the past, an increase in demand was followed by increases in supply, even though there were some shortage periods mostly due to droughts. During these shortages, consumers were rationed and there were even some blackout periods for some types of consumers. In this context of growing demand and stochastic energy supply in Chile, it becomes necessary to fully understand the determinants of the demand of electricity for household use- price elasticity in particularin order to reduce possible energy deficits through flexible pricing mechanisms. This paper estimates the demand for residential electricity using data from the National Survey of Socioeconomic Characterization (CASEN) 2006, being innovative over previous studies by using disaggregated data per household. The results are consistent with other publications, showing a price elasticity between -0.38 and -0.40 for residential consumption, cross- elasticity between 0.14 and 0.16 with respect to the price of liquefied gas, and an income elasticity of between 0.11 and 0.12, depending on whether it was evaluated on the median or mean of the independent variables. In conclusion, the results show the feasibility of demand management as part of an energy efficiency policy and thus cope with negative shocks of electricity supply in Chile.