The sensitivity of the South African industrial sector’s electricity consumption to electricity price fluctuations
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).
|Date of creation:||Aug 2012|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: (+2712) 420 2413
Fax: (+2712) 362-5207
Web page: http://www.up.ac.za/economics
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Lynk, Edward L, 1989. "The Demand for Energy by U.K. Manufacturing Industry," The Manchester School of Economic & Social Studies, University of Manchester, vol. 57(1), pages 1-16, March.
- He, Y.X. & Yang, L.F. & He, H.Y. & Luo, T. & Wang, Y.J., 2011. "Electricity demand price elasticity in China based on computable general equilibrium model analysis," Energy, Elsevier, vol. 36(2), pages 1115-1123.
- Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-80, November.
- Pindyck, Robert S, 1979. "Interfuel Substitution and the Industrial Demand for Energy: An International Comparison," The Review of Economics and Statistics, MIT Press, vol. 61(2), pages 169-79, May.
- Enevoldsen, Martin K. & Ryelund, Anders V. & Andersen, Mikael Skou, 2007. "Decoupling of industrial energy consumption and CO2-emissions in energy-intensive industries in Scandinavia," Energy Economics, Elsevier, vol. 29(4), pages 665-692, July.
- John Dimitropoulos & Lester C Hunt & Guy Judge, 2004.
"Estimating Underlying Energy Demand Trends using UK Annual Data,"
Surrey Energy Economics Centre (SEEC), School of Economics Discussion Papers (SEEDS)
108, Surrey Energy Economics Centre (SEEC), School of Economics, University of Surrey.
- John Dimitropoulos & Lester Hunt & Guy Judge, 2005. "Estimating underlying energy demand trends using UK annual data," Applied Economics Letters, Taylor & Francis Journals, vol. 12(4), pages 239-244.
- Ziramba, Emmanuel, 2009. "Disaggregate energy consumption and industrial production in South Africa," Energy Policy, Elsevier, vol. 37(6), pages 2214-2220, June.
- Inglesi, Roula, 2010. "Aggregate electricity demand in South Africa: Conditional forecasts to 2030," Applied Energy, Elsevier, vol. 87(1), pages 197-204, January.
- Jamil, Faisal & Ahmad, Eatzaz, 2011. "Income and price elasticities of electricity demand: Aggregate and sector-wise analyses," Energy Policy, Elsevier, vol. 39(9), pages 5519-5527, September.
- Hunt, L.C. & Judge, G. & Ninomiya, Y., 2000.
"Underlying Trends and Seasonality in UK Energy Demands: A Sectorial Analysis,"
134, Portsmouth University - Department of Economics.
- Hunt, Lester C. & Judge, Guy & Ninomiya, Yasushi, 2003. "Underlying trends and seasonality in UK energy demand: a sectoral analysis," Energy Economics, Elsevier, vol. 25(1), pages 93-118, January.
- Al-Ghandoor, A. & Al-Hinti, I. & Jaber, J.O. & Sawalha, S.A., 2008. "Electricity consumption and associated GHG emissions of the Jordanian industrial sector: Empirical analysis and future projection," Energy Policy, Elsevier, vol. 36(1), pages 258-267, January.
- Zafer Dilaver & Lester C Hunt, 2010.
"Industrial Electricity Demand for Turkey: A Structural Time Series Analysis,"
Surrey Energy Economics Centre (SEEC), School of Economics Discussion Papers (SEEDS)
129, Surrey Energy Economics Centre (SEEC), School of Economics, University of Surrey.
- Dilaver, Zafer & Hunt, Lester C., 2011. "Industrial electricity demand for Turkey: A structural time series analysis," Energy Economics, Elsevier, vol. 33(3), pages 426-436, May.
- Odhiambo, Nicholas M., 2009. "Electricity consumption and economic growth in South Africa: A trivariate causality test," Energy Economics, Elsevier, vol. 31(5), pages 635-640, September.
- Engle, Robert F & Granger, Clive W J, 1987. "Co-integration and Error Correction: Representation, Estimation, and Testing," Econometrica, Econometric Society, vol. 55(2), pages 251-76, March.
- Greening, Lorna A. & Boyd, Gale & Roop, Joseph M., 2007. "Modeling of industrial energy consumption: An introduction and context," Energy Economics, Elsevier, vol. 29(4), pages 599-608, July.
- Slade, Margaret E., 1989. "Modelling stochastic and cyclical components of technical change : An application of the Kalman filter," Journal of Econometrics, Elsevier, vol. 41(3), pages 363-383, July.
- Inglesi-Lotz, R., 2011. "The evolution of price elasticity of electricity demand in South Africa: A Kalman filter application," Energy Policy, Elsevier, vol. 39(6), pages 3690-3696, June.
- Amusa, Hammed & Amusa, Kafayat & Mabugu, Ramos, 2009. "Aggregate demand for electricity in South Africa: An analysis using the bounds testing approach to cointegration," Energy Policy, Elsevier, vol. 37(10), pages 4167-4175, October.
- Agnolucci, Paolo, 2009. "The energy demand in the British and German industrial sectors: Heterogeneity and common factors," Energy Economics, Elsevier, vol. 31(1), pages 175-187, January.
- Hansen, Bruce E, 1992.
"Tests for Parameter Instability in Regressions with I(1) Processes,"
Journal of Business & Economic Statistics,
American Statistical Association, vol. 10(3), pages 321-35, July.
- Hansen, Bruce E, 2002. "Tests for Parameter Instability in Regressions with I(1) Processes," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(1), pages 45-59, January.
- Katarina Juselius & David F. Hendry, 2000.
"Explaining Cointegration Analysis: Part II,"
00-20, University of Copenhagen. Department of Economics.
- David F. Hendry & Katarina Juselius, 2000. "Explaining Cointegration Analysis: Part 1," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1), pages 1-42.
- David F. Hendry & Katarina Juselius, 2001. "Explaining Cointegration Analysis: Part II," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1), pages 75-120.
- Caloghirou, Yannis D. & Mourelatos, Alexi G. & Thompson, Henry, 1997. "Industrial energy substitution during the 1980s in the Greek economy," Energy Economics, Elsevier, vol. 19(4), pages 476-491, October.
- Roula Inglesi-Lotz, James Blignaut, 2011. "Estimating the price elasticity for demand for electricity by sector in South Africa," South African Journal of Economic and Management Sciences, University of Pretoria, Faculty of Economic and Management Sciences, vol. 14(4), pages 449-465, December.
- Beenstock, Michael & Goldin, Ephraim & Nabot, Dan, 1999. "The demand for electricity in Israel," Energy Economics, Elsevier, vol. 21(2), pages 168-183, April.
- R. Inglesi-Lotz & J. Blignaut, 2011. "South Africaâ€™s Electricity Consumption: A Sectoral Decomposition Analysis," Working Papers 203, Economic Research Southern Africa.
- Kamerschen, David R. & Porter, David V., 2004. "The demand for residential, industrial and total electricity, 1973-1998," Energy Economics, Elsevier, vol. 26(1), pages 87-100, January.
- G. W. Morrison & D. H. Pike, 1977. "Kalman Filtering Applied to Statistical Forecasting," Management Science, INFORMS, vol. 23(7), pages 768-774, March.
- Nakajima, Tadahiro & Hamori, Shigeyuki, 2010. "Change in consumer sensitivity to electricity prices in response to retail deregulation: A panel empirical analysis of the residential demand for electricity in the United States," Energy Policy, Elsevier, vol. 38(5), pages 2470-2476, May.
When requesting a correction, please mention this item's handle: RePEc:pre:wpaper:201225. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Rangan Gupta)
If references are entirely missing, you can add them using this form.