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Estimating short and long-term residential demand for electricity: New evidence from Sri Lanka

  • Wasantha Athukorala

    ()

    (QUT)

  • Clevo Wilson

    ()

    (QUT)

This study investigates the short-run dynamics and long-run equilibrium relationship between residential electricity demand and factors influencing demand - per capita income, price of electricity, price of kerosene oil and price of liquefied petroleum gas - using annual data for Sri Lanka for the period, 1960-2007. The study uses unit root, cointegration and error correction models. The long-run demand elasticities of income, own price and price of kerosene oil (substitute) were estimated to be 0.78, - 0.62, and 0.14 respectively. The short-run elasticities for the same variables were estimated to be 0.32, -0.16 and 0.10 respectively. Liquefied petroleum (LP) gas is a substitute for electricity only in the short-run with an elasticity of 0.09. The main findings of the paper support the following (1) increasing the price of electricity is not the most effective tool to reduce electricity consumption (2) existing subsidies on electricity consumption can be removed without reducing government revenue (3) the long-run income elasticity of demand shows that any future increase in household incomes is likely to significantly increase the demand for electricity (4) any power generation plans which consider only current per capita consumption and population growth should be revised taking into account the potential future income increases in order to avoid power shortages in the country.

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File URL: http://external-apps.qut.edu.au/business/documents/discussionPapers/2010/WP254.pdf
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Paper provided by School of Economics and Finance, Queensland University of Technology in its series School of Economics and Finance Discussion Papers and Working Papers Series with number 254.

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Length: 19 pages
Date of creation: 09 Feb 2010
Date of revision:
Publication status: forthcoming
Handle: RePEc:qut:dpaper:254
Contact details of provider: Postal: GPO Box 2434, BRISBANE QLD 4001
Web page: http://www.bus.qut.edu.au/faculty/economics/
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