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Short- and Long-Run Electricity Demand Elasticities at the Subsectoral Level: A Cointegration Analysis for German Manufacturing Industries

  • Bernstein, Ronald

    ()

    (E.ON Energy Research Center, Institute for Future Energy Consumer Needs and Behavior (FCN), RWTH Aachen University)

  • Madlener, Reinhard

    ()

    (E.ON Energy Research Center, Institute for Future Energy Consumer Needs and Behavior (FCN), RWTH Aachen University)

In this paper we use multivariate cointegration analysis to estimate electricity demand elasticities at the subsectoral industry level. This enables us to reap the benefits of lower heterogeneity within the electricity-consuming sectors investigated and of retaining additional information otherwise blurred by aggregation. The annual data set used covers eight subsectors of the German economy for the period 1970-2007. By employing a cointegrated VAR model specification and accounting for structural breaks we find cointegration relationships for five of the eight subsectors studied. The long-run elasticities range between 0.70 and 1.90 for economic activity and between –0.52 and zero for the price of electricity. The short-run elasticities are estimated by single-equation error-correction modeling and found to be between 0.17 to 1.02 for economic activity and –0.57 to zero for electricity price. Granger-causality tests indicate that in the long term causality runs from both economic activity and electricity price to electricity consumption, while Granger-causality from electricity price and electricity consumption to economic activity is detected in only two subsectors. Electricity price is found to be Granger-caused neither in the long nor the short run. Finally, an impulse response analysis yields plausible results confirming the usefulness of the approach adopted.

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Paper provided by E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN) in its series FCN Working Papers with number 19/2010.

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Length: 26 pages
Date of creation: Nov 2010
Date of revision:
Handle: RePEc:ris:fcnwpa:2010_019
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