By Anna Alberini and Daniel Velez-Lopez

Agenda
Introduction
Econometric models Sample and the data Results Conclusion

Introduction

Introduction
Why is it important to measure the responivness of residential

energy demand to the prices of electricity/gas

Purpose of forecasting demand Planning for generation Transmission and distribution capacity Energy policy purposes

Three research questions:

What are the price elasticities of residential electricity and gas demand Is such responsivness sensitive to equipement and energy choices which are not easily reversed How does houshold income influence demand and the price elasticities

Introduction
Nationalwide sample with unprecedented detail and

breadth of coverage to study residential energy consumption in U.S.

Attention focused to single-family homes and duplexes
Assembling of large and comprehensive dataset that

documents energy usage for over 69000 dwellings (74000 households) in U.S.
Time period 1997-2005 and 2007

Econometric models

Econometric models
Individuals and households do not derive utility directly from energy: they use energy to produce goods (warm home, meals,heating, lighting etc.)
Demand for energy on residental level depends on:

energy prices, prices of other goods, income other chacterisics of the household

Focus on electricity and gas -> most important fuels used in U.S. (100% / 60%)

Fuel oil 7 % LPG 1.5 % Kerosene 1.5 %

Less important

Estimation of two set of models. In the first set the regression equations are variants of the static energy demand model:

Econometric models
Q consumption j=E,G (electricity,gas) i denotes the dwelling t denotes time period P x z s Year effects

price (coefficients on the log prices are the short-term own- and cross-price elasticity)

includes weather, size/age of home, heating/cooling equipment dummies and appliances

number and age of occupants, income, presence of children and elderly and homeownership dummy

Econometric models
Partial adjustment model lets individuals adjust their stock

of appliances / make energy-efficiency and conservation investments

Desired energy consumption can be expressed as:
After inserting and re-arranging we obtain the regression

equation:
Shows that the short run elasticities are the regression coefficients on the log prices and long run elasticities can be computed by dividing short run elasticities by the estimate of

Econometric models
Estimation of the dynamic model includes partial adjustment model

with fixed, dwelling spedific effects

Concern: lagged dependent variable serially correlated with error term

makes estimators bisaed and inconsistent

Alternative approach swipping out the state-specific effects:

w denotes all exogeneous regressors in the right-hand side of the

partial adjustment regression equation

Econometric models
Price of energy measured with error Mismeasured prices enter in the dependent variable as well as in right-hand side as a regressor:
i denotes dwelling A is the utility bill at time t P*it is the nominal price (mismeasured) CPI index (converts nominal to real prices) is the own price elasticity

Assume:
This equation shows that the price elasticity is the negative of the coefficient on ln CPI. In our case ln CPI is positively correlated with the log price of electricity.

Then:

How to get around the mismeasurement problem?

Restrict estimation to areas with only one utility Use state-level electricity and gas prices

Sample and data

Sample and data

Large and comprehensive dataset merged out of several sources
American Housing Survey (department of housing and urban developement)contains extensive informations about :

Structural characteristics Home ownership Financial aspects Appliances Socio-demographic circumstances of occupants

98 772 observations

50 largest metro areas locations should ensure:

Considerable variation in climate Age of the stock of housing Construction material Utility prices

Sample and data

No AHS reports of E/G Tariffs = Construct consumption

through dividing the utility bills by unit price

Identification of relevant E/G utilities

Listings provided by state public utility commission Variety of on-line city services

If more than one utility computed average price

weighted average in three ways

Residential price 1,2,3 RP 1 (utilitys customer base)

Variation across states: E:Indiana(L)/NY (H) G: Georgia(L)/Florida(H)

Sample and data

Key regressors (table 5)

Weather (important determinant of energy use) Heating and cooling degree-days

Regression controls for dwelling characteristics Age and size of home Number of rooms Number of floors

Heating and cooling equipment and

appliances (table 6)

E.Heat: mild or warm climates ( Arizona, Tenessee, Texas, Washington)

Results: Static and Dynamic

Electricity; S

Gas; S

Measurement error smaller in single utility areas (mentioned)

Results for this runs are reported in (D) und (E)

Close to counterparts in (B) and (C) Columns(F) and (G) present regression results for the subsamples with E/G heating Only for city specificresult brevity- hold for D.S. and D.H.S.E.

Dynamic

In (B) and (D) we exclude heating/cooling, appliance dummies from regression.

Interpret result as if the choices of these technologies were reversible

E 2% / G 6%

Conclusion

 Strong household response to energy prices

(short/long run)
Static model contrary to earlier literature no

evidence of significantly different elasticities across households with electric and gas heating
Dynamic model similar estimates in short-run

(long-run)
Considerable potential for policies which affect

energy price