51. Estimating the price (in)elasticity of off-grid electricity demand
- Author
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Marc F. Müller, Sally E. Thompson, and Ashok J. Gadgil
- Subjects
Mains electricity ,020209 energy ,02 engineering and technology ,Development ,7. Clean energy ,lcsh:HD72-88 ,lcsh:Economic growth, development, planning ,Electrification ,Nepal ,Affordable and Clean Energy ,Unmetered connection ,0502 economics and business ,ddc:330 ,0202 electrical engineering, electronic engineering, information engineering ,Econometrics ,Economics ,Rural electrification ,050207 economics ,Elasticity (economics) ,Hydropower ,Price elasticity of demand ,business.industry ,05 social sciences ,Instrumental variable ,1. No poverty ,General Engineering ,Computer Science Applications ,Micro hydropower ,lcsh:Electrical engineering. Electronics. Nuclear engineering ,Electricity ,business ,lcsh:TK1-9971 ,General Economics, Econometrics and Finance - Abstract
Community-scale power infrastructure may be the only electrification option for tens of millions households that remain out of reach from centralized power grids. The responsiveness of household electricity demand to price is a crucial design input for off-grid systems. While the price elasticity of electricity demand of grid-connected consumers has been abundantly studied, few studies focus on off-grid communities where substantial econometric challenges arise, including the absence of metered consumption data and electricity prices that are simultaneously determined by cost and demand considerations. This study attempts to address these challenges for the case of off-grid micro hydropower consumers. It makes two core contributions: First, we propose the surface area of the contributing hydrologic catchment as a new instrumental variable to estimate elasticity using a cross sectional dataset of existing micro hydropower infrastructure. Second, we provide a first price-elasticity estimate (−0.15) for off-grid electricity demand in Nepal. We surmise that the small (in absolute value) elasticity value found in this study arises from the low levels of consumption observed off-the-grid. We use a Monte Carlo analysis to show that failing to account for this disparity can lead to substantial financial losses caused by suboptimal power infrastructure design. Keywords: Rural electrification, Instrumental variable, Unmetered connection, Micro hydropower, Nepal
- Published
- 2018
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