This presentation is part of: C40-1 Empirical Economics

Determinants of Residential Electricity Demand in Germany

Michael Pickhardt, Ph.D., VWL IV, Finanzwissenschaft, Chemnitz University of Technology, Reichenhainer Str. 39, Chemnitz, 09126, Germany

Estimates of residential demand for electricity have been rather neglected in recent years in developed countries such as Germany. To a large extent this development can be explained by the deregulation process in these electricity markets, which led to fundamental changes and induced researchers to focus on supply side issues rather than on the demand for electricity (see Pickhardt 2005; Niederprüm and Pickhardt 2002). Yet, for at least two reasons demand side issues should receive some attention: (i) the long run need for an efficient use of primary and secondary energy makes it necessary to reconsider the demand for electricity with a view to identify potentials for savings in electricity consumption, (ii) the political agreement to replace all German nuclear power plants in the foreseeable future and a growing share of renewables as a primary energy source for electricity generation may cause some load planning problems, so that a proper demand side management may play an important role in avoiding such problems.
In general, two approaches for estimating residential electricity demand can be distinguished. The first one uses aggregate data and the second one microeconomic data at the household level (see Halicioglu 2007, for a brief overview of recent studies). Following Erdogdu (2007), Kamerschen and Porter (2004) and others, I use an aggregate or macro approach. In particular, I estimate the residential demand for electricity with annual data using an OLS procedure and a cointegration approach. As in comparable studies, some standard variables such as real GDP per capita, the prices of other goods and a proxy for meteorological influences turn out to be significant. In addition, however, I find evidence that variables such as unemployment and the size of the shadow economy also determine the residential demand for electricity to some extent. Further, I offer a micro foundation for these findings. Policy conclusions are drawn in the final section of the paper.
Erdogdu, E. (2007). Electricity demand analysis using cointegration and ARIMA modelling: A case study of Turkey, Energy Policy, 35, pp. 1129-1146.
Halicioglu, F. (2007). Residential electricity demand dynamics in Turkey, Energy Economics, 29, pp. 199–210.
Kamerschen, D.R. and Porter D.V. (2004). The demand for residential, industrial and total electricity, 1973 – 1998, Energy Economics, 26, pp. 87–112.

Niederprüm, M. and Pickhardt, M. (2002). Electricity Transmission Pricing: The German Case, Atlantic Economic Journal, 30(2), pp. 136–147. Pickhardt, Michael (2005). Energy Policy, in: M. Peter van der Hoek (ed.), Handbook of Public Administration and Policy in the European Union, New York: CRC Press (Taylor&Francis), pp. 489–500.