Estimating residential electricity demand: New empirical evidence

In this paper, we estimate the price elasticity of residential electricity consumption in Switzerland using a unique longitudinal household survey of around 5000 households. The survey contains information on a household's stock of appliances, use of appliances, and various socio-demographic characteristics. Our empirical model is derived from a variant of household production theory that posits electricity demand as being a derived demand for energy services. Based on this, we extend our basic model by using information on energy services, e.g. the amount of washing and the amount of cooking. We also use an instrumental variables approach to obtain consistent estimates of the price elasticity to account for potential endogeneity concerns with the average price. Our results indicate that the short-to medium-run price elasticity is around -0.7. This implies that policy makers concerned about reducing electricity consumption can use pricing policy, with a combination of other policies, to effectively reduce or, at least, stabilise electricity consumption in Switzerland.