Price and income elasticities of residential electricity demand in Brazil and policy implications

• Published in: Utilities policy 2021-08, Vol.71, p.101250, Article 101250
• Main Authors: Martins, Luís Oscar Silva, Amorim, Inara Rosa, Mendes, Vinícius de Araújo, Silva, Marcelo Santana, Freires, Francisco Gaudêncio Mendonça, Teles, Eduardo Oliveira, Torres, Ednildo Andrade
• Format: Article
• Language: English
• Subjects: Income elasticity; Price elasticity; Residential electricity consumption; SY GMM estimator
• ISSN: 0957-1787; 1878-4356
• DOI: 10.1016/j.jup.2021.101250

The research objective was to estimate Brazil's residential electricity consumption behavior, given alterations in price and income. A balanced panel with monthly data was used for the 27 states of the country between 2004 and 2019, distributed into the five regions of Brazil. This approach enabled the calculation of price elasticity and income parameters, in the short and long terms, for both national and regional scenarios. They were used, as control variables, the average temperature, which was not used in previous research due to the use of a database with a higher level of aggregation, and the rainfall, that can be considered an important parameter in the Brazilian case where most of the electricity is obtained from hydroelectric generation, however, it has never been used in previous studies. The econometric model was estimated using the Generalized Method of Moments (GMM), version System - GMM (SY - GMM), to avoid dynamic bias of the panel and a serial correlation problem, which has not been considered in previous studies in Brazil. The results show that, although the short and long-term elasticities for the national scenario are similar to previous studies when analyzed regionally, the parameters proved to be quite different from previous research. Based on the results, adjustments were proposed for the Brazilian electricity price policy. •An empirical analysis of the Brazilian residential demand for electricity in national and regional scenarios was presented.•The mean monthly temperature and rainfall index were used as control variables, ignored in previous studies.•The price elasticity in the short term and in the long term for the national scenario was -0.306 and -0.620, respectively.•The income elasticity in the short term and in the long term for the national scenario was 0.326 and 0.661, respectively.•The values of price and income elasticities, in regional scenarios, indicate spaces for policies to discourage consumption.