A Household-Level Model of Demand for Electricity Services and Welfare Analysis of Electricity Prices in Rajasthan
This paper estimates a model of household-level demand for electricity services and electricity demand in the Indian state of Rajasthan using a combination of household-level survey and administrative data. The model incorporates customer-level de...
| Main Authors: | , |
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| Format: | Working Paper |
| Language: | English |
| Published: |
World Bank, Washington, DC
2021
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/349581624893158925/A-Household-Level-Model-of-Demand-for-Electricity-Services-and-Welfare-Analysis-of-Electricity-Prices-in-Rajasthan http://hdl.handle.net/10986/35888 |
| Summary: | This paper estimates a model of
household-level demand for electricity services and
electricity demand in the Indian state of Rajasthan using a
combination of household-level survey and administrative
data. The model incorporates customer-level demographic
characteristics, billing cycle-level weather variables, and
the fact that households face increasing block prices of
electricity. The model allows estimating consumer response
to price changes by four categories of energy services
demand, namely, heating and cooling, lighting, and for
domestic and business end-uses. The knowledge of demand
response across different end-use helps in differentiating
the impact of price changes along the income distribution.
The model finds that the demand for heating and cooling
energy is the most price inelastic and income elastic
service, whereas the demand for domestic end-use is the most
price elastic and income inelastic service of all four
categories. The structural demand model also helps in
comparing the welfare implications of current energy tariffs
to those based on normative principles of efficient retail
electricity pricing. For this analysis, first, the social
marginal cost of electricity is calculated using publicly
available data on generation, transmission, and distribution
losses and emissions. The social marginal cost estimate, in
combination with observable household characteristics, is
then used to examine alternative tariff structures that are
more affordable, equitable, and revenue sufficient for the
utility than current price structure. An alternative tariff
design, comprising of an energy price set to the social
marginal cost of electricity and a fixed cost component
determined by proxy indicators of household willingness to
pay, performs better on the above parameters than the
current schedule. Other sources of technical losses, related
to transmission or distribution, are not studied in this paper. |
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