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...

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Main Authors:	Sinha Roy, Sutirtha, Wolak, Frank A.
Format:	Working Paper
Language:	English
Published:	World Bank, Washington, DC 2021
Subjects:	ENERGY PRICE ENERGY PRICING ELECTRICITY DEMAND ENERGY UTILITY
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

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spelling	okr-10986-358882021-07-02T05:11:00Z A Household-Level Model of Demand for Electricity Services and Welfare Analysis of Electricity Prices in Rajasthan Sinha Roy, Sutirtha Wolak, Frank A. ENERGY PRICE ENERGY PRICING ELECTRICITY DEMAND ENERGY UTILITY 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. 2021-07-01T14:28:45Z 2021-07-01T14:28:45Z 2021-06 Working Paper 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 English Policy Research Working Paper;No. 9718 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo World Bank World Bank, Washington, DC Publications & Research Publications & Research :: Policy Research Working Paper South Asia India
repository_type	Digital Repository
institution_category	Foreign Institution
institution	Digital Repositories
building	World Bank Open Knowledge Repository
collection	World Bank
language	English
topic	ENERGY PRICE ENERGY PRICING ELECTRICITY DEMAND ENERGY UTILITY
spellingShingle	ENERGY PRICE ENERGY PRICING ELECTRICITY DEMAND ENERGY UTILITY Sinha Roy, Sutirtha Wolak, Frank A. A Household-Level Model of Demand for Electricity Services and Welfare Analysis of Electricity Prices in Rajasthan
geographic_facet	South Asia India
relation	Policy Research Working Paper;No. 9718
description	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.
format	Working Paper
author	Sinha Roy, Sutirtha Wolak, Frank A.
author_facet	Sinha Roy, Sutirtha Wolak, Frank A.
author_sort	Sinha Roy, Sutirtha
title	A Household-Level Model of Demand for Electricity Services and Welfare Analysis of Electricity Prices in Rajasthan
title_short	A Household-Level Model of Demand for Electricity Services and Welfare Analysis of Electricity Prices in Rajasthan
title_full	A Household-Level Model of Demand for Electricity Services and Welfare Analysis of Electricity Prices in Rajasthan
title_fullStr	A Household-Level Model of Demand for Electricity Services and Welfare Analysis of Electricity Prices in Rajasthan
title_full_unstemmed	A Household-Level Model of Demand for Electricity Services and Welfare Analysis of Electricity Prices in Rajasthan
title_sort	household-level model of demand for electricity services and welfare analysis of electricity prices in rajasthan
publisher	World Bank, Washington, DC
publishDate	2021
url	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
_version_	1764484036018831360

A Household-Level Model of Demand for Electricity Services and Welfare Analysis of Electricity Prices in Rajasthan

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