Architectural, Demographic, and Economic Causes of Electricity Consumption in Bombay
Piyush Tiwari, Housing Development Finance Corporation
The energy use increases rapidly due to growth in population, urbanization, and economic growth. Residential electricity consumption has an important place in the rapidly growing
electricity consumption in India. Most of the studies that are carried out for energy planning in India, use macrolevel data for the estimation of price and income elasticities of electricity
demand. The present study analyses the short-run residential demand for electricity using household survey data for Bombay. The study concludes that the price and income elasticit-
ies of residential electricity demand are 20.70 and 0.34, respectively.
2000 Society for
Policy Modeling. Published by Elsevier Science Inc. Key Words:
Residential electricity demand; End-use model.
1. INTRODUCTION
The energy use in the developing countries is increasing rapidly. The factors that drive this rapid increase in energy use include
the population growth, the economic growth, and urbanization. With increasing urbanization, towns, cities, and metropolitan areas
of varying sizes develop. Each type of urban area has different energy consumption patterns, partly due to income and cultural
differences. However, the general trend is that with urbanization the energy consumption increases. It is increasingly costlier to add
new electricity generation capacity. In India, the share of outlay in energy sector has been around 28 percent of the total eighth
5-year plan Planning Commission, 1992. In the eighth plan, the share of power in the energy sector is 70 percent. The residential
sector is an important sector contributing to the rise in electricity demand, and its share in India is 23 percent of the total electricity
Address correspondence to P. Tiwari, Housing Development Finance Corporation, Ra- mon House, 169 Backbay Reclamation, Mumbai 400 020, India.
We thank P. Pushpa for helping us in structuring the manuscript. Received February 1997; final draft accepted September 1997.
Journal of Policy Modeling 221:81–98 2000
2000 Society for Policy Modeling
0161-893800–see front matter Published by Elsevier Science Inc.
PII S0161-89389800003-9
82 P. Tiwari
consumption Planning Commission, 1992. The demand for elec- tricity in this sector is basically due to lighting and comfort heating
and cooling for the residents. As the income rises, the consump- tion of electricity also increases because a larger share of increased
income is spent on electric appliances, which are directly linked with comfort. Most of the studies carried out for energy planning
in India like the Fuel Policy Committee report 1976, the Working Group on Energy Policy report 1979, the Advisory Board on
Energy report 1985, Parikh 1981, Regional Energy Develop- ment Programme 1991, etc., use aggregate data. Until now,
households level data are not used for energy demand estimation. The primary reason is the nonavailability of data. In this paper
the analysis has been carried out using household level data for Bombay, a metropolitan city in India. Empirical research that
provides reliable information on energy demand elasticities by households is important for several reasons. First, empirical evi-
dence and the use of policy instruments go hand in hand. Energy conservation and energy efficiency are two important policy issues
in the current energy debate, for example, if the utilities offer tax credits to households to encourage them to make energy saving
improvements. Any response to the above policy concerns re- quires estimates of the responsiveness of energy demand to price
and income.
Second, though there exist numerous studies for developed countries to estimate price and income elasticities Acton et al.,
1976; Burgess and Paglin, 1981; Garbacz, 1984, 1983a, 1984b, etc., the number of studies for developing countries, particularly India,
are practically none. Admittedly, it is very difficult to use mac- rolevel elasticities to infer into the nature of demand response to
price change for specific households.
In addition, there is no consensus in the literature on the most appropriate functional form for residential energy demand. An
appropriate model would be one that yields unbiased and efficient energy demand elasticities Thursby and Thursby, 1984. The sim-
plest model of residential energy demand could be expressed in a single equation expression linking the quantity of energy
demanded to price and income. A review of the literature shows how several restrictions have been embedded into the model in
a wide range of applications of energy-demand studies to enhance its performance and increase its flexibility Wills, 1981. Some
studies have used a system of equation with appropriate restric- tions Garbacz, 1983. However, a single equation specification
RESIDENTIAL ELECTRICITY CONSUMPTION IN BOMBAY 83
for household energy demand is most often used in linear or logarithmic form. Dahl’s 1990 work favours logarithmic over
linear demands models. Hsing 1990 shows that the conventional log-linear form is appropriate.
2. DETERMINANTS OF RESIDENTIAL ELECTRICITY DEMAND IN BOMBAY
