An analysis of the welfare and distributive implications of factors influencing household electricity consumption

Mayo 2015
Instituto de Políticas y Bienes Públicos (IPP) CSIC, Working Paper 2015-03

Desiderio Romero-Jordán, Pablo Del Río & Cristina Peñasco

The deep economic crisis and the sharp rise in electricity prices have had a strong effect on electricity demand by Spanish households. This paper aims to analyse the responsiveness of household electricity demand and the welfare effects related to both factors in the 2006-2012 period. The results show that the electricity consumption of medium-high income households is particularly responsive to price increases, whereas that of medium-low income households is more responsive to changes in income. The retail electricity price increases and the economic crisis have led to generally lower and steeper U-shape price elasticities of demand and higher and steeper N-shape income elasticities of demand. The joint impact of those two factors on the welfare of lower-income households is higher in relative terms (i.e., as a share of household income) than for other income groups. These results suggest that the economic crisis and increases in retail electricity prices have had detrimental welfare effects, especially on the lower-income segment of the population. They should be taken into account when financing climate and energy policies through the electricity bill and provide a rationale to take such support, which pushes retail electricity price upwards, out of the electricity bill.