Estimating the price elasticity of demand for electricity by sector in South Africa

Abstract

This paper examines the South African economic sector’s electricity consumption in response to fluctuations in electricity prices and economic output for the period 1993 to 2006. The results of the panel data analysis show that the industrial sector was the only one with statistically significant price elasticity over the study period. Further, economic output was a positive contributing factor to the industrial and commercial sectors (having high and significant coefficients). This is in contrast with the other three sectors, agriculture, transport and mining, whose electricity consumption was affected neither by price nor by their production. This anomaly is the result of both the relatively low and declining (in real terms) electricity prices over the study period, and the fact that the proportion of electricity cost to total cost is relatively small for the majority of sectors. There was therefore no major incentive to reduce electricity consumption and/or to be efficient. While these results explain, at least in part, the historical increases in electricity consumption, they may not hold for the period since 2008 (for which adequate data is not yet available), given the sharp increases in electricity prices recently experienced by the country.