Varying elasticity model of electricity demand with given-appliance saturation

The third version of the State-Level Electricity Demand (SLED) Model is presented. Specific improvements over previous versions of the SLED model are as follows: (1) a theoretical framework for estimating electric appliance choices and utilization of those appliances at the aggregate level is developed to enable the model to capture the detailed underlying behavior of electricity consumers and to deal with the effect of market penetration of energy saving technologies on electricity demand; (2) the linkage between average price and marginal price is instituted. The marginal price elasticities are derived from the average price elasticities and presented in the report; (3) important determinants of price elasticities have been identified and the elasticities of demand are specified to be variable, rather than constant, among states in a region as well as over time. The formulation of variable elasticities permits the estimation of demand coefficients for a wide range of circumstances, such as in utility service areas. The structural coefficients are estimated by nonlinear three-stage least squares, using annual state data for 1955-1976. Regression results show that the variation of demand elasticities is indeed explainable in the model. For example, the price elasticity of residential demand for electricity is dependent upon themore » levels of price and income, and the saturation levels of major electric appliances.These results imply that each end-use of electricity has distinctive impacts on price elasticity. The comparative analysis reveals that space heating and air conditioning have greater effect on price elasticities in absolute value than water heating and clothes drying. The estimated demand elasticities also show substantial variation among states.« less