Price Reform and Household Demand for Electricity

This paper estimates a model of residential electricity demand to project the impact of proposed tariff changes on a representative sample of 130 Barbadian households. The results from the demand function suggest that the price elasticities of demand for particular appliances varied significantly, with households that utilize solar water heating being more price elastic than households that use air conditioning and electric water heating . The income effects were, however, statistically insignificant as they may have been captured by choices of appliances rather than utilisation. The income elasticity for households with solar water heating was found to be negative, probably reflecting the substitution impact arising from the use of solar power to provide water heating. The database also allowed the authors to breakdown price and income elasticities by individual households and these results suggest that middle-income households tend to be more prices sensitive, indicating that these households may be more able to reduce their usage of discretionary appliances than low-income households. The propose changes in the electricity rate structure was investigated and determined to likely have very little influence on households demand for electricity. Changes in consumption will however be more noticeable within upper consumption and upper income households. JEL Classification: Q41; C24; O54