Estimating the Elasticity of Electricity Demand in Iran: A Sectoral-Province Approach

Energy is one of the main and essential factors in economic growth. Electricity as one of the most important resources of energy supply for economic sectors on one hand, and as an index of welfare, on the other hand, is one of the economic development benchmarks. The growth of GDP will increase the demand for energy resources, including electricity. Hence, policymakers should pay attention to secure electricity supply in their economic planning process. In this study, due to the different structure of each economic sector and the impact of geographical and climate conditions, the electricity demand function in different economic sectors (industry, agriculture, and services) between 31 Iranian provinces during the period of 2010-2014 is estimated in which different panel data method was employed. The results of this study show that the value-added (income) elasticity of electricity demand in all economic sectors is significant, positive and smaller than unity. The elasticities estimated for the industry, agriculture, and service sectors are 0.39, 0.6 and 0.53, respectively. Also, the own price elasticity of electricity demand for industry and service sectors is significant and smaller than unity and is not significant for the agricultural sector. Additionally, the results indicate that the value-added of the Iranian economic sectors has a positive and significant effect on the electricity demand of each sector.