Electricity price and residential electricity demand in Vietnam
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Electricity price and residential electricity demand in Vietnam Le Viet Phu1 Received: 30 May 2019 / Accepted: 24 January 2020 © Society for Environmental Economics and Policy Studies and Springer Japan KK, part of Springer Nature 2020
Abstract Vietnam’s electricity consumption has increased more than 20 times over the last 3 decades. As a consequence of the low energy price policy, the demand for electricity in both the residential and industrial sectors has risen at twice the rate of annual economic growth. Thus, there is an urgent need to characterize the properties of this demand and its determinants. This study presents a first household-level estimate of the demand for residential electricity in Vietnam using a 2015 World Bank household registration survey. Estimating a demand function with instrumental variables to address the simultaneity of price and quantity demanded due to an increasingblock-rate pricing policy, we find that the demand for electricity is almost unitarily elastic to average price and even more so to marginal price. Both income and substitution elasticities are low but positive, indicating that electricity is a necessity and that there is limited substitutability between electricity and other sources of energy. This finding implies that pricing instruments could be very effective for demand side management in Vietnam. Keywords Residential electricity demand · Increasing block rate · Simultaneity · Instrumental variables JEL Classification Q21 · Q28 · Q40
Electronic supplementary material The online version of this article (https://doi.org/10.1007/s1001 8-020-00267-6) contains supplementary material, which is available to authorized users. * Le Viet Phu [email protected] 1
Fulbright School of Public Policy and Management, Fulbright University Vietnam, 105 Ton Dat Tien, District 7, Ho Chi Minh City, Vietnam
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Environmental Economics and Policy Studies
1 Introduction As one of the most rapidly developing countries, Vietnam has witnessed an exponential increase in energy consumption in the last 2 decades. Since 1990, the demand for electricity has increased 24-fold, from 8.7 TWh in 1990 to 212 TWh by 2018. Since 2000, the average annual growth rate of energy consumption has reached 13%, meaning that electricity supply has to double every 6 years. Vietnam has achieved enormous success in the rate of electrification, providing almost universal access to electric grids to all communes and up to 98% of all households. This has helped raise the annual per capita electricity consumption from 41 kWh in 1971 to 2218 kWh in 2018 (Dapice 2018). In the residential sector, rapid urbanization and rural–urban migration is a major factor for the rising energy consumption in big cities. Higher personal income and living standards are accompanied by a higher demand for energy input. As energy-intensive appliances, such as air conditioners and electric cookers become more accessible to middle-income families, the use of traditional fuels, such as coal or firewood beco
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