Understanding Household Electricity Consumption Patterns: Evidence from South Korea

Abstract

This paper delves into the residential sector electricity demand in South Korea, aiming to uncover the factors influencing household electricity consumption patterns. One key finding is that households' electricity consumption is influenced by the average electricity price from the previous month. This responsiveness to price changes can be attributed to the cognitive cost associated with obtaining current price information for the billing cycle. Through encompassing tests, the paper demonstrates the significance of this relationship. Using a linear double-logarithmic specification, the study estimates price and income elasticities, revealing that households exhibit a higher level of elasticity in response to changes in both price and income. Additionally, the analysis highlights the impact of temperature variations and different types of days on electricity demand, further elucidating the factors driving consumption patterns. To deepen the analysis, the study employs a Structure Time Series Model to control for the Underlying Energy Demand Trend (UEDT). This approach reveals that substitution elasticities become insignificant after accounting for the UEDT, indicating a steady decreasing trend in electricity usage over time. These findings contribute to our understanding of household electricity demand behavior in South Korea, shedding light on the influence of price, income, temperature, and other factors. By uncovering these dynamics, policymakers and stakeholders can better design strategies to manage electricity consumption effectively and promote sustainable energy practices.