The Effect of Temperature on the Electricity Demand: An Empirical Investigation

Abstract:

This paper attempts to estimate the electricity demand function in Korea with quarterly data of average temperature, GDP and electricity price over the period 2005-2013.

We apply lagged dependent variable model and ordinary least square method as a robust approach to estimating the parameters of the electricity demand function.

The results show that short-run price and income elasticities of the electricity demand are estimated to be -0.569 and 0.631 respectively.

They are statistically significant at the 1% level. Moreover, long-run income and price elasticities are estimated to be 1.589 and -1.433 respectively.

Both of results reveal that the demand for electricity demand is about 15.2℃.

It is shown that power of explanation and goodness-of-fit statistics are improved in the use of the lagged dependent variable model rather than conventional model.

Acknowledgements:

This research was carried out as a part of "Development and application of technology for weather forecast" supported by the 2015 National Institute of Meteorological Research (NIMR) in the Korea Meteorological Administration.