Electricity Pricing and Subsidy for Energy Conservation in Developing Country: Evidence from Natural Experiment

2022 Fiscal Year Research-status Report

• Project/Area Number: 20K13498
• Research Institution: Waseda University
• Principal Investigator: Dendup Ngawang 早稲田大学, 政治経済学術院, 講師(任期付) (00844549)
• Project Period (FY): 2020-04-01 – 2024-03-31
• Keywords: electricity / demand / marginal price / average price / subsidy

Outline of Annual Research Achievements

This research examines the households response to nonlinear electricity price using monthly electricity consumption data from Bhutan. In October 2013, government of Bhutan introduced free 100 kWh of electricity subsidy to rural households (while urban households are not eligible for the subsidy). Result show that both rural and urban households do not bunch at 100 kWh before subsidy. After the subsidy, rural households bunch at 100 kWh (i.e. subsidy threshold. Rural households consuming more than 100 kWh of electricity are subject to standard marginal price for the consumption exceeding 100 kWh). Bunching results for rural households suggests that number of observation just below 100 kWh after the subsidy is about two times more than in the counterfactual (i.e. number of households in absence of subsidy) while we do not find such response from urban households. Similarly, following literature, we examine whether households are responding to marginal price or average price using predicted marginal and average price as instrument in the first stage regression. The results suggest households responds to marginal price and not average price. Since we do not observe similar bunching at 100 kWh consumption threshold where marginal price increases for the urban households, the IV results is likely capturing the demand response of rural households. Motivated by this reduced from results, we build electricity demand model, estimate the model parameter using method of simulated moment and currently we are in process of confirming the results.

Current Status of Research Progress

3: Progress in research has been slightly delayed.

Reason

Progress of the paper got slightly delayed compared to my initial plan because estimating the economic model parameters and writing the computer code is taking much more time than the what I initially assumed. Further, due to COVID, there were also many days, I could not go to office for the research but at the same time, my two children could to go to day care during COVID period and hampered my research productivity and progress.

Strategy for Future Research Activity

I will present the research results in June at 2023 Annual Conference of Australian Economic Society in Queensland, Asian Development Economics Conference in Tokyo and in august, I will present at 2023 Asian Association of Ennvironmental and Resource Economic Conference at Tokyo and in September at Conference of Japanese Economic Association at Kansai University. I will improve the paper based on comments and also I plan to finalize paper by the end of the year and submit for the publication.

Causes of Carryover

Until earlier this year, I avoided to travels outside Japan for the conferences due to COVID. This year, I would like to used the fund to attend conference in Australia at the Annual Conference of Australian Economic Society.