Electricity demand response to price changes: The Portuguese case taking into account income differences

- We use microdata to study households electricity use in Portugal.
- Our data includes five independent surveys covering the period from 1989 to 2010.
- We adopt the pseudo-panel methodology and include income quintiles in the analysis.
- Results show relatively high own price, cross price and income elasticities.
- Lower income groups are the most affected by an increase in the electricity price.

In this paper we study the behavior of electricity use in Portuguese households using microdata from five independent surveys. Our sample covers the period from 1989 to 2010, which was characterized by major changes in the country. We adopt the pseudo-panel methodology creating 350 cohorts based on the size of the household, the type of location (rural or urban), the region, and the income quintile. Our results show relatively high medium/long-run own price elasticities indicating that an increase in the electricity price due to, for instance, policy intervention would, in fact, decrease electricity use. Cross price elasticities indicate that electricity and gas are substitutes. Additionally, the income quintiles analysis shows significant differences in the elasticities depending on the income group. Hence, political interventions in the electricity sector may have important redistributive effects.