Basic Electricity Need of Households: Empirical Evidence from China

1. Basic Electricity Need of Households:Empirical Evidence from China Xiaoping He Xiamen University David Reiner EPRG, University of Cambridge

2. Content • Background • Methodology • Empirical analysis • Conclusions

3. I. Introduction Electricity consumption of China’s households

4. Household Consumption of Energy Commodities Rural Urban

5. Noncommercial energy • Noncommercial energy plays a significant role in rural areas, with non-commercial energy consumed by rural households beingnearly 50% • Given non-commercial energies included，the energy consumption of urban family is higher than that of the rural in some regions

6. Electricity price in China • The prices of electricity, set by the government, has been kept steady at a low level. • Electricity consumption of households is subsidized by industry and commerce users • Residential electricity price is politically sensitive, the government is very careful about increasing it.

7. Coal prices have been deregulatedfrom1992, then the increases of fuel costin generation can not be transferred to end user. • The “price linkage  mechanism”, beginning in 2004 as a solution to the contradictions between the coal and electricity industries, has faced difficulties in execution. • Since July 2012, a new pricing regime for household electricity, the increasing block tariff, started nationwide in China.

8. Fixed tariffs vs IBTs IBTs implemented nationwide from 2012, except Tibet and Xinjiang Before 2012, electricity tariffs were fixed, identical within each province, rarely adjusted.

9. Debates about the IBTs • IBT, comprising various quantities and charges, has often been promoted and adopted as a solution to address social equity, efficiency, or environmental concerns. • In IBTs, the price of electricity will be low for consumption up to a certain quantity, whereby any consumption exceeding the quantity will be charged a higher price. • In IBT schemes in China, the electricity volume of the first is said to be based on the basic need of household, covering 80% of residential demand.

10. The ability of IBTs to deliver equity targeting at the poor depends on setting the volume of electricity in the initial block equal to the basic need. • Question: how to determine the electricity volume of the first block?

11. II. Methodology • Link between basic energy needs and energy poverty • Methods defining the basic energy needs

12. Concept of basic needs • Basic needs are “basically linked to the needs of ‘living’ at the most general level ” (UN, 1983). • It is universally recognized that energy service is of centrality for the provision of basic human needs. • No consensus on the amount of energy to meet basic needs, as energy needs vary significantly among countries and regions.

13. Concept of basic energy needs • Discussions on basic energy needs have been often found in the literatures on energy poverty. • An energy poverty line specifies a minimum level at which household can be considered non-energy poor, the energy quantity at the minimum level is regarded as the basic need.

14. A. Physical quantity approach Methods to define basic energy need

15. B. Expenditure approaches

16. continued

17. C. Income invariant energy demand approach

18. III. Basic Electricity Need:empirical analysis based on survey data • Survey Data Sampled population from households in Beijing, Shanghai, and Guangdong Conducted in 2008 and in 2009, covering 1748 households.

19. Data limitation The survey is not been conducted especially for getting energy information. Except electricity consumption, more details on energy are not available, such asthe amount of each type of energy , the expenditure on specific fuel, and the quality of energy services.

20. Density estimates of Electricity Consumption ( kWh per capita ) 25 8

21. Modelling electricity demand • Electricity need varies with income and the control factors : • Xij , control variables • ,income dummy variables, y splits the sample into ten categories by the quantiles of per capita income Hypothesis: if there exists a basic minimum amount of electricity consumption that a household must maintain to subsist, then electricity consumption up to that amount should be unresponsive to changes in income.

22. Estimated parameters

23. Findings about the control variables • Family size and household living area significantly influence the demand for electricity by households in either rural areas or urban areas. Family size has negative impact, while living area has positive impact. • The education level and the gender of household head significantly influence the demand for electricity by households in urban areas rather than in rural areas.

24. Findings (continued) • The distance from the house to commercial center affects the electricity of rural households rather than urban households. • The latitude significantly affects household electricity demand, but the longitude does not. • Rural families and urban families respond differently to energy price changes. The urban respond negatively to gas price; while the rural respond negatively to electricity price.

25. Estimatesof income dummies The changes in electricity consumption at lower levels of income are not as sensitive to slight changes in income as those with changes at higher levels of income. Rural families are less elastic to income than urban families; high-income families are more sensitive than low-income families. In the case of the electricity consumption, it is far from having been reached a theoretical saturation status.

26. The electricity demand does not respond to income changes until a specificincome decile.

27. Electricity consumption by income decile

28. Rural Electricity vs urban Electricity • Electricity consumption per capita at the bare minimum level is 22.8kWh in rural areas, 47.7 kWh in urban areas. From village to city, the energy consumption pattern changes much • Electricity demand of the rural family is much lower, even when its income roughly equal to that of urban family

29. Why the rural electricity need is lower • In urban areas, heating /cooling with electricity is popular; the electricity used for entertainment and house electric appliances is greater than in rural areas. • In rural areas, many households still consume traditional biomass resources for cooking; electricity is mainly used for lighting and some electric appliances, and the electricity for lighting is larger than in urban areas.

30. Proportion of Households by Cooking Fuel Energies used in rural areas are less convenient and efficient than those used in urban areas.

31. Coal remains an important energy source for heating in rural areas, especially in north China (e.g., Beijing).

32. VI. Conclusions • The basic electricity need is defined based on the concept “energy poverty” and estimated from the electricity demand function. • Thebasic electricity need of rural family is fewer, because the energy consumption pattern changes much from village to city. • A few of household-related factors affect household electricity consumption, such as latitude, living area, family size, energy prices.

33. Given other factors controlled, the electricity consumption will be income-sensitive at higher income levels. • If there is a decrease in income, electricity demand does not necessarily decrease, although the burden of expenditure on electricity may increase significantly • Given the increasing structure of prices in IBTs，preferential policies on residential electricity should be applied targeted at low-income families.

34. End Thank you very much！