Estimating and forecasting residential electricity demand in Odisha

• Published date: 01 August 2020
• Date: 01 August 2020
• DOI: http://doi.org/10.1002/pa.2065
• Author: Shibalal Meher

ACADEMIC PAPER

Estimating and forecasting residential electricity

demand in Odisha

Shibalal Meher

Nabakrushna Choudhury Centre for

Development Studies, Bhubaneswar, Odisha,

India

Correspondence

Shibalal Meher, Nabakrushna Choudhury

Centre for Development Studies,

Bhubaneswar –751013, Odisha, India.

Email: smeher62@rediffmail.com

Abstract

The growing demand for electricity has put pressure on generation of electricity

based on fossil fuel, resulting in emission of carbon dioxide. In order to design policy

for demand side management, proper knowledge on determinants of electricity

demand as well as prediction of future demand is required. However, study on esti-

mation and forecasting of residential demand in developing countries like India has

received less attention. This study is the first attempt to estimate and forecast resi-

dential electricity demand in the state of Odisha, which is the pioneer of electricity

reform in India. It employs ARDL model to estimate residential electricity demand;

while ARIMA, VAR and VEC models are employed to forecast future demand. The

results show that income and price of electricity are significant determinants of resi-

dential electricity demand. The higher price elasticity compared to income elasticity

reveals that price could be used as an effective instrument for demand side manage-

ment. The forecast results show that VAR has the lowest error, which predicts per

capita residential electricity demand to be double by 2030–31. This would help the

policy makers to plan for demand side management and electricity generation so as

to avoid shortage of electricity supply.

KEYWORDS

ARDL model, forecasting, India, Odisha, residential electricity demand

1|INTRODUCTION

Electricity is considered as a key determinant of economic growth in

the developed as well as developing countries. Its demand has

increased dramatically in residential and industrial sectors over the

last few decades. With the growth of electricity demand, there is need

for uninterrupted and affordable supply of electricity, which is impor-

tant for maintaining the pace of economic growth. Effectiveness of

this depends on increase in electricity generation capacity that would

be sufficient to meet the demand. However, to understand the

demand–supply relationship and its pricing, planners require a proper

knowledge of the determinants of electricity demand and its forecast-

ing. Further, in order to design policy for management of electricity

demand, the information on reliable estimates of price and income

elasticity of demand is important (Narayan & Smyth, 2005).

Particularly, for a developing state like Odisha, with high electricity

demand for household level consumption, it is crucial to develop a

policy framework. However, there is lack of study on electricity

demand in Odisha. Therefore, it is relevant to make a rigorous analysis

of the determinants of electricity demand and its forecasting in the

state of Odisha for policy relevance.

The electricity sector in Odisha has undergone a radical change

since the mid-1990s, after the state entered into electricity sector

reform and enacted Odisha Electricity Reform Act, 1995. As a process

of reform, vertically integrated Odisha State Electricity Board (OSEB)

was unbundled and the distribution sector privatised in 1999

(Meher & Sahu, 2013). In order to regulate the distribution and pricing

(tariff setting) of electricity, among others, a regulatory commission

was established in the state. The regulatory commission formulated a

number of legislation to ensure the quality of electricity supply.

Received: 28 August 2019 Accepted: 24 November 2019

DOI: 10.1002/pa.2065

J Public Affairs. 2020;20:e2065. wileyonlinelibrary.com/journal/pa © 2019 John Wiley & Sons, Ltd 1of10

https://doi.org/10.1002/pa.2065