The Economics of Energy (and Electricity) Demand

Abstract

Economic drivers, technologies and demand side management are keys in understanding the long-term trends of both energy and more specifically electricity consumption. This paper discusses some of the important economics foundations of energy demand in general, and electricity in particular. First, we look at the macro-economic context of energy. This reveals how energy and electricity consumption are subject to the same drivers - income and price - over long periods. However, energy demand (and carbon emissions) falls and energy prices rises in one country may have little effect at the world level. Next, we examine the features of energy service expenditures. Despite similarities over time, specific sectors are distinct from one another in terms of consumption profiles, and new sources of electricity demand may substantially change total demand and the way it is consumed. This leads us to a closer look at the micro-economic context of energy demand, and the tension between technically possible energy savings one one side, and the economics and behavioural dimensions on the other side. We conclude by highlighting the various unknowns and uncertainties that characterise the future of energy demand.