# Electricity Consumption Demand Model in Czech Households

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DOI: 10.1007/s11294-012-9384-x

- Cite this article as:
- Svoboda, P. & Brčák, J. Int Adv Econ Res (2013) 19: 63. doi:10.1007/s11294-012-9384-x

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### JEL

C10E00L60The goal of this article is to find the determinants of household electricity consumption in the Czech Republic, and present several scenarios with predictions of possible trends in consumption.

Based on quarterly time series (2000–2011) data, our model provides a method for forecasting electricity consumption by households that can easily be used in practice. The endogenous variable (electricity consumption in households) is explained by using a set of seven independent explanatory variables: total household consumption, employment, wages and salaries, taxes, prices of substitutes, population count, and temperature. Furthermore, a set of three dummy variables was added to the model to adjust for seasonal variations. The fourth quarter, having no dummy variables, serves as a referential period.

The model was estimated by the least squares method, and the results show the dependency of households’ electricity consumption on prices of natural gas (as a substitute for electricity consumption, it has a positive sign) and weather conditions (because it is indirectly proportional to electricity consumption, mean quarterly temperature has a negative sign). To obtain even more precise results, the matrix of average temperature was multiplied by a unitary matrix, and provided four new weather variables, of which three are statistically significant. The only quarter that was not significant was Q3, which is the hottest quarter of the whole year; therefore, consumers do not react to weather changes with increased electricity consumption for heating. In the Czech Republic, air-conditioning is not as widely used as in much warmer countries, and does not cause significant increase in consumption during summers.

An increase in gas prices by 1 % will cause a directly proportional reaction of households, who will increase their average annual consumption by 0.8 %. An increase in temperature of 1 °C in Q1 will cause a 2 % decrease in electricity consumption because it is the coldest period in the year; alternatively, an identical change in the third quarter will not elicit any reaction from consumers. In the second and fourth quarter, the 1 °C increase will result in a decrease in consumption of 1.3 % or 1.1 % respectively.

According to the calculations, we can conclude that if the average temperature in Q1/2011 equals 13.02 °C and simultaneously the gas price is equal to 889824 CZK/GWh, electricity consumption will decrease by 1332 GWh from the original 4413 GWh to a new value of 3081 GWh. It is evident that the significant electricity consumption decrease is mostly created by a seasonal change, i.e., an increase in temperature of 12.8 °C.

In Q3/2011, only gas prices and dummy variables were taken into account, and there was no statistically significant parameter found for weather. If the gas price is equal to 978804 CZK/GWh, electricity consumption will increase by 2998 GWh from the original 3081 GWh to a new 3379 GWh.

If the average temperature in the fourth quarter of 2011 is 3.72 °C and the gas price is equal to 873040 CZK/GWh, electricity consumption will increase by 991 GWh from the original 3379 GWh to a new 4332.98 GWh. Q4/2011 was set as the reference quarter, and thereby does not include any dummy variables.

If 1Q/2012’s average temperature equals 0.23 °C and simultaneously the gas price equals 845218 CZK/GWh, electricity consumption increases by 295 GWh from the original 4332 GWh to a new 4636 GWh.

The consumer positive scenario presumes the historically highest average temperature from the beginning of the time series, so gas prices will be 10 % lower than its prediction. However, the interpretation remains the same with different numbers; thus, only the numbers shall be presented. In the 2Q/2011 the new electricity consumption amounts to 2968 GWh, 3Q/2011 to 3342 GWh, 4Q/2011 to 4178 GWh, and 1Q/2012 to 4290 GWh. The entire consumer positive electricity usage is lower, and provides consumers with the least possible costs.