Effect of price changes on electricity conservation: An empirical study

Abstract

Introduction Electricity generation in Sri Lanka mainly depends on coal with 12 %, hydro power with 57 % and oil with 27 % (CEB, 2013) contributions. Accordingly 39 % of Sri Lanka’s electricity is generated using imported resources such as coal and oil. This dependence on imported resources to generate electricity is likely to go up in the future with the increasing use of coal in power generation. Thus electricity conservation is so vital to Sri Lanka to reduce this dependence as well as to save foreign exchange that will be spent on importing those resources. At the global scale electricity conservation is a part of broader energy conservation. Given the declining trends in non renewable fossil fuel resources such as coal and oil, energy conservation has drawn attention of many countries. Energy conservation is considered as a reduction in the energy consumption from the existing level. However, every year what we observe is an increase in the overall energy consumption and electricity is no exception. The governments can use various policy tools for energy conservation such as, implementation of awareness programs, raising prices...etc. In this study we examine whether the price can be effectively used to achieve electricity conservation objectives. Electricity prices in Sri Lanka are determined by the Public Utilities Commission of Sri Lanka (PUCSL). The Sri Lankan government has

reduced electricity prices in 2014 by 25 %. However, this price reduction in electricity that is considered in this study has done with the aim of easing the burden on consumers and not for conservation. We empirically investigate the response of the consumers to this price change using primary as well as secondary data.