Do high power prices slow electrification? Some panel data evidence

Abstract

Electrifying household and economic activity remain a cornerstone of the transition towards deep decarbonization. This analysis conducts a cross-country evaluation through a pooled mean-group model based upon 33 OECD nations since 1980. Electrification is defined as electricity's share of the total energy system. The results show that electrification would have decreased by approximately 13–31 percent below other countries if the electricity price level had increased above other countries by 100 percent. Additional sensitivities show that symmetry between this response between price increases and price decreases depends upon whether GDP is exogenous. These estimates highlight the critical importance of finding new generation, transmission and distribution technologies that both reduce emissions and remain cost competitive. They also emphasize that any successful transition pathway must price electric power competitively based upon the opportunity costs of providing power. Efforts to bundle costly social programs and other expenses into power prices should be avoided.