On the estimation of the price elasticity of electricity demand in the manufacturing industry of Colombia

Abstract

Abstract: This paper presents an estimation of the reaction of electricity demand to changes in price levels of forward contracts in the manufacturing industry of Colombia. To that end, a structural vector autoregressive (SVAR) model was developed, considering several economic activities at different voltage levels. The industrial sectors under study showed an electricity demand not significantly sensitive to price variations. However, the food and drink sectors, plastic and rubber manufacturing, as well as retail trade turned out to be more sensitive to price shocks than the chemical industry or textile manufacturing. Such inelasticity could be softened if information concerning prices and quantity demanded were of common knowledge, or if the forward curve were observable. Resumen En este articulo se presenta una estimacion de la reaccion de la demanda a niveles de precios de contratos forward de electricidad en la industria manufacturera de Colombia. Se desarrollo un modelo de vectores autorregresivos estructurales (SVAR) considerando varias actividades economicas a diferentes niveles de tension. Los sectores industriales bajo estudio no mostraron una demanda de electricidad significativamente sensible a variaciones de precios. Sin embargo, los sectores de alimentos y bebidas, caucho y plastico, asi como el sector comercial minorista resultaron ser mas sensibles a choques de precios que la industria quimica o el sector de manufactura de textiles. Dicha inelasticidad podria suavizarse si la informacion concerniente a precios y cantidades demandadas fuera de conocimiento comun, o si la curva forward pudiera ser observable.