Xiaoping He
Xiamen University
David Reiner
EPRG, University of Cambridge





Background
Methodology
Empirical analysis
Conclusions

TWh
5 000
4 000
Electricity consumption of China’s households
National total
Residential
Proportion
12,57
% 15
13,16
12,50
12
9
3 000
2 000
1 000 3,49
National total
TWh
1980 301
2012 4976
Growth 9.2%
Residential
TWh
11
622
13.6%
Residential per capita kWh
11
459
12.5%
6
3
0
1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010
0

Household Consumption of Energy Commodities
Rural Urban per cap.
National
Urban
Rural
Final energy
（ kce/year)
195.
225
163
Electricity
（ kWh/year)
459
500
414

• Noncommercial energy plays a significant role in rural areas, with non-commercial energy consumed by rural households being nearly 50%
• Given non-commercial energies included ， the energy consumption of urban family is higher than that of the rural in some regions


The prices of electricity, set by the government, has been kept steady at a low level.

Electricity consumption of households is subsidized by industry and commerce users

Residential electricity price is politically sensitive, the government is very careful about increasing it.


Coal prices have been deregulated from1992, then the increases of fuel cost in generation can not be transferred to end user.

The “price linkage mechanism”, beginning in 2004 as a solution to the contradictions between the coal and electricity industries, has faced difficulties in execution.

Since July 2012, a new pricing regime for household electricity, the increasing block tariff, started nationwide in China.

IBTs implemented nationwide from 2012, except Tibet and
Xinjiang
Before 2012, electricity tariffs were fixed, identical within each province, rarely adjusted.
Sichuan
Beijing
Qinghai kWh/month
0-260
Rate
(yuan)
0.522
181-280 0.622
≥281
0-240
0.822
0.488
241-400 0.538
≥400
0-150
0.788
0.377
151-230 0.427
≥231 0.677


IBT, comprising various quantities and charges, has often been promoted and adopted as a solution to address social equity, efficiency, or environmental concerns.

In IBTs, the price of electricity will be low for consumption up to a certain quantity, whereby any consumption exceeding the quantity will be charged a higher price.

In IBT schemes in China, the electricity volume of the first is said to be based on the basic need of household, covering 80% of residential demand.










Basic needs are “ basically linked to the needs of
‘living’ at the most general level ” (UN, 1983).
It is universally recognized that energy service is of centrality for the provision of basic human needs.
No consensus on the amount of energy to meet basic needs, as energy needs vary significantly among countries and regions.


Discussions on basic energy needs have been often found in the literatures on energy poverty .

An energy poverty line specifies a minimum level at which household can be considered non-energy poor, the energy quantity at the minimum level is regarded as the basic need.

A. Physical quantity approach
Ideology
Defines the energy poverty line (minimum amount of energy demand) based on a basket of energy goods and services.
Disadvantages
Difficulties in defining the basket
Assumptions on the type of energy consuming appliances, their sizes, efficiencies and utilizations.
Arbitrariness in choosing the threshold of energy poverty line; inconsistence in quantifying energy content of the basket

Expenditure method
Ideology
Examines the expenditure of household on energy.
The energy expenditure of the household whose expenditure is at the known incomepoverty line is regarded as to meet their basic energy needs.
characteristics
Expenditure share method
Examines the proportion of household expenditure on energy.
A household is classified as energy-poor if the share of their energy expenditure in income is larger than a specific percentage
(e.g. 10%)
Assumes that the income poor definitely are energy poor.
Assumes that the income poor definitely are energy poor
Assumes the poor spend a higher percentage of income on energy.

continued
Expenditure approaches
Advantages
No need to investigate what energy sources and how much of each are actually used by the poor, as income poverty /poverty line is well-defined in most countries.
The data is readily available; the measure technique is relatively simple.
Disadvantages
Assumes the energy poverty follows exactly the same pattern as the income poverty.
Ignores that the energy budget depends not only on the type of energy used and its price, but also the efficiencies and the costs of household appliances.
The preset expenditure or expenditure share is usually an arbitrary figure.

C. Income invariant energy demand approach
Barnes et al.(2010; 2011)
Ideology
Defines the threshold of energy poverty as the income decile where household energy consumption is significantly different from that at the previous income decile.
The households below the threshold only consume a bare minimum level of energy for subsistence.
characteristics the definition of energy poverty in concept is similar to expenditure methods.
Advantages
Does not specify any predefined figure as threshold, then no drawbacks of arbitrariness;
The definition of basic needs is based on demand function, easy for quantitative analysis.

empirical analysis based on survey data

Sampled population from households in Beijing,
Shanghai, and Guangdong
Conducted in
2008 and in 2009, covering 1748 households.


The survey is not been conducted especially for getting energy information.
Except electricity consumption, more details on energy are not available, such as the amount of each type of energy , the expenditure on specific fuel, and the quality of energy services.

Density estimates of Electricity Consumption urban areas
( kWh per capita ) rural areas
0
25
200 400 electricity per capita
Kernel density estimate
600 kernel = gaussian, bandwidth = 5.2304
8
50 electricity per capita
100
Kernel density estimate kernel = gaussian, bandwidth = 2.6669
150


Electricity need varies with income and the control factors : 𝒍𝒏𝑬 𝒊𝒋
= 𝜷
𝟎
+ 𝒊 𝜷 𝒊
𝑿 𝒊𝒋
+
𝟏𝟎 𝒌=𝟐 𝜶 𝒌
𝒀 𝒅𝒆𝒄𝒊𝒍𝒆 𝒊𝒌
+ 𝜺 𝒊𝒋


X ij
, control variables
Y decile𝑖𝑘
, income dummy variables, y splits the sample into ten categories by the quantiles of per capita income
Hypothesis: if there exists a basic minimum amount of electricity consumption that a household must maintain to subsist, then electricity consumption up to that amount should be unresponsive to changes in income.

Control Variables
Constant
Number of family members
Log of Household living area
Age of household head
Gender of household head
Education of household head (years)
Distance to the nearest commercial center
-0.9767
-0.1450
0.1438
-0.0055
0.0669
0.0127
-0.0041
rural urban
9.789
-0.1780
0.1753
-0.0001
0.1519
0.0351
0.0000
Has frequent electricity outage (1= Yes,0=No) -0.1514
Latitude of community
Longitude of community
Area of agricultural land
Amount of Stocks, bonds and deposits
Household has electricity consumption for production (1= Yes, 0=No)
-0.1156
0.0478
0.0004
0.4926
-0.0674
-0.0600
-0.0365
0.0001
0.3316
Log price of electricity
Log price of gas
-6.0082
-1.7587
-1.1302
-1.4949


Family size and household living area significantly influence the demand for electricity by households in either rural areas or urban areas. Family size has negative impact, while living area has positive impact.

The education level and the gender of household head significantly influence the demand for electricity by households in urban areas rather than in rural areas.


The distance from the house to commercial center affects the electricity of rural households rather than urban households.

The latitude significantly affects household electricity demand, but the longitude does not.

Rural families and urban families respond differently to energy price changes. The urban respond negatively to gas price; while the rural respond negatively to electricity price.

Income decile
8
9
10
4
5
2
3
6
7
Rural
-0.0206
-0.0505
0.0066
-0.0380
0.1668
0.3493
0.2923
0.3064
0.4020
Urban
0.0085
0.0459
0.1504
0.3323
0.2535
0.3798
0.4079
0.3943
0.4646
In the case of the electricity consumption, it is far from having been reached a theoretical saturation status.
The changes in electricity consumption at lower levels of income are not as sensitive to slight changes in income as those with changes at higher levels of income.
Rural families are less elastic to income than urban families; high-income families are more sensitive than low-income families.

100 kWh
80
60
40 decile 4 (5250-6938) decile 5 (7133-9600) urban
20
0
4000 5000 6000 7000 8000 9000 10000
The electricity demand does not respond to income changes until a specific income decile.
60 kWh
40
20
0
4000 rural decile 7 (5300-6667) decile 6 (4200-5200)
5000 6000 7000

Income decile
7
8
5
6
3
4
1
2
9
10
Electricity consumption by income decile
Rural Urban
Electricity Income Electricity Income
10.6
11.4
10.1
12.7
12.8
15.9
22.8
20.3
24.3
27.1
366
1068
2108
2849
3669
4764
6038
7884
10831
34967
38.3
40.2
37.7
44.8
47.7
47.8
54.0
64.9
61.3
87.6
624
2562
4430
6103
8228
10994
13729
17273
23262
72943

 Electricity consumption per capita at the bare minimum level is
22.8kWh in rural areas,
47.7 kWh in urban areas.
From village to city, the energy consumption pattern changes much
100
80
60
40
20
0 kWh rural urban
87,6
54,0
64,9 61,3
38,3 40,2 37,7
44,8 47,7 47,8
10,6 10,4 10,1 12,7 12,8
15,9
22,8 20,3 24,3
27,1
1 2 3 4 5 6
Income decile
7 8 9 10
 Electricity demand of the rural family is much lower, even when its income roughly equal to that of urban family

Why the rural electricity need is lower a. In urban areas, heating /cooling with electricity is popular; the electricity used for entertainment and house electric appliances is greater than in rural areas. b. In rural areas, many households still consume traditional biomass resources for cooking; electricity is mainly used for lighting and some electric appliances, and the electricity for lighting is larger than in urban areas.

c. Energies used in rural areas are less convenient and efficient than those used in urban areas.
Proportion of Households by Cooking Fuel
Firewood
Electricity
Gas
Coal
Solar
Biogas
Other
Rural
56.4%
16.5%
21.0%
3.0%
0.0%
2.0%
1.1%
Urban
5.0%
9.3%
83.1%
1.7%
0.2%
0.2%
0.4%

d. Coal remains an important energy source for heating in rural areas, especially in north China
(e.g., Beijing).
Item e.g. Energy use in Beijing
(kce per capita)
Total Energy consumption
Coal
Residential total
Urban
Rural
665
606
996
114
34
568


The basic electricity need is defined based on the concept “ energy poverty” and estimated from the electricity demand function.

The basic electricity need of rural family is fewer, because the energy consumption pattern changes much from village to city.

A few of household-related factors affect household electricity consumption, such as latitude, living area, family size, energy prices
.


Given other factors controlled, the electricity consumption will be income-sensitive at higher income levels.

If there is a decrease in income, electricity demand does not necessarily decrease, although the burden of expenditure on electricity may increase significantly

Given the increasing structure of prices in IBTs ， preferential policies on residential electricity should be applied targeted at low-income families.

End
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