Analysis of price elasticity of electricity demand by region and use in South Korea

Abstract

This study investigates the price elasticity of electricity demand in South Korea by region and usage type. As the South Korean government considers regionally differential pricing to build a more efficient electricity supply structure, understanding regional elasticities is essential. Using data from 2004 to 2023 and the autoregressive distributed lag (ARDL) model findings reveal that residential electricity demand was negatively elastic during price declines (2004–2019) but became inelastic or slightly positive during price increases (2020–2023). This indicates increased consumption with falling prices and minimal reduction when prices rise. Major metropolitan areas like Seoul and Busan showed inelastic demand, highlighting electricity as a necessity. Industrial electricity demand was negatively elastic across most regions, decreasing with rising prices and increasing with falling prices. Regions like Gyeonggi and Ulsan exhibited higher elasticity, indicating adaptability to price changes. Greater responsiveness was observed during price decreases than increases. The results suggest that regional pricing strategies must consider varying elasticities for effectiveness. Additional measures are needed to enhance electricity consumption efficiency, especially in residential and industrial sectors. These findings provide crucial data for policymakers to design effective regional pricing strategies in South Korea.