Econometrics of Electricity Demand - Questioning the Tradition

Description

The present work seeks to cast scepticism on three grounds on the validity and value of the results of all earlier studies in India on energy demand analysis and forecasting based on time series regression. One, as these studies did not care for model adequacy diagnostic checking, indispensably required to verify the empirical validity of the residual whiteness assumptions underlying the very model, their results might be misleading. This criticism in fact applies to all regression analysis in general. Two, as the time series regression approach of these studies did not account for possible non-stationarity (i.e., unit root integratedness) in the series, their significant results might be just the misleading result of spurious regression. They also failed to benefit from an analytical framework for a meaningful long-run equilibrium and short-run ‘causality’ in a cointegrating space of error correction. Three, these studies, by adopting a methodology suitable to a developed power system in advanced economies, sought to correlate the less correlatables in the context of an underdeveloped power system in a less developed economy. All explanations of association of electricity consumption in a hopeless situation of chronic shortage and unreliability with its generally accepted ‘causatives’ (as in the developed systems) of population, per capita income, average revenue, etc., all in their aggregate time series, might not hold much water here.