Estimating Residential and Industrial Electricity Demand Functions of Iran, using Structural Time Series Model (STSM)

Document Type : Research Article


1 Professor of economics in Ferdowsi University of Mashhad, Faculty of Economics and Business Administration

2 Ferdowsi University of Mashhad


Underlying Energy Demand Trend (UEDT) is tried to be introduced through Structural Time Series Model (STSM) in this paper in order to estimate Iran electricity demand function in residential and industrial parts during 1976-2012. Applying mentioned method to estimate the electricity demand functions, led to consider UEDT as an intangible and non-measurable variable and hence modeling it as a stochastic procedure via maximum likelihood approach and the kalman filter. Therefore skewed estimations are avoided in price and income elasticity. Results show that nature of the Underlying Energy Demand Trend in residential electricity demand function, is smooth trend model and it is local model with drift in industrial electricity demand function. Furthermore, the estimated price and income elasticities in residential and industrial sectors are indicative of inelastic for both short term and long term during the estimated period. Therefore, non pricing policies such as increasing efficiency of electrical energy applications and also determining the range of price elasticity and then the pricing based on subscribers consumption as a pricing policies is suggested to reduce electricity consumption in residential and industrial electricity sectors of Iran.