The effects of an increase in power rate on energy demand and output price in Korean manufacturing sectors

• Published in: Energy policy Vol. 63; pp. 1217 - 1223
• Main Author: Lee, Myunghun
• Format: Journal Article
• Language: English
• Published: Kidlington Elsevier Ltd 01.12.2013; Elsevier; Elsevier Science Ltd
• Subjects: Applied sciences; carbon dioxide; Carbon emissions; Ceteris paribus; Communication; Cost; Cost function; Cost-effectiveness; Demand; Economic data; Electric energy; Electric power; Electric power generation; Electric rates; Electricity; Electricity consumption; Electricity demand; Energy; Energy economics; Energy policy; Energy prices; Estimating; Exact sciences and technology; General, economic and professional studies; greenhouse gas emissions; Impact analysis; Inflation; Korea; Manufacturing; Metals; Methodology. Modelling; Output price; Power demand; Power rate; Prices; Raw materials; Shortages; South Korea; Studies; Subsidies; summer; winter; Korean Peninsula; Asia; Korea; South Korea; Korea, Rep; Output price; Electricity demand; Power rate; Information communication technology; Econometric model; Secondary sector; Electricity; Simulation; Energy intensive industry; Price; Reserve power; Fuel; Energy demand; Metallurgy; Ratio of economic flexibility
• ISSN: 0301-4215; 1873-6777
• DOI: 10.1016/j.enpol.2013.09.002

In Korea, price subsidies for industrial power are provided by the government in order to enhance industrial competitiveness and curb inflation. However, this repeatedly causes electricity shortages in the peak summer and winter seasons because of over-consumption. Forcing a decline in the demand for electricity by raising power rates would thus help prevent a national blackout, lowering dependence on foreign energy and reducing CO2 emissions cost-effectively. This paper simulates the effects of a rise in power rate on demand for electricity and output price by estimating a restricted cost function, in which the quantity of raw materials is set to its cost-minimizing level, jointly with an inverse supply relation for the top three electricity-intensive manufacturing sectors. The empirical results indicate that a 10% increase in electricity rate would result in 8.0–10.1% less demand across all three manufacturing sectors, ceteris paribus. The impact on output price is of little statistical significance in the basic metals sector, while output price on average falls by 0.16% in the TV and communication equipment sector. •This paper simulates the effects of a 10% higher power rate on demand and output price.•The top three electricity-intensive manufacturing sectors are examined individually.•A cost function is estimated jointly with an inverse supply relation.•The demand for electricity drops by 8.0–10.1% across three sectors.•Output price on average falls by 0.16% in TV and communication equipment sector.