Regional Electric Power Demand in Japan

In the assessment and review of regulatory reforms in the electric power market, price elasticity is one of the most important parameters that characterize the market. However, price elasticity has seldom been estimated in Japan; instead, it has been merely assumed to be as small as 0.1 or 0 without examining the empirical validity of such a priori assumptions. We estimated the regional power demand functions for nine regions in order to quantify the elasticity, and found the short-run price elasticity to be 0.100-0.300 and the long-run price elasticity to be 0.126-0.552. Inter-regional comparison of our estimation results suggests that price elasticity in rural regions is larger than that in urban regions. Popular assumptions of small elasticity such as 0.1 could be suitable for examining Japan’s aggregate power demand but not the power demand functions that focus on the respective regions. Furthermore, assumptions with smaller elasticity values such as 0.01 and 0 could not be supported statistically.