THE NON-LINEAR LINK BETWEEN ELECTRICITY CONSUMPTION AND TEMPERATURE IN EUROPE: A THRESHOLD PANEL APPROACH

摘要

This paper focuses on the European electricity demand and on the potential impact of climate change on energy use. More specifically, this paper explores the effect of climate variables on energy demand by analysing the direct impact of temperature on the electricity consumption of 15 European countries. This choice is motivated by the important share of energy devoted to heating and cooling purposes. Hence, temperature is a major determinant of electricity consumption. Moreover, this question is currently of crucial concern given the observed climate change. According to the United Nations Intergovernmental Panel on Climate Change (IPCC) (2007), global warming has already made the world 0.74°C warmer over the last 100 years and temperatures are probably going to increase by 1.8-4°C by the end of the century. Exploring the link between electricity use and temperature is important to assess the impact of climate change on energy demand. This study is complicated by the non-linear pattern of the relationship between electricity consumption and temperature. In winter, the expected link between electricity demand and temperature is negative since an increase in temperature diminishes the need for energy resources used for heating purpose. This negative response is referred to as the heating effect in the related literature. In contrast, in summer, a temperature increase may raise the demand for electricity. An increase in temperature leads to a higher use of air conditioners and other cooling devices. This is the so-called cooling effect. Taking into account this non linearity requires a specific treatment. Most of the existing literature dealing with the link between electricity demand and temperature captures this non linearity by using heating degree days and cooling degree days (HDD and CDD) variables (Al-Zayer and Al-Ibrahim, 1996, Sailor and Muñoz, 1997, Valor et al., 2001, Sailor, 2001, Pardo et al., 2002, Amato, 2005). This method has some drawbacks. The definition of the HDD and CDD variables relies on an arbitrary choice of threshold values, generally set to 18.3°C (or 65°F). Such a value may not be appropriate for the European countries. Moreover, it is more sensible to directly consider the temperature level in the model to study the sensitivity of electricity demand to temperature. In this paper, we adopt the method used recently by Moral-Carcedo and Vicéns-Otero (2005) in their analysis of the effect of temperature on the electricity demand in Spain. In this study, the authors use a logistic smooth threshold regression model (LSTR) with the temperature as a threshold variable. It allows the relationship between consumption and temperature to depend on the level of the threshold variable i.e. the temperature. This approach has several advantages. The threshold value is estimated rather than being imposed a priori. It also allows a smooth transition from the cold regime to the warm one. This is relevant since there is a neutral zone for mild temperatures where the demand is inelastic to the temperature. Moreover, the impact of temperature can be assessed more easily since the variable is directly considered as an explanatory variable in the model.