Ebook: Econometrics of Electricity Demand - Questioning the Tradition

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.