Non-linear Demand and Price: An Empirical Analysis of the Brazilian Industrial Electricity Consumption *

Abstract

In this paper we proposed an econometric model for industrial electricity demand in Brazil. Differently from residential customers, industries in Brazil, in addition to purchasing energy and capacity, also face a tariffmenu with Time of Use pricing. Each item in this menu also has different components and price discrimination structure. All these characteristics pose an empirical problem that, so far, has not been faced together in the literature. This methodology was applied in a non-experimental micro data sample of 646 large Brazilian industrial customers (with demands over 300 KW) between January 2002 and December 2006. The results indicate demands for the various services (capacity and energy, separated between peak and non-peak hours) are price elastic, and at least in the AZUL tariff, there is complementarity between energy and capacity in the different periods. Thus, policies on tariff structures based on assumptions of an inelastic aggregate electricity demand could have effects that are quite different from what was intended.