Algeria has been one of the countries with special interest in signing the COP21 agreement, due
to its vulnerability to the effects of climate change, and being one of the first developing countries to
submit the INDC in which it pledged to reduce carbon emissions by at least 7% by 2030. Nevertheless,
the residential sector and electricity consumption. Therefore, the analysis of the evolution of residential
In this paper, the relationship between residential electricity use and income is analyzed for
Algeria in the period 1970–2013, by estimating a residential electricity consumption per capita demand
function which depends on GDP per capita, its squared and cubed term, the electricity prices and the
Energies
2018, 11, 1656
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goods and services imports. The methodology applied is the extended autoregressive distributed lag
model (ARDL) with break points.
The short-run estimate results show that residential electricity consumption elasticity with respect
to electricity prices is negative. Nevertheless, the coefficient is less than one, and is therefore considered
price inelastic. In addition, the results show that the short-run electricity use elasticity with respect to
imports is negative and significant. In that sense, it may be possible that imports of goods have allowed,
in the short term, the replacement of less energy-efficient goods with others that are more efficient.
The long-run estimates indicate that the elasticity with respect to GDP per capita is positive in the
central point of the sample. Nevertheless, the squared and cubed GDP per capita estimated coefficients
are negative and significant. Therefore, results show that the relationships between electricity use and
GDP (in per capita terms) present an inverted N-shape, with the second turning point having been
reached. The results therefore show that the GDP per capita increases in recent years are contributing
to reduce residential electricity use, which could be related to the fact that the population are replacing
their appliances with more efficient ones. Therefore, promoting growth in Algeria could be convenient
in order to reduce electricity consumption, as a higher income level may be allowing the purchase and
use of more efficient appliances.
As the income growth does not seem to be the cause of the residential electricity growth
(in per capita terms) in the latter years analyzed, there may be some other underlying causes.
The results show that the time trend effect is positive and significant, which may be explained
by increasing urbanization and lifestyle changes. Additionally, the import coefficient is positive and
significant. Therefore, although imports could lead to purchases of more efficient appliances in the
short-run, these could also provide more appliance purchases in households over time, generating
rebound effects in the long-run. These effects seems to be especially relevant, as the increase in income
has not been sufficient to compensate for the effect that other factors have had on the growth of
residential electricity consumption, such as urbanization or change of lifestyle.
Therefore, Algeria has to implement some electricity policy measures if wants to comply with its
INDC commitments. On the one hand, promoting renewable energies may be adequate to increase the
electricity production in order to cover the increasing residential demand and to reduce emissions.
However, the policy measures established until now may not be considered sufficient to promote the
use of these energies. Algeria needs to implement more incentive schemes and better coordinated
public support programs and public-private partnerships in order to develop local markets by joint
multinational business and governmental efforts. Nevertheless, as these promotion measures may
be conditioned by the high Algerian budget deficit, the promotion of renewable energy may be
conditioned by foreign investment. In this sense, it is considered necessary to improve the conditions
that favor foreign investment, such as for example battling corruption, reducing heavy bureaucracy,
strengthening the financial sector and generating legal security in terms of intellectual property rights.
On the other hand, the results show that the elasticity with respect to residential electricity
prices is negative, significant and lower than one, which may be related to very low electricity prices
because they are subsidized by the Algerian Government. Therefore, the Algerian Government may
control the rapid growth of electricity consumption by adjusting electricity tariffs to rationalize its
consumption. It that sense, progressively raising prices becomes necessary in order to adjust them to
electricity production costs. Nevertheless, rising residential electricity prices may be done slowly and
incrementally in order to maintain the socio-political order.
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