Does Australian household spending on electricity conform to the Bashmakov constant?

Igor Bashmakov is one of the leading Russian experts on climate change and energy efficiency. Bashmakov developed three general energy transition laws: the law of stable long-term energy costs to income ratio; the law of improving energy quality; and the law of growing energy productivity. The proportion of GDP that households spend on electricity seems to be remarkably constant across nations and across time. Carey King has also explored similar relationships between energy and the economy (for example, see here and here).

To explore the relationship for Australia, I plotted the real price of electricity from 1955 to 2015 in 2015$AUD as shown in figure 1. I also took the nominal price and multiplied through by the household consumption and divided by nominal GDP, shown in figure 2. Consumption and price data was gathered from various ABS sources and Year Books, ESAA reports, OECD, and historical data. Full electrification of rural areas did not occur until the 1960s. Despite significant changes in the real price and GDP per capita, the share of GDP seems to pull back to within a band of 0.8 to 1.0% GDP. I haven’t carried the analysis further but the next step would be to consider income share and income growth. The recent role of solar may be important here – households offset increased spending due to higher tariffs by installing solar, but may eventually increase electricity consumption to bring annual spending back into line with long-run trends. Consumers probably get used to the magnitude of the electricity bill and adjust behaviour to suit.

I then looked at household spending for a range of countries and plotted them versus the residential price of electricity (figure 3). One would expect nations with higher electricity prices to spend more on electricity. I used the IEA Energy Prices and Taxation report from 2015, household consumption from the World Energy Council, GDP in national currencies from Economy Watch. For the selected nations, there is a six‑fold difference in per‑household energy consumption, a four‑fold difference in PPP‑adjusted electricity prices and a two-fold difference in PPP‑adjusted per‑capita income. Once again, there seems to be a band of spending share on electricity that is much narrower than might be implied by the differences. German households can afford much higher electricity tariffs than the US because they use much less electricity. But German households use more than the Polish because Germans are richer. Either way, the GDP share seems to hover around  1% +/- 0.4%. For policy makers, the lesson is straightforward but impractical – the most effective method of reducing household electricity consumption is to increase tariffs  and/or reduce economic growth. The role of rising peak demand confounds the study because peak demand is related to a peakier load duration curve. Efficiency and conservation seem to be deeply cultural and can be nudged only gradually. The corollary is that consumer price subsidies are a bad idea except to the extent of providing essential support for needy households.

Update: Dylan McConnell also covers this topic here , Keith Orchison covers it here

Figure 1. Australian household real price of electricity, included fixed and variable tariffs
Figure 2. Australian household spending on electricity as a proportion of GDP


Figure 3. Household expenditure as a proportion of GDP versus electricity cost

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