The Demand of Household Electricity Energy (The Study Case on Household Customers of PT. PLN (Persero) Electricity in Medan)

4 Pages Posted: 12 Jun 2011

See all articles by Tongam Sihol Nababan

Tongam Sihol Nababan

University of HKBP Nommensen, Faculty of Economics

Date Written: Dedember 19, 2008

Abstract

The demand for electricity in Indonesia always increases. The increase of electricity demand illustrates that electricity energy remains as the main source of energy in developing activities. However, the increase of electricity demand exceeds the offer (by PT. PLN / Persero). It had an impulse that limits the supply of electrical energy by PT. PLN (Persero). In short, the increase of electricity demand is exceeded by PT. PLN (Persero).

The main objective of the research is to analyze the behavior of PT. PLN’s electricity demand in Medan City. The customers of PT. PLN consist of social, public, household, business, industry, and multifunctional groups, but, the object of the research was only limited to household group that was divided into some tariff categories.

Many factors influence the household electricity demand. Based on the previous studies (Wlider & Willenborg, 1975; Garbacz, 198; Jung, 1993), those factors were stressed on the economic variables such as : consumer’s income, price or tariff of electricity, electricity appliance stocks, household characteristics and demographic characteristics, i.e. the number of household members, the level of education, the number of rooms, race (ethnic), and location.

This research analyzed the factors affecting the household electricity demand for groups of household costumers on all tariff strata. The research was also expected to result in the model of household electricity demand used as a model in applying the policy of electricity system for households in the research area. The previous studies still estimated the household electricity demand for all household groups. So far, there have not been any researches that estimate the household electricity demand based on strata or tariff category. The strata are divided into : R-1/TR 450VA, R-1/TR 900VA, R-1/TR 1300VA, R-1/TR 2200VA, R-2/TR > 2200VA-6600VA, R-3/TR > 6600VA, where every stratum has different characteristics.

The research was conducted in Medan City using 383 household respondents. The respondents were distributed on strata 450 VA (n = 143), 900 VA (n = 94), 1300 VA (n = 47), 2200 VA (n = 50), and R-2 (n = 49). The initial survey was carried out in October to December 2006 and the main research was done January to September 2007.

The estimation of the model research was specified in a single equation with endogenous variable, i.e. household electricity energy demand (PELRT). The model was estimated into two models, they are the Basic Model (Model I) and the Developed Model (Model II). The aim of the two models is to determine whether the addition of the developed model can give the better information compared to the basic model. The basic model used exogenous variables, which cover consumer’s income (PENDPTN), price of electricity with the proxy of willingness to pay per KWh (kilowatt-hours) (WTPKWH), home appliances index (INDALIST), number of household members (JAKEL), number of rooms (JUMRUANG), price of other energy (fuel and gas) as a substitution of electricity (HBLBBM and HBLGAS), and ethnic/race (ETNIS). Whereas, in developed model the exogenous variables in basic model were added with variables related to household characteristics/demographic such as : the occupation type of the head of the household (PEKERJN), the level of household member’s education (TIPENDIK), family activities (KEKEL), the location of household (LOKASI), and the service level of PT. PLN (LAYANAN). The estimated model was analyzed for each of stratum/tariff category by using OLS (Ordinary Least Square) with single equation.

The estimation procedures were : 1) the analyzes on multiple linear regression, 2) the selection of better model based on Ramsey’s RESET Test, t-statistic, number of significant variavebles, and 3) diagnostic test. The selection of model showed that the Developed Model (Model II) offered the better result for all stratum (merged) and for every stratum (450 VA, 900VA, 1300 VA, 2200 VA, and R-2 (> 2200 VA - 6600 VA). The result of the research showed that for all strata (for merged strata), the household electricity energy demand in Medan City was strongly influenced only by the main variables, i.e. : consumer’s income, willingness to pay, home appliances index, number of household members, number of rooms, price of fuel, and ethnic, while the demographic/household variables such as the head of households’ occupation, level of education, family activities, and location, only influenced the household electricity energy demand when the estimation for every stratum was conducted.

For all stratum (merged) and stratum 450 VA, 900VA, 1300 VA, 2200 VA, and R-2 the variables of consumer’s income, home appliances index, number of household members, number of rooms, price of fuel, and family activities positively and significantly influenced the household electricity energy demand. The variable of gas price did not significantly influence the household electricity energy demand.

The variable of WTP per KWh negatively and significantly influenced the household electricity energy demand for all strata (merged) and every stratum. It also showed that electricity energy had normal goods’ behaviors and the price was inelastic. It indicated that electricity energy did not have substituting goods and it was still monopolized by PT. PLN (Persero). The research found that there was no difference between the sign of coefficient of using the proxy of willingness to pay with the previous studies using the average or marginal prices.

For stratum 1300 VA, the variables of consumer’s income, home appliances index, and the price of fuel, positively and significantly influenced the household electricity energy demand, Moreover, the variable of WTP per KWh negatively and significantly influenced the household electricity energy demand. The variables of the number of household members and the number of rooms did not significantly influence the household electricity energy demand.

In addition, there was an insignificant difference for strata 450 VA, 900VA, 2200 VA, and R-2 electricity demand between native families and non-native families. On the other hand, there was a significant difference for stratum 1300 VA. There was an insignificant difference for strata of 450 VA, 900VA, and R-2 electricity demand between households with household head’s occupation as civil servant/military/police/retirement and household head’s occupation as non-civil servant/military/police/retirement, while for stratum 2200 VA, there was a significant difference. For strata 450 VA, 900 VA, and R-2, the variable of education level of family members did not significantly influence the household electricity energy demand, while the variable for stratum 2200 VA positively and significantly influenced the household electricity energy demand. For strata 900 VA, 2200 VA, and R-2 electricity demand, there was an insignificant difference between households in central city and households in suburb areas, while for stratum 450 VA, there was a significant difference. For strata 450 VA, 900 VA, 2200 VA, and R-2, the variable of PT. PLN service did not significantly influence the household electricity energy demand.

The result of the research indicated that consumers of household in Medan City could improve the utility of electricity usage through the usage of more appliances but it was constrained by the power of electricity supplied by PT. PLN. Based on this fact, it is expected that PT. PLN always maintains the balance of supply and demand. So far, the demand of electricity remains to increase, therefore PT. PLN should keep its balanced supply by improving the management of electric power station. Furthermore, it is time for PT. PLN to introduce the price of electricity based on regionalization tariff by considering the willingness to pay of the consumers.

PT. PLN can apply the policy of giving the incentive and disincentive for the purpose of economizing. It is expected that PT. PLN can intensively collect data of household demographic characteristics, especially for new customer candidates. The objective is to get information on how the utility of electricity usage in a household can be influenced by the characteristics.

Keywords: electricity, demand, household, appliance, willingness to pay (WTP)

Suggested Citation

Nababan, Tongam Sihol, The Demand of Household Electricity Energy (The Study Case on Household Customers of PT. PLN (Persero) Electricity in Medan) (Dedember 19, 2008). Available at SSRN: https://ssrn.com/abstract=1844423 or http://dx.doi.org/10.2139/ssrn.1844423

Tongam Sihol Nababan (Contact Author)

University of HKBP Nommensen, Faculty of Economics ( email )

Jln. Sutomo No. 4A
Medan, North Sumatra 20118
Indonesia
08126411543 (Phone)

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