Electricity Price, Residential Electricity Demand, and Renewable Energy Development Policies in Vietnam

This study presents a first household-level estimate of the demand for residential electricity in Vietnam using a 2015 World Bank household survey. Estimating a reduced-form demand function with instrumental variables for endogenous price, we have found that the demand for electricity is almost unitarily elastic to the average price and even more elastic to the marginal price. We conclude that the residential demand for electricity is more responsive to price in Vietnam than it is in several comparable developing countries, including India and China, and many developed countries. Meanwhile, the income and cross price elasticity is approximately 0.05 - 0.07, consistent with most of the literature. This result carries a significant implication for the energy development strategy in Vietnam. Proper demand side management by pricing instruments, coupled with a suffcient feed-in-tariff for renewables on the supply side, could help offset significant future generation capacity if the economy and real personal income keep growing at a high level, as observed over the last two decades.