Modelling electricity demand using the STAR (Smooth Transition Auto-Regressive) model in Pakistan

This study attempts to estimate Pakistan's electricity demand by applying STAR (Smooth Transition Auto-Regressive) model. The covered study period is 41 years – from 1971 to 2012. The results show that the electricity demand follows a non-linear path if the real electricity price is used as a transition variable. We find that the average real price of electricity is below the optimal level. In addition, the electricity demand is primarily determined by the level of development. The forecast statistics reveal that for a presumed GDP (Gross Domestic Product) growth rate of 6 percent, the electricity demand would jump almost three folds in 2020 as compared to the demand in 2012. Owing to a weak relationship between electricity demand and its price, a strategy built on price escalation may not work towards curtailing demand. To meet the future electricity demand, the following measures are important: i) shifting energy mix from thermal to renewable ii) increasing power sector's efficacy iii) adopting an integrated institutional approach and iv) creating a culture of conservation and responsibility.