Title:
ESTIMATING LONG RUN AND SHORT RUN DETERMINANTS OF ENERGY DEMAND IN TANZANIA: A CASE OF ELECTRICITY CONSUMPTION

Authors:
Janeth A. Malleo, Tanzania

Abstract:

Research in energy sector is quite important on promoting social and economic development as well as fostering industrialisation in support of the current government policy. Due to the changing structure of Tanzania's economy brought by the upcoming industrial activities and little knowledge on the energy sector, this study attempted to analyze the factors affecting demand for energy in Tanzania. Using demand for electricity as case of investigation, the study employed co-integrated property of time series approach covers the period from 1985 to 2015, estimate the long run and short run models to understand the relationship between quantity of electricity demanded as dependent variable and price of electricity, income, prices of substitute i.e. charcoal, petrol and diesel, income, population and temperature as independent variables. The study found that in the short run model, income, and price of charcoal as a substitute were significant determinants of electricity demand in Tanzania, while price of petrol, diesel, population and temperature found to be insignificant factors for electricity demand in Tanzania. Furthermore in the long run the study found that income, price of electricity and price of petrol to be significant determinants of electricity demand in Tanzania, whereas price of charcoal, temperature, price of diesel found to be insignificant in determining demand for electricity in Tanzania. Moreover only income found to be significant in both models. In view of the above, the following were recommended; first, to support the current industrialisation policy there is a need of advanced technology in electricity generation, this reduces generation costs hence declining electricity prices as electricity is one of the inputs in the production process. Second, expanding generation capacity from which increasing demand will be met to satisfy the community whose income level is significantly rising. Finally, the government should undertake strong regulation of the price of substitutes especially petrol and charcoal since their increase significantly affects electricity demand.