The Non-Linear Relationship between Electricity Consumption and Temperature in Taiwan: An Application for STR (Smooth Transition Regression) Model

Abstract

This study builds non-linear econometric models to analyze the effects of temperature on electricity consumption in Taiwan by using the smooth transition regression (STR) model and the monthly time-series data from 1983 to 2012. The empirical results indicate that there is a non-linear relationship between electricity consumption and temperature in Taiwan. Furthermore, all the six estimated threshold temperatures are between 25.364˚C and 27.156˚C, and the average of threshold temperatures is 26.384˚C. It implies that Taiwan’s electricity consumption has a non-linear growth if average temperature is higher than the threshold temperature. In addition, the estimated threshold temperature has policy implications for Taiwan’s policy makers, meaning that the threshold temperature in this study can serve as a reference for framing policies of managing electricity demand in Taiwan.