Electricity Prices and Residential Electricity Consumption in South Africa: Evidence from Fully Modified Ordinary Least Squares and Dynamic Ordinary Least Squares Tests

Abstract

The sharp rise in electricity prices in South Africa has raised a growing concern over household electricity use, affordability, and the need for sustainable consumption patterns. This increasing cost of electricity has added financial pressure on South Africans already burdened by rising prices of water, food, and fuel. This study aims to determine the relationship between residential electricity consumption and electricity prices in South Africa, using annual time series secondary data spanning from 1975 to 2024. To determine the long-run relationship the study employed econometric techniques such as Fully Modified Ordinary Least Squares (FMOLS) and Dynamic Ordinary Least Squares (DOLS), then, for robustness, the Vector Error Correction Model (VECM) and diagnostics checks. The findings of the study revealed a negative relationship between electricity prices and residential electricity consumption. While disposable income showed a positive relationship with residential electricity consumption, the population growth revealed a negative relationship with residential electricity consumption. Based on the empirical findings of the study, South African policymakers should ensure the affordability of electricity and user-efficiency so that population growth does not worsen energy inequality. Hence, policymakers should ensure basic access for all households by supporting low-income groups and applying higher tariffs for higher consumption. These measures promote fairness, meet essential electricity needs, and encourage responsible use.