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System Dynamics Modeling of Households' Electricity Consumption and Cost-Income Ratio: a Case Study of Latvia

Abstract Increased energy efficiency of the building sector is high on the list of priorities for energy policy since better energy efficiency would help to reduce impact on climate change and increase security of energy supply. One aim of the present study was to find a relative effect of growth of demand for energy services due to changes in income, energy consumption per unit of demand due to technological development, changes in electricity price and household income on household electricity consumption in Latvia. The method applied included system dynamics modeling and data from a household survey regarding the relationship between electricity saving activities and the electricity cost-income ratio. The results revealed that, in direct contrast to the expected, a potential reduction of the electricity consumption is rather insensitive to electricity price and electricity cost-income ratio, and that the efficiency of technologies could be the main drivers for future electricity savings. The results suggest that support to advancement of technologies and faster replacement of inefficient ones rather than influencing the energy price could be effective energy policy measures. The model, developed in the study could be used in similar assessments in other countries.