Why Electricity Demand Is Highly Income-Elastic in Spain: A Cross-Country Comparison Based on an Index-Decomposition Analysis

Since 1990, Spain has had one of the highest elasticities of electricity demand in the European Union. We provide an in-depth analysis into the causes of this high elasticity, and we examine how these same causes influence electricity demand in other European countries. To this end, we present an index-decomposition analysis of growth in electricity demand which allows us to identify three key factors in the relationship between gross domestic product (GDP) and electricity demand: (i) structural change; (ii) GDP growth; and (iii) intensity of electricity use. Our findings show that the main differences in electricity demand elasticities across countries and time are accounted for by the fast convergence in residential per capita electricity consumption. This convergence has almost concluded, and we expect the Spanish energy demand elasticity to converge to European standards in the near future.