URBAN HOUSEHOLD ENERGY DEMAND IN SOUTHWEST NIGERIA

Abstract

Urban population growth exerts pressure on energy demand resulting in inefficient supply. This consequently leads to increase in prices of energy sources. The literature on the determinants of urban household energy use in Nigeria has focused little attention on substitution possibilities as well as welfare implications of price increases. This study investigated the determinants of urban household energy demand, substitution possibilities and welfare implications of price increases in southwest Nigeria.

A microeconomic demand model, using the indirect utility maximising function, was estimated. A structured questionnaire was used to collect primary data. The major thematic areas included socio-economic and demographic characteristics, energy use profile, energy substitution and willingness, energy prices and welfare implications. The energy sources considered were: electricity, firewood, kerosene, liquefied petroleum gas (LPG) and petrol. Respondents’ distribution was by low, middle and high income groups. One hundred Household Heads (HHs) in the capital of each of the six states (Ekiti, Lagos, Ogun, Ondo, Osun and Oyo) in southwest Nigeria were surveyed. These consisted of 25, 35 and 40 HHs in low, medium and high density residential areas respectively. Descriptive statistics, student t-test, and multiple regression were used to analyse the data at 0.05 level of significance.

Fifty-seven percent of the respondents were males, 41.8% had tertiary education and 37.2% were civil servants. The modal age was 40-49years while 50.2% lived in single room. The energy source for cooking irrespective of income group was kerosene (89.7%). The choice of energy type was influenced by convenience 59.2% for cooking and 62.3% lighting. Electricity was the most preferred for lighting (90.2%). Only 31.8% were willing to substitute kerosene for gas. The energy source for cooking was kerosene 52.7% for low, 92.3% medium and 91.3% high residential areas. Convenience (62.9%) low income, (59.0%) middle income and (36.7%) high income levels influenced the choice of energy for cooking. Demand response to price changes was inelastic. Occupation of the respondents (0.07), level of education (0.04) and price of energy sources (-0.87 electricity; -0.59 fuel wood; -0.08 kerosene; -0.97 LPG and 0.01 petrol) significantly explained household energy demand. A 1.0% increase in prices led to a less than 1.0% decrease in demand for energy types. The substitution effect between kerosene and firewood was -0.11. The income elasticity of demand for electricity (0.95) and kerosene (0.65) indicated that they were normal goods. Kerosene (40.0%) had the largest household’s budget share. As energy prices increased, households’ budget share to energy sources increased. There was a welfare loss of N3,682.15k as prices of energy sources increased.

Occupation, level of education, household size and energy price were the significant determinants of household energy demand in urban areas in southwest Nigeria. Government in partnership with private sector should ensure that the cost of cleaner fuel appliance is made available at minimum cost.

Keywords: Urban household energy demand, Energy use substitution, Household welfare

Word count: 488