Do Electricity Tariffs Change Household Consumption? Evidence from Block and Peak-Hour Pricing in A Developing-Country

Abstract

Electricity tariff reform is increasingly used as a demand-side management instrument in developing economies facing rising electricity demand, supply constraints, fiscal pressures, and dependence on imported fuels. However, the effectiveness of price-based interventions remains debated, as residential electricity is a necessity and household demand is likely relatively inelastic to price increases. This study investigates the impact of electricity tariffs on household electricity consumption in Quetta, Pakistan. It identifies three components of the residential tariff structure: electricity block tariffs, peak-hour price tariffs, and peak-hour duration tariffs. This research collected primary data through systematic random sampling of households, obtaining 497 usable responses from 515 target households for analysis. Monthly electricity consumption data were categorized into eight ordered classes from 1-100 units to >700 units, consistent with the consumption blocks in the local electricity-pricing system. An ordered-logit model, marginal effects, and predicted-probability analyses were used for results analysis. Results show that all three tariff dimensions are strongly related to the shift to lower electricity-consumption categories. Block tariffs drive the largest change: a one-unit increase in the block tariff variable raises the probability of being in the 1-100 and 101-200 block categories by 5.70 and 6.84 percentage points, respectively. It lowers the probability of consumption above 700 units by 3.53 percentage points. This research finds similar patterns for peak-hour price and peak-hour duration, but peak-hour duration changes probabilities more than peak-hour price for several categories. The findings show that the electricity price level is not the only factor that determines electricity demand management, but also the tariff structure, such as progressive blocks, time-of-use price differentials, and duration of peak periods. The evidence is relevant for regulators trying to balance demand reduction and household affordability in energy-constrained developing economies.