The Dynamics of Electricity Demand and Comsumption in Nigeria: Application of the Bounds Testing Approach

Clear insights about the dynamic nature of electricity demand and consumption is essential for capacity additions, investments and effective optimal energy policies. This paper provides background analysis of electricity demand and consumption trends in Nigeria, with the key determinants of electricity demand and the investment requirements clearly highlighted. Further, the paper utilizes the bounds testing approach to empirically investigate the dynamics of electricity demand and consumption in Nigeria between 1970 and 2008. The results show that real GDP per capita, population and industrial output significantly drives electricity consumption in the long-run and short-run while electricity price is not a significant determinant. In the shortrun, industrial output has a crowding out effect on the demand for electricity. The results are robust because the parameter estimates are stable over the estimation period. These results imply that income per capita is the major determinant of electricity demand, and therefore, deregulated pricing of electricity products, will ensure efficient product and resource allocation in Nigeria to reflect the observed income inelasticity for electricity products JEL Classification: C22; C32; Q41; Q42; Q43.