Answer to the Questions (15 marks)

(a) Project the annual electricity demand from 2010 to 2019 using univariate
regression models. There can be more than one projection. Plot the historical data
and the projections in a single plot. Explain the basis of your projections and
discuss how meaningful they are. (2 marks)
We have constructed 5 different linear regression models by using stepwise period
from 50 years to 10 years of historical data of electricity generation.
Using historical data for past 50 years, we have below model:
y=0.9004x 1772
R = 0.912
Using historical data for past 40 years, we have below model:
y = 1.1095x - 2189.1
R = 0.9545
Using historical data for past 30 years, we have below model:
y = 1.3531x - 2675.7
R = 0.9852
Using historical data for past 20 years, we have below model:
y = 1.513x - 2995.6
R = 0.9903
Using historical data for past 10 years, we have below model:
y = 1.1987x - 2365.5
R = 0.984
Below are the forecasted electricity demands by using above five models.
Year

50 years
model

40 years
model

30 years
model

20 years
model

10 years
model

2010

37.80

40.99

44.03

45.53

43.89

2011

38.70

42.10

45.38

47.04

45.09

2012

39.60

43.21

46.74

48.56

46.28

2013

40.51

44.32

48.09

50.07

47.48

2014

41.41

45.43

49.44

51.58

48.68

2015

42.31

46.54

50.80

53.09

49.88

2016

43.21

47.65

52.15

54.61

51.08

2017

44.11

48.76

53.50

56.12

52.28

2018

45.01

49.87

54.86

57.63

53.48

2019

45.91

50.98

56.21

59.15

54.68

We have also plotted the projection in the below graph:

Projection using 50 years and 40 years model are not likely to be very meaningful
simply because they used the data too far away where the current data trend cannot
truly reflected. Therefore, we can see that the projection using 50 & 40 years model
give us the lowest forecasted data which are even below current electricity usage.
Projection using 30 and 20 years are better related to current electricity usage;
however they are still not the best fit because they are too optimistic. As we know that
during 80s to 90s, Singapore economic has dramatically blooming with strong growth
rate, this probably has lead to the strong demand for electricity at that that time.
However, this high growth rate is not sustainable. Therefore, we can see the
projection using 30 & 20 years data would give us very high demand in the future 10
years, which is not realistic as well.
The best forecast data is should be using the most recent 10 years, as it gives
moderate growth rate. As we know that Singapore has already reach the mature stage
of developed country with stable and steady growth rate. Therefore, the most recent
10 years model gives the best fit as below.

Year
Projecti
on

201
0
43.8
9

201
1
45.0
9

201
2
46.2
8

201
3
47.4
8

201
4
48.6
8

201
5
49.8
8

201
6
51.0
8

201
7
52.2
8

201
8
53.4
8

201
9
54.6
8

(b)

Estimate the income and price elasticities of the demand for electricity. Use the
data for the whole and different periods of the time series to give the various
estimates. Discuss the results obtained and their policy implications. Comment
on why the elasticity estimates differ from one time period to another if this is
the case. (2 marks)

The following simple functions are formulated to find out the income and price
elasticities:
InEp = k + a ln Yp + bln P
,where Ep, Yp and P are respectively per capita total electricity consumption, per
capita GDP and electricity prices. We have been dividing the GDP and Electricity
consumption by the population of Singapore at that year, and the electricity price is
shown as index based on year 1990 in below table.

Year

Electricity
generation, Y
(TWh)

GDP at
1990 Prices,
X1
(billion SGD)

Electricity
price index,
X2
(1990 = 100)

Population, X3
(million)

Ep
Electricity/Populatio
n (Kwh/Person)

Yp
GDP/Population
(SGD/Person)

1960

0.611

5.769

139.3

1.6464

371.1127

3504.0087

1961

0.665

6.262

139

1.7024

390.6250

3678.3365

1962

0.716

6.704

137.4

1.7502

409.0961

3830.4194

1963

0.823

7.405

137.5

1.795

458.4958

4125.3482

1964

0.914

7.086

133.7

1.8416

496.3076

3847.7411

1965

1.047

7.557

127.8

1.8869

554.8784

4004.9817

1966

1.236

8.357

126

1.9344

638.9578

4320.2026

1967

1.425

9.446

126.7

1.9776

720.5704

4776.4968

1968

1.639

10.793

122.5

2.012

814.6123

5364.3141

1969

1.876

12.237

117.5

2.0425

918.4823

5991.1873

1970

2.205

13.882

112.6

2.0745

1062.9067

6691.7329

1971

2.585

15.623

104.9

2.1129

1223.4370

7394.1029

1972

3.144

17.707

96.7

2.1524

1460.6950

8226.6307

1973

3.719

19.699

83.9

2.193

1695.8504

8982.6721

1974

3.864

21.031

108.7

2.2298

1732.8908

9431.7876

1975

4.176

21.863

112.2

2.2626

1845.6643

9662.7773

1976

4.605

23.435

114.8

2.2933

2008.0234

10218.8985

1977

5.115

25.253

114.8

2.3253

2199.7162

10860.1041

1978

5.85

27.422

108.4

2.3536

2485.5540

11651.0877

1979

6.39

29.975

111.1

2.3835

2680.9314

12576.0436

1980

6.876

32.881

150.4

2.4139

2848.5024

13621.5253

1981

7.388

36.039

162.8

2.5318

2918.0820

14234.5367

1982

7.832

38.517

152.5

2.6465

2959.3803

14553.9392

1983

8.61

41.667

140.4

2.6811

3211.3685

15541.0093

1984

9.379

45.131

135.8

2.7322

3432.7648

16518.1905

1985

9.867

44.402

140.9

2.736

3606.3596

16228.8012

1986

10.577

45.421

134.2

2.7334

3869.5398

16617.0337

1987

11.814

49.838

116.6

2.7748

4257.6042

17960.9341

1988

13.018

55.636

117

2.8461

4573.9784

19548.1536

1989

14.039

60.991

102.7

2.9309

4789.9962

20809.6489

1990

15.618

66.464

100

3.0471

5125.5292

21812.2149

1991

16.597

71.207

94.8

3.1351

5293.9300

22712.8321

1992

17.543

75.844

90.7

3.2307

5430.0925

23476.0269

1993

18.962

85.485

89.7

3.3136

5722.4771

25798.2255

1994

20.675

95.23

84.2

3.419

6047.0898

27853.1734

1995

22.057

102.808

82.9

3.5245

6258.1927

29169.5276

1996

23.46

110.558

82.5

3.6707

6391.1516

30119.0509

1997

26.2

119.835

82.6

3.796

6902.0021

31568.7566

1998

28.283

120.316

76.8

3.9272

7201.8232

30636.5859

1999

29.52

126.756

84.6

3.9587

7456.9935

32019.6024

2000

31.655

138.258

102.8

4.0279

7858.9339

34325.0825

2001

33.089

136.571

107.9

4.138

7996.3751

33004.1083

2002

34.665

142.36

95

4.176

8301.0057

34090.0383

2003

35.331

148.907

96.4

4.1148

8586.3225

36188.1501

2004

36.81

162.661

95.3

4.1667

8834.3293

39038.3277

2005

38.213

174.67

104

4.2658

8957.9915

40946.5985

2006

39.442

189.763

123.5

4.4014

8961.2396

43114.2364

2007

41.134

205.96

116

4.5886

8964.3900

44885.1502

2008

41.717

209.631

140

4.8394

8620.2835

43317.5600

2009

41.801

206.334

110

4.9876

8380.9848

41369.3961

InEp = k + a ln Yp + bln P
SUMMARY OUTPUT FOR 50
YEARS
Regression Statistics
Multiple R
0.9929003
R Square
0.9858511
Adjusted R
Square
0.985249
Standard
Error
0.122586
Observations
50
ANOVA
df
Regression
Residual

2
47

SS
49.2115
26
0.70628

MS
24.6057
63
0.01502

F
1637.40
12

Significa
nce F
3.483E44

49

44
49.9178
1

Coefficients

Standar
d Error

Total

lnYp

1.2360744

0.64882
48
0.02486
94

Ln P

-0.0948735

0.10576
48

Intercept

-3.4682814

73

t Stat

P-value

5.34548
25
49.7027
09
0.89702
2

2.593E06
2.752E42
0.37427
87

Lower
95%

Upper
95%

4.773548
4
1.186043
7
0.307644
9

2.16301
44
1.28610
51
0.11789
79

We have used overall 50 years data and also different steps of 10 years data from
1960-2009 to formulate our model. The income and price elasticity were found in
below table:

Income
Elasticity
Price
Elasticity
R Squre

1960-2009
(50 years)

1960-1969
(1st 10 years)

1970-1979
(2nd 10 years)

1980-1989
(3rd 10 years)

1990-1999
(4th 10 years)

2000-2009
(5th 10 years)

1.2361

0.6682

1.5047

1.1672

0.8865

0.4723

-0.0949

-3.4652

-0.0915

-0.1965

0.0211

-0.1839

0.9858

0.9752

0.9980

0.9615

0.9209

0.7734

As we can see from the table above, the overall price elasticity is a small negative
value of - 0.0949, which is making sense, since it should be a negative relationship
and its utility product nature, where price is not a sensitive factor affect the demand.
During 1990-1999, the price elasticity is positive for a while, it is because at this
period where the electricity generation is strongly pull up by the industrial sector
regardless of the price of electricity. The liner fit is not very good for year 2000-2009
simply because there is price fluctuation during this decade due to government policy
change; however, the demand of the electricity is continuously strong. To conclude,
we should make the policy to make electricity less price elastic because it is strongly
driven by the industrial users who care less the price than the residential users who is
more price conscious.
The income elasticity is 1.23 for overall 50 years. In 60s, the income elasticity is
small as 0.6682 because the economic growth and GDP is at the early stage together
with the independence of Singapore. The elasticity is small because the income is not
highly related to the electricity demand. However, from 1970-2009, during the 40
years, the trend for income elasticity is decreasing from 1.5047 to 0.4723, where a

lower income elasticity is obtained for the more recent period with a higher income
and more mature stage of economy. Therefore, it is reasonable for us to project even
lower income elasticity for the future.

(c)

With the findings in (a) and (b) and including any other information which you
think are relevant, describe how and why electricity demand in Singapore has
changed over the last five decades. (3 marks)

From part (a) and (b), we found some non-linearity existence, especially when we are
investigating the price elasticity of the electricity, we found the price for electricity of
1972-1973, the whole decade of 1990s and year from 2002-2004 are not linear and
price are fall out of the normal range. When we trace back the history, we found there
is an oil crisis during 1973 which could possibly cause the disruption of the electricity
price. Also during the 1990s, the is Singapores electricity reorganization where the
SP power is capitalized and listed in open market therefore causing a drop of the
electricity price at that time. Again in 2002-2004, government has implemented
policy to reduce the utility price again which gives our lower electricity price again.

The electricity demand has changed over the past five decades, the demand for 19601969 has gradually increased but not so much driven by the economy because
Singapore was just getting its national independence. The economic and GDP growth
is not so dramatically driving the demand of electricity at its the early stage of this
young nation.
The electricity demand for the following 3 decades of 1970-1999 are so much driven
by the fast blooming economy and a very optimistic growth of demand is obtained
during these 30 years. On the other hand, as we can see that from the income
elasticity of electricity has also dropped from 1.5047 in 1970s to 1.1672 in 1980s,
and 0.8865 to 1990s. It is nature that with the higher GDP, the income elasticity has
been decreasing along the time.
For the last 10 years of 2000-2009, the income elasticity has fall below 1. It has
shown that the Singapore economic coming to a mature stage where energy

consumption has become less income elasticity dependent just like other developed
countries.

(d)

Based on the data from 1960 to 2003 (or any appropriate portion of the data in
this period) and do data transformations if needed, develop a regression model
to forecast the historical electricity demand for the chosen time period. Hence
use the model to forecast the electricity demand for 2004 to 2009 using the real
data for the independent variables given for these six years. Based on the
forecasted and observed electricity demands for these six years, compute and
compare the forecasting errors using MAD and MSE. Comment on your choice
of model and its adequacy. (3 marks)

(e)

We wish to know what the Singapore electricity demand will be in years 2020
and 2030. Project the electricity demand in these two years. Give full details on
(a) the model and approach used, (b) the assumptions made, and (c) how
confident you are with the projected demand, including the difficulties or
uncertainties involved. If you wish, you could show the results of more than one
projection and explain the differences between these projections. You could also
include variables not given in your analysis. (5 marks)

We have constructed a model for demand of electricity using 2 elasticities:

D2009 = k (Y2009 )(P2009)

----------------- (1)

D2020 = k (Y2020 )(P2020)

----------------- (2)

D2030 = k (Y2030 )(P2030)

----------------- (3)

Based on the elasticity model we have constructed for the 50 years, we have obtained
a dropping trend of income elasticity and relatively small but stable price elasticity:

Income
Elasticity
Price
Elasticity

1960-1969
(1st 10 years)

1970-1979
(2nd 10 years)

1980-1989
(3rd 10 years)

1990-1999
(4th 10 years)

2000-2009
(5th 10 years)

0.6682

1.5047

1.1672

0.8865

0.4723

-3.4652

-0.0915

-0.1965

0.0211

-0.1839

Therefore, we have chosen below parameters to forecast for 2020 and 2030 data:
Income elasticity = = 0.6
Price elasticity = = -0.2
Best case: GDP growth rate at 7% and electricity price growth rate at 0.5%.
By (2)/(1) and (3)/(1)we have:
D2020 / D2009 = (Y2020 / Y2009)0.6(P2020 / P2009) -0.2
= (434.3025/ 206.334)0.6(116.2035/110) -0.2
= 1.5629*0.9891
= 1.5459
D2020 = 1.5459 * 41.801 = 64.6202 (TWh)
D2030 / D2009 = (Y2030 / Y2009)0.6(P2030 / P2009) -0.2
= (854.339/ 206.334)0.6(122.1462/110) -0.2
= 1.7966*0.9793
= 2.2969
D2030 = 2.2969* 41.801 = 96.013 (TWh)
In best case scenario, we have taken the very optimistic GDP growth rate at 7% per
annual. This number is estimated based on the condition that government doing a
good job in the economy and continuously succeeded in developing the city state.
Besides that, government subsidies the new energy and given nearly zero price
increase at 0.05% of the electricity price. The projection for 2020 and 2030 gives our
reasonable number of 64.6202 (TWh)and 96.013 (TWh) ,which is very close to our
projection data in part (a) using the most recent 10 years data.