Analysing the drivers of the intensity of electricity consumption of non-residential sectors in Europe

Highlights: • Determinants of electricity intensity of non-residential productive sectors. • A static panel data model which is estimated with three different methods. • Technological progress and the price of electricity reduce such intensity. • The accumulated stock of physical capital and investment increase such intensity. • Major influence of the accumulated capital stock. Limited influence of electricity prices. - Abstract: The electricity consumption of non-residential productive sectors represents a significant share of the overall energy consumption in the Member States of the European Union. Therefore, determining the main factors affecting the intensity of such consumption (defined as the ratio of the electricity consumed by the productive system of a given country to gross value added) is a research effort worth undertaking. The aim of this paper is to identify the main factors which affect such intensity with the help of a static panel data model, which is estimated with three different methods. Our results show that a higher degree of technological progress in the production systems and higher retail prices of electricity for non-residential consumers reduce such intensity. Other variables, which are statistically significant, lead to an increase of electricity intensity, including the accumulated stock of physical capital and the lagged gross fixed capital formation. The accumulated capital stock per unit of GDP is the variable with the highest influence on electricity intensity. Whereas the influence of price changes is limited, these results indicate that there is some rigidity to change energy intensity through demand-side policy measures, suggesting that they will need to be complemented with supply-side measures aimed at increasing low-carbon electricity generation capacity.