Heating technology and energy use: a discrete/continuous choice approach to Norwegian household energy demand

The aim of this paper is to describe the structure of the household’s energy demand as a discrete/continuous choice and, on this basis, establish an econometric model suitable for the data available in the Norwegian Energy Surveys. The discrete appliance choice is specified as a multinomial logit model, with a mixture of appliance attributes (operating costs) and individual characteristics (income, housing unit characteristics, etc.) as explanatory variables. In the next step the continuous choice of energy use is modelled conditional on the appliance choice. The energy prices turn out to be significant both when estimating the appliance choice and the conditional energy demand. The estimated price elasticity for energy exceeds minus unity. The paper discusses how this relatively strong price response should be interpreted in the context of other econometric analysis with no explicit appliance dependence. Finally, the significance of the many household characteristics at both stages of the model signals a high degree of heterogeneity within the households, which justifies the use of detailed micro-data in the modelling of the energy demand.