DETERMINANTS OF ELECTRICITY PRICES IN KARACHI: VAR ESTIMATION APPROACH
Abstract
New era presents the war for resources, and the balance of global interest has shifted from just land to energy. Countries are striving hard to become efficient in not only consumption but also the production of energy which is the new unit of power. Therefore, global focus is now moving towards the determination of factors that may aid the inefficient production of energy, mainly electricity rather than blind pursuit of energy sources. The visibility of this efficiency is the price at which electricity is available to consumers. Western counties like USA and Germany have performed various research studies to establish a list of factors, both economic and social, that influence overall electricity prices. Their approaches have primarily been empirical and point out towards the interest of even superpowers towards this topic. Pakistan being a developing country needs efficiency in the production of consumables to develop swiftly. The country has resources but lacks the technology to produce electricity efficiently. The largest city Karachi is overpopulated, and the demand for energy is ever rising, so are the shortages. This study employs Vector AutoRegression (VAR) to study historical electricity prices in Karachi about electricity consumption, Gross Domestic Product and Oil Price. Results indicate that electricity prices are influenced directly by their first lagged values and negatively by GDP
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