Income elasticity of electricity demand in the context of Portugal’s energy transition

The debate on the decoupling between household income and energy demand has intensified in recent years, with a focus on the impact of energy efficiency policies, renewable energy self-consumption, and structural economic changes. However, electrification and the decline of the informal economy may reinforce the relationship. Using a time-varying parameter framework, this paper provides insights into how income affects grid-supplied electricity demand in Portugal, disaggregated by economic sector and utilizing regional data from 1995 to 2022. The results suggest a decreasing but positive income elasticity of aggregate electricity demand in the residential, commercial, and industrial sectors. The results enable the determination of the importance of sensitivity analysis for electricity consumption in the context of the energy transition, which is particularly useful for making informed decisions about electricity generation investments, as well as network planning and development. • It investigates the decoupling of income and electricity demand in Portugal. • It uses regional/sectoral data by time-varying parameters models. • Finds declining income elasticity in residential, commercial, industry sectors. • Income remains a driver of electricity consumption. • Results provide information for generation investment and grid planning decisions.