Nonlinear Temperature Sensitivity of Residential Electricity Demand: Evidence from a Distributional Regression Approach

Abstract

We estimate the temperature sensitivity of residential electricity demand during extreme temperature events using the distribution-to-scalar regression model. Rather than relying on simple averages or individual quantile statistics of raw temperature data, we construct distributional summaries, such as probability density, hazard rate, and quantile functions, to retain a more comprehensive representation of temperature variation. This approach not only utilizes richer information from the underlying temperature distribution but also enables the examination of extreme temperature effects that conventional models fail to capture. Additionally, recognizing that distribution functions are typically estimated from limited discrete observations and may be subject to measurement errors, our econometric framework explicitly addresses this issue. Empirical findings from the hazard-to-demand model indicate that residential electricity demand exhibits a stronger nonlinear response to cold waves than to heat waves, while heat wave shocks demonstrate a more pronounced incremental effect. Moreover, the temperature quantile-to-demand model produces largely insignificant demand response estimates, attributed to the offsetting influence of two counteracting forces.