Determining the efficiency of residential electricity consumption

Increasing energy efficiency is a key global policy goal for climate protection. An important step towards an optimal reduction of energy consumption is the identification of energy saving potentials in different sectors and the best strategies for increasing efficiency. This paper analyzes these potentials in the household sector by estimating the degree of inefficiency in the use of electricity and its determinants. Using stochastic frontier analysis and disaggregated household data, we estimate an input requirement function and inefficiency on a sample of 2,000 German households. Our results suggest that the mean inefficiency amounts to around 20%, indicating a notable potential for energy savings. Moreover, we find that the household size and income are among the main determinants of individual inefficiency. This information can be used to increase the cost-efficiency of programs aimed to enhance energy efficiency.