According to Ms. Nguyen Thi Mai Hanh - National Accounting System Department, Statistics Office, analyzing the relationship between electricity consumption growth and economic growth plays a central role in energy policy planning, especially for developing and structurally transitioning economies such as Vietnam.
However, according to Ms. Hanh, the current practice of analysis and forecasting still popularizes the use of the electrical elasticity/GDP ratio as a general indicator, despite the inadequacies in terms of concept and methodology.
Ms. Nguyen Thi Mai Hanh said that it is necessary to clearly affirm that GDP is not a full representation of the scale of production activities in the economy. GDP measures added value, that is, the new value created after excluding all intermediate input costs. Meanwhile, electricity is consumed throughout the entire production chain, including intermediate production stages and supporting activities. In terms of economic accounting, therefore, electricity consumption is more directly related to gross output than to GDP. The direct link between electricity growth and GDP growth therefore creates a conceptual incompatibility right from the starting point.
Conversely, when the economy shifts towards service-oriented, increasing the proportion of industries with low material and energy content, or applying energy-saving technologies, GDP may increase faster than total material output. At that time, the electricity elasticity/GDP ratio decreases, and is often interpreted as evidence of a "separation" between economic growth and energy consumption. However, if not analyzing simultaneously the changes in total output and industry structure, this interpretation may lead to an overly optimistic assessment of energy efficiency, while most fluctuations only reflect structural shifts.
From the above analysis, Ms. Hanh emphasized that the electricity elasticity/GDP ratio is a synthetic indicator but lacks the ability to break down, not clearly separating the three key factors: (i) production activity scale, (ii) industry structure and supply chain, and (iii) technological advances and energy efficiency. When these three factors fluctuate simultaneously - as is often seen in developing economies - using a simple indicator such as the electricity elasticity/GDP ratio not only does not help clarify the economic nature, but also risks obscuring the real drivers of electricity consumption growth.
From the perspective of policy planning, according to Ms. Hanh, the first consequence of this approach is the risk of deviation in forecasting electricity demand. Forecast models based on GDP growth, if not adjusted according to total output and industry structure, can underestimate or overestimate future electricity demand. "This is especially dangerous for long-term investment decisions in the electricity sector, where deviation in forecasting can lead to overcapacity or supply shortages, leading to large economic and social costs" - Ms. Hanh emphasized.
The second consequence relates to the design and evaluation of energy-saving policies. When the electricity elasticity/GDP ratio is used as an effective indicator, fluctuations of this index are easily attributed to behavioral or technological causes, while most may stem from changes in production structure. This may lead to unfocused intervention policies, such as placing too high expectations on electricity saving measures in the context of increased electricity demand mainly due to the expansion of intermediate production.
