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The model distinguishes between two primary energy end-uses in the residential sector – (1) thermal, largely cooking demand and (2) electricity demand for lighting and appliance use. Several alternative fuel and technology options can be specified in the model to meet each of these respective service demands. To reflect heterogeneity among consumers, the household or residential sector is further disaggregated into several sub-groups that distinguish among rural and urban households and five or more expenditure classes within the rural and urban sub-sectors (Figure 12.3).

The methodology for modeling energy choices in the residential sector using this model is described in detail in Ekholm et al (2010) and in the Supplementary Materials section of Pachauri et al. (2013). In addition to energy prices, technology costs and performance parameters, and income level of a household determining the least-cost energy-equipment combination that meets a specific energy need, two additional parameters determine choices in the model. The first is referred to as the “inconvenience cost”. An inconvenience cost is a cost related to the inconveniences associated with obtaining and using certain types of fuels. For example, gathering firewood involves an opportunity cost for the time spent in collecting it and a dis-utility to users from exposure to the smoke they inhale when it is combusted. This non-monetary cost is captured by estimating an inconvenience cost (see Ekholm et al. 2010 for further details regarding the methodology) for each household group and fuel. This is considered an additional cost that must be taken into account by the household in making a decision regarding the choice of fuels. The second parameter that also determines energy choices for households is income dependent implicit discount rates that determine the annualized capital costs of equipment depending on their individual lifetimes.

Figure 2.3: Split of residential energy demand into different spatial (urban/rural) and income (1-5) categories.