Title : A VAR-Based analysis of the Dominican republic power sector under extreme weather events: Dynamic interactions between power generation, domestic demand, and energy exports
Abstract:
Extreme weather events are becoming an increasingly visible source of pressure on electricity systems, particularly in island and climate-sensitive economies such as the Dominican Republic, Aruba, Curazao, and Dominica. Hurricanes, prolonged droughts, and temperature anomalies not only disrupt infrastructure but also alter patterns of electricity demand and supply in ways that are difficult to anticipate. In these contexts, understanding how different components of the energy system interact under stress is essential for both policymakers and system operators.
This study explores the dynamic relationship between power generation, domestic electricity demand, and energy exports and imports through the use of a Vector Autoregressive (VAR) framework. Rather than examining these variables in isolation, the approach captures how they evolve together over time and how shocks those linked to extreme climatic conditions propagate across the system. For instance, a sudden drop in hydropower availability due to drought may trigger increased reliance on imports or thermal generation, while at the same time affecting domestic consumption patterns.
By analyzing impulse response functions and variance decomposition, the study provides a detailed view of both short- and medium-term adjustments within the electricity sector. These tools allow us to trace the magnitude and persistence of shocks, as well as to identify which variables play a more dominant role in driving system fluctuations. The results reveal a significant degree of interdependence between generation capacity, internal demand, and cross-border energy exchanges, especially during periods of climatic stress when system flexibility becomes critical.
Beyond the empirical findings, the study offers practical insights for energy planning and policy design. Strengthening system resilience requires not only investment in infrastructure but also better coordination between supply and demand management strategies. In the case of the Dominican Republic, this includes promoting diversification of energy sources, improving grid reliability, and enhancing the capacity to respond to external shocks. Ultimately, a more integrated and adaptive electricity system will be better equipped to cope with the growing challenges posed by climate variability.
