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Time-varying price elasticity of electricity demand

Chong, J. and Torriti, J. ORCID: (2023) Time-varying price elasticity of electricity demand. In: 44th International Association for Energy Economics (IAEE) International Conference,, 4-9 Feb 2023, Riyadh, Saudi Arabia. (Pathways to a Clean, Stable, and Sustainable Energy Future)

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Electricity supply is compromised and prices are soaring; the world is currently facing an energy crisis. Demand-side response is being sought in order to help reduce the strain on finances and supply. In particular, monetary incentives are being trialled with the aim of lowering peak consumption. Price elasticity of electricity demand is a metric which provides some insight into the cost-to-benefit that can be expected from such operations. Intra-day variation in price elasticity of electricity demand has received little attention in the literature. We contribute to the literature on empirical estimation of price elasticity in electricity markets by proposing a method which both estimates the variations and tests for statistical evidence of such non-constancy. Additionally, our model imposes the restriction that intra-day patterns in price elasticity are smooth. Implementing the proposed approach on data from the German wholesale spot electricity market for 2016, we find evidence of variation. Furthermore, the patterns that we uncover differ from those in the literature but are in agreement with -and can be partially explained by- a broader measure of flexibility in electricity consumption. We find that wholesale electricity demand is least responsive to price changes at peak consumption hours.

Item Type:Conference or Workshop Item (Paper)
Divisions:Interdisciplinary centres and themes > Energy Research
Science > School of the Built Environment > Energy and Environmental Engineering group
ID Code:113227
Uncontrolled Keywords:Electricity demand; flexibility; price elasticity; energy tariffs

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