Shocking Prices : Examining the short-run price elasticity of household electricity demand

Sammanfattning: As the share of renewable and intermittent energy sources grow and as society becomes more electrified, electricity price volatility becomes one of the most pressing issues. The flexibility of household demand, when faced with price shocks, determines how exposed they will be to price volatility, making the estimation of their short-run price elasticity highly relevant for policymakers. The elasticity was estimated for the hourly demand, the daily demand, and the weekly demand using a difference in difference setup. All estimated elasticities were between -0.10 and -0.19, with the elasticity of hourly demand being the smallest and the elasticity of weekly demand being largest. This implies that household demand is very inelastic but grows in the longer run, even when the longer run is rather short. The elasticity differs between electricity pricing areas. The largest estimated elasticity was in the area which experienced the greatest price shock.