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Price elasticity of demand in the EPEX spot market for electricity—New empirical evidence

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  • Bönte, Werner
  • Nielen, Sebastian
  • Valitov, Niyaz
  • Engelmeyer, Torben

Abstract

This paper provides estimates for the price elasticity of demand in the European Power Exchange (EPEX) day-ahead market for electricity. An institutional change in the year 2010 allows us to use wind speed as an instrumental variable for hourly spot market prices in order to deal with potential endogeneity problems. The average price elasticity of demand covering the years 2010–2014 is about −0.43 and our results point to a decline in its absolute value over time.

Suggested Citation

  • Bönte, Werner & Nielen, Sebastian & Valitov, Niyaz & Engelmeyer, Torben, 2015. "Price elasticity of demand in the EPEX spot market for electricity—New empirical evidence," Economics Letters, Elsevier, vol. 135(C), pages 5-8.
    • Handle: RePEc:eee:ecolet:v:135:y:2015:i:c:p:5-8
    DOI: 10.1016/j.econlet.2015.07.007
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    References listed on IDEAS

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    1. Graf, Christoph & Wozabal, David, 2013. "Measuring competitiveness of the EPEX spot market for electricity," Energy Policy, Elsevier, vol. 62(C), pages 948-958.
    2. Andrews, Donald W K, 1991. "Heteroskedasticity and Autocorrelation Consistent Covariance Matrix Estimation," Econometrica, Econometric Society, vol. 59(3), pages 817-858, May.
    3. Stock, James H & Wright, Jonathan H & Yogo, Motohiro, 2002. "A Survey of Weak Instruments and Weak Identification in Generalized Method of Moments," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(4), pages 518-529, October.
    4. Lijesen, Mark G., 2007. "The real-time price elasticity of electricity," Energy Economics, Elsevier, vol. 29(2), pages 249-258, March.
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    Citations

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    Cited by:

    1. Jorge Antunes & Luis Alberiko Gil-Alana & Rossana Riccardi & Yong Tan & Peter Wanke, 2022. "Unveiling endogeneity and temporal dependence in energy prices and demand in Iberian countries: a stochastic hidden Markov model approach," Annals of Operations Research, Springer, vol. 313(1), pages 191-229, June.
    2. Eicke, Anselm & Ruhnau, Oliver & Hirth, Lion, 2021. "Electricity balancing as a market equilibrium," EconStor Preprints 233852, ZBW - Leibniz Information Centre for Economics.
    3. Valitov, Niyaz & Maier, Andreas, 2020. "Asymmetric information in the German intraday electricity market," Energy Economics, Elsevier, vol. 89(C).
    4. Csereklyei, Zsuzsanna, 2020. "Price and income elasticities of residential and industrial electricity demand in the European Union," Energy Policy, Elsevier, vol. 137(C).
    5. Lin Herenčić & Perica Ilak & Ivan Rajšl, 2019. "Effects of Local Electricity Trading on Power Flows and Voltage Levels for Different Elasticities and Prices," Energies, MDPI, vol. 12(24), pages 1-19, December.
    6. Weibelzahl, Martin & Märtz, Alexandra, 2018. "On the effects of storage facilities on optimal zonal pricing in electricity markets," Energy Policy, Elsevier, vol. 113(C), pages 778-794.
    7. Knaut, Andreas & Paulus, Simon, 2016. "When are consumers responding to electricity prices? An hourly pattern of demand elasticity," EWI Working Papers 2016-7, Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI), revised 16 Mar 2017.
    8. Valitov, Niyaz, 2019. "Risk premia in the German day-ahead electricity market revisited: The impact of negative prices," Energy Economics, Elsevier, vol. 82(C), pages 70-77.
    9. Zeng, Yingying, 2017. "Indirect double regulation and the carbon ETSs linking: The case of coal-fired generation in the EU and China," Energy Policy, Elsevier, vol. 111(C), pages 268-280.
    10. Rövekamp, Patrick & Schöpf, Michael & Wagon, Felix & Weibelzahl, Martin & Fridgen, Gilbert, 2021. "Renewable electricity business models in a post feed-in tariff era," Energy, Elsevier, vol. 216(C).
    11. Hirth, Lion & Khanna, Tarun & Ruhnau, Oliver, 2022. "The (very) short-term price elasticity of German electricity demand," EconStor Preprints 249570, ZBW - Leibniz Information Centre for Economics.
    12. Eicke, Anselm & Ruhnau, Oliver & Hirth, Lion, 2021. "Electricity balancing as a market equilibrium: An instrument-based estimation of supply and demand for imbalance energy," Energy Economics, Elsevier, vol. 102(C).

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    More about this item

    Keywords

    Demand for electricity; Price elasticity; Instrumental variable regression;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices

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