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How much do households repond to electricity prices? Evidence from Australia and abroad

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  • Lorraine Conway

    (Infrastructure Victoria)

  • David Prentice

    (Infrastructure Victoria)

Abstract

In this paper we review studies to understand how much households change their electricity consumption when there is a price change. We are particularly focussed on finding results from econometric studies that estimate elasticities of demand. Many studies find residential households demonstrate responsiveness to price, with long term and short run elasticities behaving as economic theory would suggest. For instance, the elasticities are negative which means that as price increases, consumption decreases; long run elasticities are larger than shorter run elasticities which indicates that households can respond over time through investment in more energy efficient appliances; and very short run elasticities exist - while very short run elasticities are small, household responsiveness seems to increase when paired with technology. Long run elasticities range from -0.75 to -0.3 and short run elasticities range from -0.47 to -0.026. The major gaps in research from the empirical economics literature are how low income and vulnerable Australian households could be affected by price changes and how Australians respond to within-day variation in prices.

Suggested Citation

  • Lorraine Conway & David Prentice, 2019. "How much do households repond to electricity prices? Evidence from Australia and abroad," Technical papers 201901, Infrastructure Victoria.
    • Handle: RePEc:inv:tpaper:201901
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    More about this item

    Keywords

    Electricity; Prices; Elasticity; Cost reflective pricing; Australia;
    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
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy

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