Heterogeneity in the price response of residential electricity demand: A dynamic approach for Germany

To provide the basis for evaluating the effectiveness of price policies, this paper contributes to the literature by estimating the heterogeneity in the response of residential electricity demand to price increases across household types. Drawing on household panel data from the German Residential Energy Consumption Survey (GRECS) that span over nine years (2006-2014), we gauge the response of residential electricity demand to price increases on the basis of the dynamic Blundell-Bond estimator to account for potential simultaneity and endogeneity problems, as well as Nickell bias. Estimating short- and long-run price elasticities of -0.44 and -0.66, respectively, our results indicate that price measures may be effective in dampening residential electricity consumption, particularly in the long run. Yet, we also find that responses to price changes are very heterogeneous across household groups, an outcome that has important implications for policy-making. Most notably, we do not find any significant price response for lowincome households.