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How (In)elastic is the short-run demand for electricity?

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  • Scarazzato, Francesco

Abstract

This paper examines how the aggregate demand for electricity responds to changes in hourly wholesale market prices. I focus on a hydropower-rich country and use data on imported wind energy and accumulated precipitation as instruments for price. Using data from Switzerland from 2016 to 2023, I find that both instruments have a strong and significant price-depressing effect, and I estimate the price elasticity of aggregate demand to be −0.1. However, this responsiveness is entirely driven by the consumption of storage systems and power plants, while end-user demand remains perfectly inelastic to price fluctuations in the short-run.

Suggested Citation

  • Scarazzato, Francesco, 2025. "How (In)elastic is the short-run demand for electricity?," Economics Letters, Elsevier, vol. 254(C).
    • Handle: RePEc:eee:ecolet:v:254:y:2025:i:c:s0165176525002903
    DOI: 10.1016/j.econlet.2025.112453
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    References listed on IDEAS

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    1. Hirth, Lion & Khanna, Tarun M. & Ruhnau, Oliver, 2024. "How aggregate electricity demand responds to hourly wholesale price fluctuations," Energy Economics, Elsevier, vol. 135(C).
    2. Natalia Fabra & David Rapson & Mar Reguant & Jingyuan Wang, 2021. "Estimating the Elasticity to Real-Time Pricing: Evidence from the Spanish Electricity Market," AEA Papers and Proceedings, American Economic Association, vol. 111, pages 425-429, May.
    3. Joshua A. Blonz, 2022. "Making the Best of the Second-Best: Welfare Consequences of Time-Varying Electricity Prices," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 9(6), pages 1087-1126.
    4. Hellwig, Michael & Schober, Dominik & Woll, Oliver, 2020. "Measuring market integration and estimating policy impacts on the Swiss electricity market," Energy Economics, Elsevier, vol. 86(C).
    5. 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.
    6. Andreas Knaut & Simon Paulus, 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).
    7. Mari, Alessandro & Remlinger, Carl & Castello, Roberto & Obozinski, Guillaume & Quarteroni, Silvia & Heymann, Fabian & Galus, Matthias, 2025. "Real-time estimates of Swiss electricity savings using streamed smart meter data," Applied Energy, Elsevier, vol. 377(PC).
    8. Whitney Newey & Kenneth West, 2014. "A simple, positive semi-definite, heteroscedasticity and autocorrelation consistent covariance matrix," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 33(1), pages 125-132.
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    Keywords

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    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • Q25 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Water
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices

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