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Price Elasticity of Electricity Demand in France

Author

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  • Stéphane Auray
  • Vincenzo Caponi
  • Benoît Ravel

Abstract

[eng] Competition and climate becoming more important for electricity production and consumption, market operators are increasingly interested in reliable forecasts of electricity prices and consumption for planning their investments and regulating policies. Key for good forecasts is understanding the consumers’ reaction to price changes, synthesized by the concept of elasticity. Using a unique dataset of millions of bi-annual meter readings of electricity consumption in France from 2007 to 2015, we estimate the price elasticity of electricity expenditure of private households. We propose three specifications: a canonical one that regresses electricity consumption on a price per kilowatt/hour, where we find an elasticity equal to -0.8, a result remarkably in line and corroborating previous literature; a specification that follows Filippini’s (1995) model of an Almost Ideal Demand System (AIDS), in which we substantially replicate his results; and finally, an extension of the latter that allows elasticities to be season-dependent that shows the demand of electricity being more elastic in summer.

Suggested Citation

  • Stéphane Auray & Vincenzo Caponi & Benoît Ravel, 2019. "Price Elasticity of Electricity Demand in France," Economie et Statistique / Economics and Statistics, Institut National de la Statistique et des Etudes Economiques (INSEE), issue 513, pages 91-103.
    • Handle: RePEc:nse:ecosta:ecostat_2019_513_5
    DOI: https://doi.org/10.24187/ecostat.2019.513.2002
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    References listed on IDEAS

    as
    1. Alberini, Anna & Filippini, Massimo, 2011. "Response of residential electricity demand to price: The effect of measurement error," Energy Economics, Elsevier, vol. 33(5), pages 889-895, September.
    2. Alberini, Anna & Gans, Will & Velez-Lopez, Daniel, 2011. "Residential consumption of gas and electricity in the U.S.: The role of prices and income," Energy Economics, Elsevier, vol. 33(5), pages 870-881, September.
    3. Filippini, Massimo, 1995. "Swiss residential demand for electricity by time-of-use," Resource and Energy Economics, Elsevier, vol. 17(3), pages 281-290, November.
    4. Massimo, Filippini, 2011. "Short- and long-run time-of-use price elasticities in Swiss residential electricity demand," Energy Policy, Elsevier, vol. 39(10), pages 5811-5817, October.
    5. Koichiro Ito, 2014. "Do Consumers Respond to Marginal or Average Price? Evidence from Nonlinear Electricity Pricing," American Economic Review, American Economic Association, vol. 104(2), pages 537-563, February.
    6. Dergiades, Theologos & Tsoulfidis, Lefteris, 2008. "Estimating residential demand for electricity in the United States, 1965-2006," Energy Economics, Elsevier, vol. 30(5), pages 2722-2730, September.
    7. Halicioglu, Ferda, 2007. "Residential electricity demand dynamics in Turkey," Energy Economics, Elsevier, vol. 29(2), pages 199-210, March.
    8. Filippini, Massimo, 1995. "Electricity demand by time of use An application of the household AIDS model," Energy Economics, Elsevier, vol. 17(3), pages 197-204, July.
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    Cited by:

    1. Crampes, Claude & Lefouili, Yassine, 2021. "Green Energy Pricing for Digital Europe," TSE Working Papers 21-1209, Toulouse School of Economics (TSE).
    2. Yang, Yuting, 2022. "Electricity interconnection with intermittent renewables," Journal of Environmental Economics and Management, Elsevier, vol. 113(C).
    3. Frédéric Cherbonnier & Christian Gollier, 2022. "Risk-adjusted Social Discount Rates," Post-Print hal-04012977, HAL.
    4. Yang, Yuting, 2020. "Electricity Interconnection with Intermittent Renewables," TSE Working Papers 20-1075, Toulouse School of Economics (TSE).
    5. Ciarreta, Aitor & Espinosa, Maria Paz & Pizarro-Irizar, Cristina, 2023. "Pricing policies for efficient demand side management in liberalized electricity markets," Economic Modelling, Elsevier, vol. 121(C).
    6. Stéphane AURAY & Vincent CAPONI, 2020. "A Vector Autoregressive Model of Forecast Electricity Consumption in France," Working Papers 2020-06, Center for Research in Economics and Statistics.

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    More about this item

    JEL classification:

    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis

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