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Determining the Demand Elasticity in a Wholesale Electricity Market

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  • Sergei Kulakov
  • Florian Ziel

Abstract

The main focus of researchers in energy markets is typically placed on the analysis of the supply side. The demand side, despite its critical importance, still requires a more profound academic investigation. In particular, the number of studies on the demand elasticity in a wholesale market is limited to merely several pieces. In this paper we extend this field of study and propose a new method for determining the demand elasticity. More specifically, we decompose the data observed in the wholesale market into individual supply and demand schedules of the market participants. These schedules are then used to construct a fundamental model of an electricity market. The main feature of our fundamental model is that our demand curve is not perfectly inelastic and is a better approximation of the true demand curve. Hence, our approach allows us to precisely compute the elasticity of the demand curve in an electricity market. Moreover, we obtain a deeper understanding of the bidding behavior of the market participants and hence can make more thorough inferences about the functioning of an electricity market or produce more accurate forecasts.

Suggested Citation

  • Sergei Kulakov & Florian Ziel, 2019. "Determining the Demand Elasticity in a Wholesale Electricity Market," Papers 1903.11383, arXiv.org.
  • Handle: RePEc:arx:papers:1903.11383
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    File URL: http://arxiv.org/pdf/1903.11383
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    References listed on IDEAS

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    7. 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.
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    11. Narayan, Paresh Kumar & Smyth, Russell, 2005. "The residential demand for electricity in Australia: an application of the bounds testing approach to cointegration," Energy Policy, Elsevier, vol. 33(4), pages 467-474, March.
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