IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Why Higher Price Sensitivity of Consumers May Increase Average Prices: An Analysis of the European Electricity Market

  • Paulun, Tobias

    ()

    (Institute of Power Systems and Power Economics, RWTH Aachen University)

  • Feess, Eberhard

    ()

    (Frankfurt School of Finance & Management)

  • Madlener, Reinhard

    ()

    (E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN))

We develop a model of the European electricity market that allows analyzing the impact of consumers' price sensitivity, defined as the willingness to change energy providers, on equilibrium prices. The model is parameterized with publicly available data on total demand, marginal costs and capacity constraints of power generators. Comparably precise data on the price sensitivity is not available, so that we analyze its impact in a range of simulations. Contrary to apparently straightforward expectations, we find that a higher price sensitivity increases average prices under reasonable assumptions. The reason is that, when price sensitivity is high, the most efficient energy providers can attract sufficiently many consumers for operating at full capacity, even when price differences to their less efficient competitors are small. Hence, incentives to reduce prices are higher when the price sensitivity is low. We conclude that the widespread view that high electricity prices can (partially) be attributed to a low willingness of consumers to change their providers is flawed.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.fcn.eonerc.rwth-aachen.de/global/show_document.asp?id=aaaaaaaaaagvvin
File Function: Full text
Download Restriction: no

Paper provided by E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN) in its series FCN Working Papers with number 16/2010.

as
in new window

Length: 22 pages
Date of creation: Nov 2010
Date of revision:
Handle: RePEc:ris:fcnwpa:2010_016
Contact details of provider: Web page: http://www.eonerc.rwth-aachen.de/fcnEmail:


More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Anette Boom, 2003. "Investments in Electricity Generating Capacity under Different Market Structures and with Endogenously Fixed Demand," CIG Working Papers SP II 2003-01, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
  2. Lijesen, Mark G., 2007. "The real-time price elasticity of electricity," Energy Economics, Elsevier, vol. 29(2), pages 249-258, March.
  3. Nakajima, Tadahiro & Hamori, Shigeyuki, 2010. "Change in consumer sensitivity to electricity prices in response to retail deregulation: A panel empirical analysis of the residential demand for electricity in the United States," Energy Policy, Elsevier, vol. 38(5), pages 2470-2476, May.
  4. Halvorsen, Bente & Larsen, Bodil M., 2001. "The flexibility of household electricity demand over time," Resource and Energy Economics, Elsevier, vol. 23(1), pages 1-18, January.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:ris:fcnwpa:2010_016. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Yasin Sunak)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.