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  4. May 2021
  5. Estimating the Elasticity to Real-Time Pricing: Evidence from the Spanish Electricity Market

Estimating the Elasticity to Real-Time Pricing: Evidence from the Spanish Electricity Market

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Abstract

We estimate consumer response to the first large-scale real-time electricity pricing (RTP) program. In 2015, RTP became the default tariff for residential customers in Spain, exposing them to prices that vary hourly based on day-ahead wholesale prices. Using expected national wind production as an instrument for price, we estimate household-level demand elasticities for RTP households and non-RTP (placebo) households. Estimates show no difference in behavior across RTP and non-RTP households. Reasons for nonresponse may include low potential gains or high nonmonetary costs of information acquisition and behavioral change. We discuss implications for optimal dynamic electricity pricing.

Citation

Fabra, Natalia, David Rapson, Mar Reguant, and Jingyuan Wang. 2021. "Estimating the Elasticity to Real-Time Pricing: Evidence from the Spanish Electricity Market." AEA Papers and Proceedings, 111: 425-29. DOI: 10.1257/pandp.20211007

Additional Materials

JEL Classification

  • Q41 Energy: Demand and Supply; Prices
  • L94 Electric Utilities
  • L11 Production, Pricing, and Market Structure; Size Distribution of Firms
  • Q48 Energy: Government Policy
  • H31 Fiscal Policies and Behavior of Economic Agents: Household
  • L98 Industry Studies: Utilities and Transportation: Government Policy
  • D12 Consumer Economics: Empirical Analysis