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Understanding Hourly Electricity Demand: Implications for Load, Welfare and Emissions

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  • Amin Karimu, Chandra Kiran B.Krishnamurthy, and Mattias Vesterberg

Abstract

In this study, using hourly data from a representative sample of Swedish households on standard tariffs, we investigate the welfare and emission implications of moving to a mandatory dynamic pricing scheme. We allow demand during different hours of a day to affect utility differently, and account for the derived nature of electricity demand by explicitly accounting for the services (end-use demands) that drive hourly electricity demand. We use the flexible Exact Affine Stone Index (EASI) demand system, which accommodates both observed and unobserved heterogeneity in preferences, to understand changes in load consequent to hourly retail pricing. Our findings suggest that, following hourly retail pricing, changes in load patterns across hours are relatively small: total load changes by less than one percent. There are correspondingly small reductions in welfare and carbon emissions, of less than 0.2 percent and 0.47 percent, respectively. Overall, in the context of a decentralized, competitive retail electricity market-setting, our results suggest that the benefits to ensuring that the retail price of electricity reflects the hourly marginal cost is small, at least in the short run.

Suggested Citation

  • Amin Karimu, Chandra Kiran B.Krishnamurthy, and Mattias Vesterberg, 2022. "Understanding Hourly Electricity Demand: Implications for Load, Welfare and Emissions," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1).
    • Handle: RePEc:aen:journl:ej43-1-krishnamurthy
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    Cited by:

    1. John List & Ioannis Pragidis & Michael Price, 2024. "Toward an Understanding of the Economics of Prosumers: Evidence from a Natural Field Experiment in Energy," Natural Field Experiments 00791, The Field Experiments Website.
    2. Tommy Lundgren & Mattias Vesterberg, 2024. "Efficiency in electricity distribution in Sweden and the effects of small-scale generation, electric vehicles and dynamic tariffs," Journal of Productivity Analysis, Springer, vol. 62(2), pages 121-137, October.
    3. Brännlund, Runar & Vesterberg, Mattias, 2021. "Peak and off-peak demand for electricity: Is there a potential for load shifting?," Energy Economics, Elsevier, vol. 102(C).
    4. Koch, Steven F. & Nkuna, Blessings & Ye, Yuxiang, 2024. "Income elasticity of residential electricity consumption in rural South Africa," Energy Economics, Elsevier, vol. 131(C).

    More about this item

    JEL classification:

    • F0 - International Economics - - General

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