IDEAS home Printed from https://ideas.repec.org/a/bla/econpa/v39y2020i3p290-311.html
   My bibliography  Save this article

How Much do Households Respond to Electricity Prices? Evidence from Australia and Abroad

Author

Listed:
  • Lorraine Conway
  • David Prentice

Abstract

In this paper, we review studies to understand how much households change their electricity consumption when there is a price change. Many studies find residential households have long‐term and short‐run elasticities behaving as economic theory would suggest. Long‐run elasticities range from −0.75 to −0.3, and short‐run elasticities range from −0.47 to −0.026. Household responsiveness seems to increase when paired with technology. The major gaps in research from the empirical economic literature are how low‐income and vulnerable Australian households could be affected by price changes and how Australians respond to within‐day variation in prices.

Suggested Citation

  • Lorraine Conway & David Prentice, 2020. "How Much do Households Respond to Electricity Prices? Evidence from Australia and Abroad," Economic Papers, The Economic Society of Australia, vol. 39(3), pages 290-311, September.
    • Handle: RePEc:bla:econpa:v:39:y:2020:i:3:p:290-311
    DOI: 10.1111/1759-3441.12284
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/1759-3441.12284
    Download Restriction: no
    File URL: https://libkey.io/10.1111/1759-3441.12284?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Robert V. Breunig & Carol Gisz, 2009. "An Exploration of Australian Petrol Demand: Unobservable Habits, Irreversibility and Some Updated Estimates," The Economic Record, The Economic Society of Australia, vol. 85(268), pages 73-91, March.
    2. Labandeira, Xavier & Labeaga, José M. & López-Otero, Xiral, 2017. "A meta-analysis on the price elasticity of energy demand," Energy Policy, Elsevier, vol. 102(C), pages 549-568.
    3. R. Quentin Grafton & Michael B. Ward, 2008. "Prices versus Rationing: Marshallian Surplus and Mandatory Water Restrictions," The Economic Record, The Economic Society of Australia, vol. 84(s1), pages 57-65, September.
    4. Shira Horowitz and Lester Lave, 2014. "Equity in Residential Electricity Pricing," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2).
    5. Kim, Hyungkwan & Preckel, Paul V. & Eales, James S. & Gotham, Douglas & Liu, Andrew L., 2015. "Impact Assessment of Time of Use Pricing for Electricity: Evidence from a Natural Experiment in Ontario," 2015 AAEA & WAEA Joint Annual Meeting, July 26-28, San Francisco, California 205262, Agricultural and Applied Economics Association.
    6. Newsham, Guy R. & Bowker, Brent G., 2010. "The effect of utility time-varying pricing and load control strategies on residential summer peak electricity use: A review," Energy Policy, Elsevier, vol. 38(7), pages 3289-3296, July.
    7. Syed Hasan & Mathias Sinning, 2018. "GST Reform in Australia: Implications of Estimating Price Elasticities of Demand for Food," The Economic Record, The Economic Society of Australia, vol. 94(306), pages 239-254, September.
    8. Allcott, Hunt, 2011. "Rethinking real-time electricity pricing," Resource and Energy Economics, Elsevier, vol. 33(4), pages 820-842.
    9. Paul Simshauser & David Downer, 2016. "On the Inequity of Flat-rate Electricity Tariffs," The Energy Journal, , vol. 37(3), pages 199-230, July.
    10. Vivienne Pham & David Prentice, 2013. "A Random Coefficients Logit Analysis of the Counterfactual: A Merger and Divestiture in the Australian Cigarette Industry," Working Papers 2013.04, School of Economics, La Trobe University.
    11. David P. Byrne, Andrea La Nauze, and Leslie A. Martin, 2021. "An Experimental Study of Monthly Electricity Demand (In)elasticity," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 205-222.
    12. Fan, Shu & Hyndman, Rob J., 2011. "The price elasticity of electricity demand in South Australia," Energy Policy, Elsevier, vol. 39(6), pages 3709-3719, June.
    13. Tim Nelson & Fiona Orton, 2016. "Australia's National Electricity Market: Optimising Policy to Facilitate Demand-Side Response," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 49(2), pages 146-168, February.
    14. Ahmad Faruqui, Sanem Sergici, and Lamine Akaba, 2014. "The Impact of Dynamic Pricing on Residential and Small Commercial and Industrial Usage: New Experimental Evidence from Connecticut," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1).
    15. Tatyana Deryugina & Alexander MacKay & Julian Reif, 2020. "The Long-Run Dynamics of Electricity Demand: Evidence from Municipal Aggregation," American Economic Journal: Applied Economics, American Economic Association, vol. 12(1), pages 86-114, January.
    16. Gan‐Ochir Doojav & Kaliappa Kalirajan, 2019. "Income and price elasticities of electricity demand in Australia: Evidence of state‐specific heterogeneity," Australian Economic Papers, Wiley Blackwell, vol. 58(2), pages 194-206, June.
    17. 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.
    18. 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.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Clastres, Cédric & Khalfallah, Haikel, 2021. "Dynamic pricing efficiency with strategic retailers and consumers: An analytical analysis of short-term market interactions," Energy Economics, Elsevier, vol. 98(C).
    2. Cédric Clastres & Haikel Khalfallah, 2021. "Dynamic pricing efficiency with strategic retailers and consumers: An analytical analysis of short-term market interactions," Post-Print hal-03193212, HAL.
    3. Cédric Clastres & Haikel Khalfallah, 2020. "Retailers' strategies facing demand response and markets interactions," Working Papers hal-03167543, HAL.
    4. Ansarin, Mohammad & Ghiassi-Farrokhfal, Yashar & Ketter, Wolfgang & Collins, John, 2020. "Cross-subsidies among residential electricity prosumers from tariff design and metering infrastructure," Energy Policy, Elsevier, vol. 145(C).
    5. Li, Raymond & Woo, Chi-Keung & Cox, Kevin, 2021. "How price-responsive is residential retail electricity demand in the US?," Energy, Elsevier, vol. 232(C).
    6. Hindriks, Jean & Serse, Valerio, 2022. "The incidence of VAT reforms in electricity markets: Evidence from Belgium," International Journal of Industrial Organization, Elsevier, vol. 80(C).
    7. Farrell, Niall, 2021. "The increasing cost of ignoring Coase: Inefficient electricity tariffs, welfare loss and welfare-reducing technological change," Energy Economics, Elsevier, vol. 97(C).
    8. Woo, C.K. & Liu, Y. & Zarnikau, J. & Shiu, A. & Luo, X. & Kahrl, F., 2018. "Price elasticities of retail energy demands in the United States: New evidence from a panel of monthly data for 2001–2016," Applied Energy, Elsevier, vol. 222(C), pages 460-474.
    9. Krishnamurthy, Chandra Kiran B. & Vesterberg, Mattias & Böök, Herman & Lindfors, Anders V. & Svento, Rauli, 2018. "Real-time pricing revisited: Demand flexibility in the presence of micro-generation," Energy Policy, Elsevier, vol. 123(C), pages 642-658.
    10. Simshauser, Paul & Whish-Wilson, Patrick, 2017. "Price discrimination in Australia's retail electricity markets: An analysis of Victoria & Southeast Queensland," Energy Economics, Elsevier, vol. 62(C), pages 92-103.
    11. Werthschulte, Madeline & Löschel, Andreas, 2021. "On the role of present bias and biased price beliefs in household energy consumption," Journal of Environmental Economics and Management, Elsevier, vol. 109(C).
    12. Bruno, Ellen M. & Jessoe, Katrina K. & Hanemann, Michael, 2023. "The Dynamic Impacts of Pricing Groundwater," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt2mx8q1td, Department of Agricultural & Resource Economics, UC Berkeley.
    13. Makena Coffman & Paul Bernstein & Derek Stenclik & Sherilyn Wee & Aida Arik, 2018. "Integrating Renewable Energy with Time Varying Pricing," Working Papers 2018-6, University of Hawaii Economic Research Organization, University of Hawaii at Manoa.
    14. Apergis, Nicholas & Pan, Wei-Fong & Reade, James & Wang, Shixuan, 2023. "Modelling Australian electricity prices using indicator saturation," Energy Economics, Elsevier, vol. 120(C).
    15. Fullerton, Don & Ta, Chi L., 2020. "Costs of energy efficiency mandates can reverse the sign of rebound," Journal of Public Economics, Elsevier, vol. 188(C).
    16. Chai, Andreas & Ratnasiri, Shyama & Wagner, Liam, 2021. "The impact of rising energy prices on energy poverty in Queensland: A microsimulation exercise," Economic Analysis and Policy, Elsevier, vol. 71(C), pages 57-72.
    17. Qiu, Yueming & Colson, Gregory & Wetzstein, Michael E., 2017. "Risk preference and adverse selection for participation in time-of-use electricity pricing programs," Resource and Energy Economics, Elsevier, vol. 47(C), pages 126-142.
    18. Lam Do & Thai-Ha Le, 2023. "On the welfare effect of retail electricity subsidy in Vietnam," Journal of Economics and Development, Emerald Group Publishing Limited, vol. 25(4), pages 286-301, August.
    19. Kim, Jihyo & Lee, Soomin & Jang, Heesun, 2022. "Lessons from residential electricity demand analysis on the time of use pricing experiment in South Korea," Energy Economics, Elsevier, vol. 113(C).
    20. Almas Heshmati, 2014. "Demand, Customer Base-Line And Demand Response In The Electricity Market: A Survey," Journal of Economic Surveys, Wiley Blackwell, vol. 28(5), pages 862-888, December.

    More about this item

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:econpa:v:39:y:2020:i:3:p:290-311. See general information about how to correct material in RePEc.

    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 CitEc recognized a bibliographic reference but did not link an item in RePEc 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: https://edirc.repec.org/data/esausea.html .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.