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Bayesian Analysis of Demand Elasticity in the Italian Electricity Market

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  • Maria Chiara D'Errico

    (Economics Department, University of Perugia, Via A. Pascoli 20, 06123 Perugia, Italy)

  • Carlo Andrea Bollino

    (Economics Department, University of Perugia, Via A. Pascoli 20, 06123 Perugia, Italy)

Abstract

The liberalization of the Italian electricity market is a decade old. Within these last ten years, the supply side has been extensively analyzed, but not the demand side. The aim of this paper is to provide a new method for estimation of the demand elasticity, based on Bayesian methods applied to the Italian electricity market. We used individual demand bids data in the day-ahead market in the Italian Power Exchange (IPEX), for 2011, in order to construct an aggregate demand function at the hourly level. We took into account the existence of both elastic and inelastic bidders on the demand side. The empirical results show that elasticity varies significantly during the day and across periods of the year. In addition, the elasticity hourly distribution is clearly skewed and more so in the daily hours. The Bayesian method is a useful tool for policy-making, insofar as the regulator can start with a priori historical information on market behavior and estimate actual market outcomes in response to new policy actions.

Suggested Citation

  • Maria Chiara D'Errico & Carlo Andrea Bollino, 2015. "Bayesian Analysis of Demand Elasticity in the Italian Electricity Market," Sustainability, MDPI, vol. 7(9), pages 1-22, September.
    • Handle: RePEc:gam:jsusta:v:7:y:2015:i:9:p:12127-12148:d:55206
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    References listed on IDEAS

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    Cited by:

    1. Guzman, Ivan & Salazar, Ricardo, 2017. "Estimación de la Elasticidad-Precio de Corto Plazo de la Demanda de Electricidad en República Dominicana [An Estimation of the Short-Run Price Elasticity of Electricity Demand in the Dominican Repu," MPRA Paper 92083, University Library of Munich, Germany.
    2. Simona BIGERNA & Carlo Andrea BOLLINO & Maria Chiara D'ERRICO & Paolo POLINORI, 2015. "Competitive Equilibrium in the Italian Wholesale Electricity Market," Working papers of the Department of Economics - University of Perugia (IT) 0017/2015, Università di Perugia, Dipartimento Economia.
    3. Carlo Andrea Bollino & Maria Chiara D’Errico, 2022. "Electricity Demand Elasticity, Mobility, and COVID-19 Contagion Nexus in the Italian Day-Ahead Electricity Market," Energies, MDPI, vol. 15(20), pages 1-26, October.
    4. Yi Liang & Dongxiao Niu & Ye Cao & Wei-Chiang Hong, 2016. "Analysis and Modeling for China’s Electricity Demand Forecasting Using a Hybrid Method Based on Multiple Regression and Extreme Learning Machine: A View from Carbon Emission," Energies, MDPI, vol. 9(11), pages 1-22, November.

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