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Switching on Electricity Demand Response: Evidence for German Households

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  • Manuel Frondel
  • Gerhard Kussel

Abstract

Empirical evidence on households’ awareness of electricity prices and potentially divergent demand responses to price changes conditional on price knowledge is scant. Using panel data originating from Germany’s Residential Energy Consumption Survey (GRECS), we fill this void by employing an instrumental-variable (IV) approach to cope with the endogeneity of the consumers’ tariff choice. By additionally exploiting information on the households’ knowledge about power prices, we combine the IV approach with an Endogenous Switching Regression Model to estimate price elasticities for two groups of households, finding that only those households that are informed about prices are sensitive to price changes, whereas the electricity demand of uninformed households is entirely price-inelastic. Based on these results, to curb the electricity consumption of the household sector and its environmental impact, we suggest implementing low-cost information measures on a large scale, such as improving the transparency of tariffs, thereby increasing the saliency of prices.

Suggested Citation

  • Manuel Frondel & Gerhard Kussel, 2019. "Switching on Electricity Demand Response: Evidence for German Households," The Energy Journal, , vol. 40(5), pages 1-16, September.
    • Handle: RePEc:sae:enejou:v:40:y:2019:i:5:p:1-16
    DOI: 10.5547/01956574.40.5.mfro
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    References listed on IDEAS

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    1. Fell, Harrison & Li, Shanjun & Paul, Anthony, 2014. "A new look at residential electricity demand using household expenditure data," International Journal of Industrial Organization, Elsevier, vol. 33(C), pages 37-47.
    2. Steve Martin & Nicholas Rivers, 2018. "Information Provision, Market Incentives, and Household Electricity Consumption: Evidence from a Large-Scale Field Deployment," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 5(1), pages 207-231.
    3. Katrina Jessoe & David Rapson, 2014. "Knowledge Is (Less) Power: Experimental Evidence from Residential Energy Use," American Economic Review, American Economic Association, vol. 104(4), pages 1417-1438, April.
    4. 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.
    5. Matthew Harding & Carlos Lamarche, 2016. "Empowering Consumers Through Data and Smart Technology: Experimental Evidence on the Consequences of Time‐of‐Use Electricity Pricing Policies," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 35(4), pages 906-931, September.
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    1. Lin, Hongyang & Jia, Huanyu & Ye, Yingjin & Shen, Yu & Lin, Boqiang, 2024. "Is cognition of residential tiered pricing policy effective in reducing electricity consumption in China?," Utilities Policy, Elsevier, vol. 90(C).

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