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

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

Abstract

n 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 & Mattias Vesterberg, 2022. "Understanding Hourly Electricity Demand: Implications for Load, Welfare and Emissions," The Energy Journal, , vol. 43(1), pages 161-190, January.
    • Handle: RePEc:sae:enejou:v:43:y:2022:i:1:p:161-190
    DOI: 10.5547/01956574.43.1.akar
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    References listed on IDEAS

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    1. Thomas Taylor & Peter Schwarz & James Cochell, 2005. "24/7 Hourly Response to Electricity Real-Time Pricing with up to Eight Summers of Experience," Journal of Regulatory Economics, Springer, vol. 27(3), pages 235-262, January.
    2. C鳡r E. Castell & Tullaya Boonsaeng & Carlos E. Carpio, 2015. "Demand system estimation in the absence of price data: an application of Stone-Lewbel price indices," Applied Economics, Taylor & Francis Journals, vol. 47(6), pages 553-568, February.
    3. Severin Borenstein, 2007. "Wealth Transfers Among Large Customers from Implementing Real-Time Retail Electricity Pricing," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 131-150.
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