How aggregate electricity demand responds to hourly wholesale price fluctuations
Lion Hirth, Tarun Khanna, Oliver Ruhnau
Abstract
Electricity needs to be consumed at the very moment of production, leading wholesale prices to fluctuate widely at (sub-)hourly time scales. This article investigates the response of aggregate electricity demand to such price variations. Using wind energy as an instrument, we estimate a significant and robust short-term price elasticity of about −0.05 in Germany and attribute this to industrial consumers. As the share of consumption that is exposed to real-time prices (currently less than 25%) expands, we expect the aggregated price elasticity to grow.
Topics & Concepts
EconomicsElectricityElectricity demandAggregate (composite)Aggregate demandEconometricsMicroeconomicsNatural resource economicsMacroeconomicsElectricity generationEngineeringMonetary policyPower (physics)Electrical engineeringComposite materialPhysicsQuantum mechanicsMaterials scienceEnergy, Environment, and Transportation PoliciesSmart Grid Energy ManagementEnergy Efficiency and Management