Market Power Indices and Wholesale Price Elasticity of Electricity Demand

Talat Genc

No 1402, Working Papers from University of Guelph, Department of Economics and Finance

Abstract: We investigate price responsiveness of wholesale electricity customers in the hourly Ontario wholesale electricity market. We use detailed generator and market level data to calculate market power measures such as the Lerner Index, Residual Supplier Index, and Pivotal Supplier Index which are combined with the competition model to structurally estimate price elasticity of demand in peak hours of summer and winter seasons. We find that the hourly price elasticities are small and change over the peak hours of seasons and years. For instance, in 2008 the elasticity estimates are in the interval of (0.019, 0.083). Comparing high demand winter hours to summer hours indicates that consumers’ price responsiveness is lower in summer than in winter. We also employ these indices along with the estimated price elasticities to project the likely impacts of interconnection capacity expansions on market prices. Our calibrations show that even small amount of transmission investments (and hence trade activities) can result in substantial market price reductions.

Keywords: Price elasticity of demand; market power measures; electricity market (search for similar items in EconPapers)
JEL-codes: D22 D24 L13 L94 Q41 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2014
New Economics Papers: this item is included in nep-com, nep-ene, nep-ind and nep-reg
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:gue:guelph:2014-02

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