How aggregate electricity demand responds to hourly wholesale price fluctuations

Lion Hirth, Tarun Khanna and Oliver Ruhnau

EconStor Preprints from ZBW - Leibniz Information Centre for Economics

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. While seemingly modest, our results imply that even with limited exposure to real time prices, short-term demand response facilitates decarbonization of the electricity grid by reducing the need for battery storage or backup fossil power by approximately 8%.

Keywords: Short-term price elasticity; Electricity markets; Demand response; Instrumental variables; Wind energy (search for similar items in EconPapers)
JEL-codes: Q41 Q42 (search for similar items in EconPapers)
Date: 2023
New Economics Papers: this item is included in nep-ene and nep-mfd
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:esprep:272048

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