Price-elastic demand in deregulated electricity markets

Afzal S. Siddiqui

Centre for Financial Markets Working Papers from Research Repository, University College Dublin

Abstract: The degree to which any deregulated market functions efficiently often depends on the ability of market agents to respond to fluctuating conditions. Many restructured electricity markets, however, have little demand response. We examine the implications for market operations when a risk-averse retailer's end-use consumers are allowed to perceive real-time variations in the electricity price. Using a market -equilibrium model, we find that price elasticity both increases the retailer's revenue risk exposure and decreases the spot price. Consequently, the overall impact of price- responsive demand on the electricity forward price is ambiguous.

Keywords: Price-elastic demand; Electricity deregulation; Forward contracts; Elasticity (Economics); Electric utilities--Deregulation; Electricity--Prices (search for similar items in EconPapers)
JEL-codes: D41 G13 L94 (search for similar items in EconPapers)
Date: 2004-04
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Persistent link: https://EconPapers.repec.org/RePEc:rru:cfmwps:10197/1155

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