An experimental investigation of price elasticity in electricity markets using a response surface methodology

Abstract

For the purposes of government policy concerning energy security, optimal taxation, and climate change, precise estimates of the effective factors in price elasticity of electricity demand are of principal importance. In this regard, this paper explores the effect of different factors including proportion of income spent-level, consumer academic-level, demand-types, demand time, possibility of postponing demand-level, price-level, demand-level, and awareness of participation benefits-level on price elasticity of electricity demand for Iran power system. To achieve this, a nonlinear-empirical model based on response surface methodology is proposed. Thereafter, these factors were prioritized based on their effect on price elasticity. Analysis results reveal that proportion of income spent-level has the most significant effect on the price elasticity of electricity demand while consumer academic-level has the least effect. These results could be applied by policy makers as a tool in making decisions on how to set the price of electricity.