Abstract
The liberalization of the Italian electricity market is a decade old. Within these last ten years, the supply side has been extensively analyzed, but not the demand side. The aim of this paper is to provide a new method for estimation of the demand elasticity, based on Bayesian methods applied to the Italian electricity market. We used individual demand bids data in the day-ahead market in the Italian Power Exchange (IPEX), for 2011, in order to construct an aggregate demand function at the hourly level. We took into account the existence of both elastic and inelastic bidders on the demand side. The empirical results show that elasticity varies significantly during the day and across periods of the year. In addition, the elasticity hourly distribution is clearly skewed and more so in the daily hours. The Bayesian method is a useful tool for policy-making, insofar as the regulator can start with a priori historical information on market behavior and estimate actual market outcomes in response to new policy actions.
Highlights
The Italian electricity sector was transformed by a deregulation process into a competitive market, overcoming the previous system which was based upon a vertically integrated monopoly, owned by the State. This process led to the institution of the Power Exchange (IPEX) in 2004, aimed at Sustainability 2015, 7 promoting competition in generation activities
A significant proportion of buyers in the Italian market is made up of large heavy-energy consuming industrial users, such as steel, cement, chemicals, pulp and paper, who are certainly elastic to hourly price patterns, at least to some extent. This behavior is precisely what we want to analyze, and the aim of this paper is to provide a new estimate of the elasticity of the demand of the Italian electricity market, using Bayesian techniques
We analyzed the main features of the demand behavior in the Italian electricity market, estimating demand elasticity values, computed through Bayesian techniques
Summary
The Italian electricity sector was transformed by a deregulation process into a competitive market, overcoming the previous system which was based upon a vertically integrated monopoly, owned by the State. This process led to the institution of the Power Exchange (IPEX) in 2004, aimed at Sustainability 2015, 7 promoting competition in generation activities. When the market is not competitive, companies are price makers since they can raise the price without loss, causing a decrease in the quantity demanded and an associated sub-optimal state compared to the conditions of perfect competition. The exercise of market power has important implication in terms of efficiency [1]
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