Price Elasticity of Electricity Demand in France

Abstract

[eng] Competition and climate becoming more important for electricity production and consumption, market operators are increasingly interested in reliable forecasts of electricity prices and consumption for planning their investments and regulating policies. Key for good forecasts is understanding the consumers’ reaction to price changes, synthesized by the concept of elasticity. Using a unique dataset of millions of bi-annual meter readings of electricity consumption in France from 2007 to 2015, we estimate the price elasticity of electricity expenditure of private households. We propose three specifications: a canonical one that regresses electricity consumption on a price per kilowatt/hour, where we find an elasticity equal to -0.8, a result remarkably in line and corroborating previous literature; a specification that follows Filippini’s (1995) model of an Almost Ideal Demand System (AIDS), in which we substantially replicate his results; and finally, an extension of the latter that allows elasticities to be season-dependent that shows the demand of electricity being more elastic in summer.