Abstract
Using unique data on Swedish households, we measure the price elasticity of electricity demand for households facing a mandatory non-linear distribution tariff, where households are charged based on their maximum consumption during a month, and where the marginal incentives are very large. We estimate the price elasticity using both 2SLS and bunching estimators, and we find that the price elasticity is smaller than what many previous studies on electricity demand have found.We show that the 2SLS estimates are not robust to changes to the set of controls or to the sample definition, while the bunching estimates suggest that the price elasticity of electricity demand is small in response to the large marginal incentives.Furthermore, we illustrate why charging households based on maximum consumption during a month leads to weak incentives in the end of the month, and discuss alternative tariff designs.
Highlights
In this paper, we measure the response of households to a non-linear distribution tariff where households are charged for the distribution of electricity based on their maximum consumption in any given month
Our measurements differ slightly with the method used, we find that the price elasticity is smaller than that reported in the literature (e.g., Nesbakken (1999) and Reiss and White (2005)), that information has little effect on price responsiveness, and that the price elasticity is smaller in the end of the month
Using unique Swedish data on hourly consumption for households faced with a mandatory demand charge tariff, we estimate the price elasticity of electricity using two separate empirical approaches; an instrumental variables approach and a bunching approach
Summary
We measure the response of households to a non-linear distribution tariff where households are charged for the distribution of electricity based on their maximum consumption in any given month. Such distribution tariffs are commonly referred to as demand charges.. Such distribution tariffs are commonly referred to as demand charges.1 In this particular instance, the marginal incentives to reduce peak demand are very large, in the sense that the marginal price varies by several order of magnitude as the quantity increases infinitesimally: the highest per-unit price is more than 3 Euro, while the lowest price is less than 0.1 Euro. In the light of these results, alternative tariff designs and associated welfare effects are discussed
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Free) 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a call
