How price-responsive is residential retail electricity demand in the US?

Raymond LI, Chi Keung WOO, Kevin COX

Research output: Contribution to journalArticlespeer-review

Abstract

Using a panel data analysis of a newly developed sample of monthly data by state for January 2005 to December 2019, we estimate a series of error correction models for US residential electricity demand postulated to move with electricity price, natural gas price, income, and weather. Our key findings are as follows. First, the short-run own-price elasticity estimate is not statistically different from zero (p-value > 0.8). Second, the long-run own- and cross-price elasticity estimates are −0.054 (p-value = 0.000) and 0.019 (p-value = 0.000) under the double-log specification, smaller in size than the long-run own- and cross-price elasticity estimates of −0.120 (p-value = 0.000) and 0.069 (p-value = 0.000) under the linear demand specification. Third, price elasticity estimates have been shrinking in size over time. Fourth, erroneously ignoring the panel data's cross-sectional dependence tends to more than double the long-run price elasticity estimates. Fifth, mismatching the timing of price information's availability and consumption decision leads to anomalous price elasticity estimates. Finally, our new empirics' key takeaway of low price-responsiveness supports continuation of energy efficiency standards and demand-side management programs. Copyright © 2021 Elsevier Ltd. All rights reserved.
Original languageEnglish
Article number120921
JournalEnergy
Volume232
Early online dateMay 2021
DOIs
Publication statusE-pub ahead of print - May 2021

Citation

Li, R., Woo, C.-K., & Cox, K. (2021). How price-responsive is residential retail electricity demand in the US? Energy, 232. Retrieved from https://doi.org/10.1016/j.energy.2021.120921

Keywords

  • Residential electricity demand
  • Price elasticity
  • Cross-section dependence
  • Panel data analysis
  • US

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