Price elasticity of electricity demand in metropolitan areas – Case of Oslo

Abstract

This paper investigates how the electricity demand in the main Norwegian metropolitan area Oslo responds to variable electricity prices and if it contributes to lower peak demand for electricity. The electricity demand in this area consists mainly of households and office buildings with electricity-based heating. A general linear model was used to estimate the short-term price elasticity from a historical data set. The analysis of different variables that influence demand concluded with that temperature is the most important explanatory variable when developing a model for estimating the short-term price elasticity. Model results show that no price elasticity is existent on the coldest days, and therewith days with highest peak demand for electricity. Significant price elasticity can only be observed in some other periods, with estimates between -0.011 and -0.075. However, this price elasticity does not contribute to lower peak demand and in conclusion, does not affect the need for transmission grid capacity.