Estimation of the price elasticity of the Spanish households’ electricity demand

Abstract

In the past few months the electricity price has considerably increased in Spain due to major international crises which lead to instability in the market. To understand better how Spanish households change their consumption of electricity depending on the price, we estimate the value of price elasticity of the electricity demand to finally make some policy recommendations. For that, we have estimated the price demand elasticity through the demand function of Spanish households in 2019 with the data of the Spanish Survey of Family Budget 2019. The estimation of the elasticity has been done by Instrumental Variables after finding a problem of endogeneity in the price, and the final result is that we have an elasticity of -0.57 so the electricity demand seems to be price inelastic. Those estimations helped us to highlight that the price-based policies seem to have little effect on the electricity consumption of Spanish households in 2019, and so the government should complement tax policies with other kinds of measures, such as information policies and regulatory policies in order to help the households to pay less, but also to have a society with a lower impact on the environment. It would have a positive impact on the air conditioning high consumption in some regions of Spain and increase the energy efficiency in order to help households to reduce their expense of electricity but also, help to moderate the CO2 emissions.