Premium
Structural Analysis of Electricity Demand and Supply Interactions *
Author(s) -
Fezzi Carlo,
Bunn Derek
Publication year - 2010
Publication title -
oxford bulletin of economics and statistics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.131
H-Index - 73
eISSN - 1468-0084
pISSN - 0305-9049
DOI - 10.1111/j.1468-0084.2010.00596.x
Subject(s) - disequilibrium , economics , price elasticity of demand , electricity , supply and demand , electricity demand , econometrics , electricity market , microeconomics , demand curve , error correction model , mains electricity , cointegration , electricity generation , power (physics) , physics , electrical engineering , engineering , medicine , quantum mechanics , ophthalmology
We specify a structural asymmetric vector error‐correction model to identify and estimate the demand and supply functions in hourly day‐ahead wholesale electricity markets. In doing so, we provide, inter alia , new insights into a well‐established but unresolved issue concerning the extent of the demand elasticity to price in these markets. We show that whilst demand appears to be inelastic in the short‐run, the quantity traded on the market is significantly influenced by the price level and responds to previous disequilibria in the supply curve through an asymmetric error‐correction mechanism, reacting to a positive disequilibrium but not to a negative one.