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Price Responsiveness in Electricity Markets: Implications for Demand Response in the Midwest

This paper provides an empirical analysis of price responsiveness in retail and wholesale markets in the Midcontinent ISO electricity markets. In the retail market, consumers do not often observe real-time price changes and pay a pre-determined flat rate, but are able to respond to price over longer time periods. In the wholesale electricity market, buyers are able to adjust their electricity purchases based on real-time price changes. Our findings show that retail industrial customers respond differently in different across states in the Midwest. We also find differences in real-time wholesale price elasticities between sub-regional pricing hubs in the MISO footprint. Results suggest that the observed differences in price responsiveness of demand across market levels and sub-regions are associated with demand response program adoption.

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Energy Specializations: Nuclear Power – Markets and Prices; Energy Modeling – Energy Data, Modeling, and Policy Analysis; Electricity – Generation Technologies; Electricity – Markets and Prices ; Electricity – Local Distribution; Electricity – Transmission and Network Management

JEL Codes:
L13 - Oligopoly and Other Imperfect Markets
E61 - Policy Objectives; Policy Designs and Consistency; Policy Coordination
Q2 -
D42 - Market Structure, Pricing, and Design: Monopoly
D44 - Auctions

Keywords: Empirical demand analysis, Electricity prices, Electricity demand, Demand response, Electric utilities

DOI: 10.5547/01956574.38.1.dery

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Published in Volume 38, Number 1 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.