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

Abstract:
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.