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Response to Extreme Energy Price Changes: Evidence from Ukraine

Abstract:
Large but temporary price increases are sometimes deployed on days when the demand for electricity is extremely high due to exceptionally warm or cold weather. But what happens when the extreme price changes are permanent? Between January 2013 and April 2016, natural gas and electricity prices in Ukraine increased dramatically (up to 300% of the initial rates). We exploit variation in tariffs over time and across customers to estimate the price elasticity of electricity demand using a panel dataset with monthly meter readings from households in Uzhhorod in Ukraine. The price elasticity of electricity demand is -0.2 to -0.5, with the bulk of our estimates around -0.3. The elasticity becomes up to 50% more pronounced over the first three months since prices change. We find only limited evidence that persons who are attentive about their consumption levels, their bills, or the tariffs are more responsive to the price changes.

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Keywords: Residential electricity demand, Short-run price elasticity, Increasing block rates, Attentiveness, CO2 emissions reductions

DOI: 10.5547/01956574.40.1.aalb

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Published in Volume 40, Number 1 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.