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Sustainability 2015, 7(9), 12127-12148; doi:10.3390/su70912127

Bayesian Analysis of Demand Elasticity in the Italian Electricity Market

Economics Department, University of Perugia, Via A. Pascoli 20, 06123 Perugia, Italy
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Academic Editors: Francesco Asdrubali, Pietro Buzzini and Marc A. Rosen
Received: 28 May 2015 / Revised: 18 August 2015 / Accepted: 21 August 2015 / Published: 2 September 2015
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Abstract

The liberalization of the Italian electricity market is a decade old. Within these last ten years, the supply side has been extensively analyzed, but not the demand side. The aim of this paper is to provide a new method for estimation of the demand elasticity, based on Bayesian methods applied to the Italian electricity market. We used individual demand bids data in the day-ahead market in the Italian Power Exchange (IPEX), for 2011, in order to construct an aggregate demand function at the hourly level. We took into account the existence of both elastic and inelastic bidders on the demand side. The empirical results show that elasticity varies significantly during the day and across periods of the year. In addition, the elasticity hourly distribution is clearly skewed and more so in the daily hours. The Bayesian method is a useful tool for policy-making, insofar as the regulator can start with a priori historical information on market behavior and estimate actual market outcomes in response to new policy actions. View Full-Text
Keywords: demand elasticity; Bayesian estimation; electricity markets demand elasticity; Bayesian estimation; electricity markets
This is an open access article distributed under the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. (CC BY 4.0).

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MDPI and ACS Style

D'Errico, M.C.; Bollino, C.A. Bayesian Analysis of Demand Elasticity in the Italian Electricity Market. Sustainability 2015, 7, 12127-12148.

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