Analysing the Drivers of Electricity Demand in Spain after the Economic Crisis

Abstract

Electricity provides a crucial service in our daily lives. However, in electricity systems mostly based on conventional, fossil-fuel fired technologies, an increase in electricity demand also leads to higher greenhouse gas emissions and, in countries without fossil-fuel resources, also increases their dependence on foreign energy sources. In more decarbonised electricity systems, with a high penetration of variable renewable energy sources, strong increases in electricity demand lead to higher system costs, given the need for back-up. Therefore, identifying the drivers of electricity demand is an academically-relevant, but also a policy-relevant exercise, since specific policy measures can be linked to those drivers. The aim of this paper is to assess the drivers of electricity demand in Spain in the period immediately after the economic crisis (2013–2017), with the help of a unique database of Spanish households and econometric modeling. Our results show that electricity demand in this period has mostly been driven by price changes. Demand has been highly price-elastic, with price elasticities being much higher (in absolute values) than in previous studies and periods. It is also negatively driven by the features of the household and its breadwinners (whether they are single-parent households or its members are foreign residents) and positively driven by income, the hours of sun and temperature changes, although the influence of these variables is much lower. In contrast, other variables do not seem to have an influence on demand, including the age of the breadwinners and their working situation (whether they are unemployed or not). These results suggest that price-based instruments, i.e., measures with an impact on electricity prices, would be the most effective to curb electricity demand.

Soaring electricity prices in the day-ahead Iberian market: policy insights, regulatory challenges and lack of system flexibility

“…For instance, the Spanish authorities were forced to alter the pricing formation mechanism in the regulated market since, unlike the Portuguese case, the electricity tariff, commonly known by its abbreviation in Spanish, PVPC, was much more prone to immediately reflect market variations to the final consumer. There is a real risk of aggravating energy poverty in the Iberian Peninsula, in an environment where demand has been highly price-elastic lately (Bueno et al , 2020). In Portugal, the government and ERSE often use the Tariff Deficit to partially absorb the hikes.…”

Forecasting Household Energy Consumption in European Union Countries: An Econometric Modelling Approach

“…From the point of view of practical applications, it is very important to study the dependence of energy consumption for various purposes on many factors that influence it. Several papers [26][27][28][29] deal with this type of issue. In [26], a logarithmic linear multiple regression model for the residential heating consumption econometric model was estimated in the UK and Germany.…”

How household consumption has changed after an economic crisis

“…Bueno et al . (2020) evaluate the drivers of electricity demand in Spain in the period immediately after the economic crisis of 2008 and conclude that the demand for electricity in this period has been affected mainly by changes in the prices and to a lesser extent by the characteristics of the household and breadwinner.…”

“…In particular, while the degree of uncertainty created during the crisis and unfavorable financial conditions reduce spending, employment in a low inflation environment and favorable financial conditions increase spending (Mart ınez and Urtasun, 2017). Bueno et al (2020) evaluate the drivers of electricity demand in Spain in the period immediately after the economic crisis of 2008 and conclude that the demand for electricity in this period has been affected mainly by changes in the prices and to a lesser extent by the characteristics of the household and breadwinner. As for food consumption, Esteve-Llorens et al (2021) analyze their consumption pattern during the crisis and their effects on the carbon footprint.…”