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Behavioural Insights on Energy Price Elasticity


Emmanuele Bobbio, Simon Brandkamp, Stephanie Chan, Peter Cramton, David Malec, Lucy Yu

Behavioural insights energy price flexibility


Electricity markets balance supply and demand with price. Historically, this price response has come almost entirely from supply. However, when an energy supply is intermittent or inflexible, price responsive demand consequently becomes essential for reliability and resiliency. To better understand how to unlock this reliable responsiveness, we need to gather higher fidelity behavioural insights about the way people behave in the energy system.


In this paper, Centre for Net Zero and Cramton Associates demonstrate how we measured how responsive consumers are to price in Britain from July 2020 to July 2021 with half-hourly individual-household data. Our sample includes Octopus Energy customers with a dynamic rate that tracks wholesale cost, as well as flat-rate customers used to control for weather and other factors. Previous studies on electricity consumption response to prices have focused on industrial customers or residential pilot programs limited in duration and number of participants. We use half-hourly data from residential contracts offered to Octopus Energy customers, including customers with a rate that tracks the wholesale cost. The large size of the sample allows us to study the effect of technology ownership. Both of these features are crucial to understanding the scope for price responsive demand in practice.

Key findings

We found that a 1% increase in price reduces demand by 0.26%. Overall, this elasticity is larger for consumers owning low carbon technologies e.g. heat pumps, electric vehicles, home batteries. Significantly, this price response is sufficient to maintain system balance in extreme events even when most consumers are unresponsive.

Regulators can use these behavioural insights to encourage price responsive demand through retail choice and subsidise enabling technologies. Regulators can protect consumers with mandated hedging in dynamic plans. Low-income households benefit most from such policies compared to other households.

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