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Possibility for hedging from price increases in residential energy demand
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Possibility for hedging from price increases in residential energy demand

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Liberalisation of the Norwegian electricity market has given more short-term variation in the electricity price. Since almost three quarters of Norwegian households have heating equipment using more than one energy carrier, we would expect them to be able to hedge from price increases and benefit from low prices by switching between energy carriers. In many studies estimates of the cross price derivatives in Norwegian residential energy consumption give a negative sign. The question is whether hedging is possible despite this negative sign, that is, if energy goods are alternatives and not separable in consumption. To answer this question, we estimate a conditional demand model on a sample of 2438 households to decompose the cross price derivatives. We find that the negative cross price derivatives are mainly due to budget effects. We also reject the hypothesis of weak separability, indicating that Norwegian households are able to hedge from energy price variations.

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  • Bente Halvorsen & Bodil M. Larsen, 2003. "Possibility for hedging from price increases in residential energy demand," Discussion Papers 347, Statistics Norway, Research Department.
    • Handle: RePEc:ssb:dispap:347
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    1. Claudio Agostini & Cecilia Plottier & Eduardo Saavedra, 2009. "La Demanda Residencial por Energía Eléctrica en Chile," ILADES-UAH Working Papers inv240, Universidad Alberto Hurtado/School of Economics and Business.
    2. Nababan, Tongam Sihol, 2015. "The Factors Affecting the Household Energy Consumption, Energy Elasticity,and Energy Intensity in Indonesia," MPRA Paper 66257, University Library of Munich, Germany.
    3. Claudio A Agostini & Eduardo Saavedra, 2014. "Elasticities of Residential Electricity Demand in Chile," Working Papers wp_034, Adolfo Ibáñez University, School of Government.
    4. Rijo M John, 2006. "Crowding-out Effect of Tobacco Expenditure And Its Implications on Intra-Household Resource Allocation," Microeconomics Working Papers 22396, East Asian Bureau of Economic Research.
    5. Tongam Sihol Nababan, 2015. "Analysis of Household Characteristics Affecting the Demand of PLN’s Electricity. An Observation on Small Households in City of Medan, Indonesia," Academic Journal of Economic Studies, Faculty of Finance, Banking and Accountancy Bucharest,"Dimitrie Cantemir" Christian University Bucharest, vol. 1(2), pages 79-92, June.
    6. Claudio Agostini & M. Cecilia Plottier & Eduardo Saavedra, 2012. "Residential Demand for Electric Energy in Chile," Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, vol. 15(3), pages 64-83, December.

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    More about this item

    Keywords

    Residential energy demand; empirical microanalysis; separability test;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices

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