Conference Agenda

Electricity price volatility poses a central policy dilemma: how can governments shield households from high electricity prices while preserving incentives for the energy transition? Exploiting spatial variation in electricity price increases across Norway’s bidding zones during the energy price crisis, we estimate price elasticities of residential electricity demand using household-level panel data from automatic meters covering more than 1.5 million households. Our preliminary findings show that electricity demand is relatively inelastic, with an average price elasticity of -0.10, with some heterogeneity across income quintiles. Within each income quintile, households with low electricity use are less price responsive than high-consumption households. We use these estimates to simulate welfare and electricity consumption outcomes under the full price increase (no support), the implemented price subsidy, a fiscally equivalent uniform cash transfer, and a recently introduced fixed price scheme. The results reveal considerable heterogeneity in the welfare impacts of the schemes across and within income groups. A lump sum scheme that maintains price signals does not prevent large welfare losses for low-income, high-consumption households, which are predominantly single-person households. However, this scheme performs better when comparing policy costs, total prevented welfare loss, and efficiency costs, revealing a trade-off between targeting and efficiency. Future work includes analyzing targeted transfers and subsidies, exploring policy design given the policy dilemmas at hand, and assessing distributional impacts when considering energy consumption in secondary homes.