Understanding Residential Electricity Consumption Behavior under Dynamic Pricing: Evidence from Spanish Cities

D.M. Navarrete Cruz, P. Rodilla, A. Bello, L. Montero

Summary:

This paper examines the short-run price responsiveness of residential electricity demand under the Spanish Voluntary Price for Small Consumers (PVPC) tariff during the 2023–2024 period, following the profound disruptions of the European energy crisis. Using hourly consumption data from 2,975 households in Madrid, Bilbao, and Valencia, we implement a Two-Stage Least Squares (2SLS) framework with nationwide wind generation as an instrumental variable to address price endogeneity. To move beyond mean-based estimates, we complement this with household-level quantile regressions, which allow us to test whether price sensitivity varies across a household's own consumption distribution distinguishing responses at low-consumption hours from responses at peak-consumption hours. Despite a 26% increase in mean prices and a threefold rise in price volatility relative to the 2016–2017 baseline, our results indicate that price elasticity of demand remains centered at zero both on average and across all quantiles of each household's consumption distribution. This finding rules out the hypothesis that households engage in price-driven peak shifting even under the significantly more volatile post-crisis price environment, and challenges the hypothesis that steeper price gradients alone are sufficient to overcome rational inattention and structural adjustment costs. Temperature is identified as the dominant driver of hourly consumption variation. Our results suggest that enabling technologies and complementary policy instruments are necessary conditions for dynamic pricing to deliver meaningful demand flexibility.

Spanish layman's summary:

Este artículo analiza si los hogares españoles ajustan su consumo eléctrico cuando los precios cambian hora a hora, bajo la tarifa regulada de pequeño consumidor (PVPC), que vincula el coste de la luz al mercado mayorista. Utilizando datos horarios de 2.975 hogares en Madrid, Bilbao y Valencia durante 2023-2024, periodo posterior a la crisis energética europea con precios sensiblemente más altos y volátiles que en años previos, aplicamos un enfoque econométrico que combina variables instrumentales y regresión cuantílica. Los resultados muestran que los hogares apenas reaccionan al precio, lo que cuestiona la eficacia de la tarificación dinámica como herramienta para inducir flexibilidad de demanda.

English layman's summary:

This paper examines whether Spanish households adjust their electricity consumption when prices change hour by hour under the regulated small-consumer tariff (PVPC), which links the electricity cost to the wholesale market. Using hourly data from 2,975 households in Madrid, Bilbao and Valencia during 2023-2024, a period following the European energy crisis with substantially higher and more volatile prices than in previous years, we apply an econometric approach combining instrumental variables and quantile regression. Results show that households barely respond to prices, raising questions about the effectiveness of dynamic pricing as a tool to induce demand-side flexibility.

Keywords: Residential electricity consumption; Demand Response; elasticity; price responsiveness.

Registration date: 16-jun-2026