The Silver Lining of Price Spikes: How Electricity Price Spikes Can Help Overcome the Energy Efficiency Gap

29 Pages Posted: 30 Dec 2014

Date Written: November 01, 2014

Abstract

Studies have shown that many consumers and businesses fail to invest in energy efficiency improvements despite seemingly ample financial incentives to do so – the so-called energy efficiency gap or paradox. Attempts to explain this gap often focus on searching costs, information frictions and behavioral factors. Using data on Norwegian electricity prices and Google searches for heat pumps, I suggest that the inherently spikey nature of many electricity market has a strong and significant positive effect on searching for information on energy efficiency goods. Because consumers pay for electricity based on at least monthly averages of the wholesale price, I can identify the informational and behavioral effect by decomposing prices into smoothed and deviation components using a novel method of measuring spikiness, comparing the actual price series with a range of deviations from Loess smoothed series.

Keywords: Energy efficiency, deregulated electricity markets, price spikes, informational frictions

JEL Classification: Q41, D12, D83

Suggested Citation

Mauritzen, Johannes, The Silver Lining of Price Spikes: How Electricity Price Spikes Can Help Overcome the Energy Efficiency Gap (November 01, 2014). IFN Working Paper No. 1048. Available at SSRN: https://ssrn.com/abstract=2543667 or http://dx.doi.org/10.2139/ssrn.2543667

Johannes Mauritzen (Contact Author)

BI Norwegian School of Business ( email )

Nydalsveien 37
Oslo, 0442
Norway

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