Modeling electricity demand, welfare function and elasticity of electricity demand based on the customers risk aversion behavior

TL;DR

This paper models electricity demand and elasticity based on customer risk aversion, using utility functions to capture preferences and analyze how risk attitudes influence consumption and elasticity measures.

Contribution

It introduces a risk aversion-based utility model to analyze electricity demand, welfare, and elasticity, providing new insights into customer behavior modeling.

Findings

Higher risk aversion increases customer satisfaction from consumption.

Electricity consumption is a substitute or complement depending on risk aversion level.

Price increases offset income effects on electricity demand.

Abstract

Nowadays, attitudes towards electricity customers have been changed, so that they are no longer considered static players. The customers behavior identification is vital for establishing modern power systems. This paper utilizes the customers risk aversion coefficient to model their consumption behavior. Through the coefficients, the value of electricity consumption is measured employing the concept of the utility function. The utility function is an essential concept in microeconomics that measures customers preferences and interprets how a rational consumer would make consumption decisions. Based on the utility function, an economic load model and the customers welfare function are formulated. The load model is utilized to estimate price elasticity, and income elasticity of electricity demand. The results illustrated as the risk aversion coefficient increases, the consumers achieve more satisfaction from the consumption. Electricity consumption will be complement (substitute) if the risk aversion coefficient is greater (lower) than the unit. For the unit risk aversion coefficient, the cross-price elasticity will be zero, which means the consumption is independent of the other period demand. The results illustrated electricity price increment neutralizes the income increment effect on consumption. Hence, to study electricity consumption, the price and income variations should be considered, simultaneously.