Introduction: Counter-Intuition, Methodology and More

In short, the purpose of this blog is to upload a daily demand curve for UK electricity. that being said, there are one or two points to cover before diving right in.


The standard economic theory is that as a price rises for a good, the demand for said good falls, or that they have an inverse relationship. In the immediate term for electricity, however, the opposite is true: it appears that demand increases as prices increase. This may seem counter-intuitive, but given the length of electricity contracts and a mix-up in the causation of the two variables in question, it is, well, intuitive. Electricity contracts can last months or years, and wholesalers can change their strategy as the demand figures come through. Prices, of course, are likely also dictated by the volume that is traded. But we'll get to that eventually.

So how do we generate daily demand curves?

Market price data is found on the UK Power Exchange, now called the APX. This generates price data every half hour, in keeping with the nature of electricity generation (you may notice that your electricity meter is a "half hourly" one, and as you may have quite rightly guessed, this is not a coincidence). The demand is taken from Elexon, and is a megawatt-per-hour figure that is generated every 5 minutes. For the sake of ease, an average demand figure will be taken for every half hour. Both of these are part of the Balancing Mechanism Reporting Service. The site also has daily figures on electricity gone unsold, and what has been generated.

Once the data has been sorted and cleaned up, it will be loaded into R, where models will be estimated and graphs will be simulated. I am expecting to have two full equations for price and demand, with as many lagged variables as necessary to eliminate serial correlation. This may read like nonsense to the layperson, however I will skip over the majority of this now and put the full method on a separate post.

 It may be the case that while demand and price change in the same direction in the very short term, in the longer term price and demand behave as one would expect. It is for this reason there will be weekly, monthly, quarterly, etc. demand curves with short-run daily curves included. Models and graphs will follow.

Lastly, I cannot guarantee that the blog posts will be daily, however they will be frequent, and there will be no gaps in days. Watch this space.