Households Hold Key to Resolving Power Shortage

◆Based on our understanding that rationing through planned outages and power-use restrictions is a resource allocation that results in serious economic and social harm, we examine the efficacy of balancing supply and demand through the price mechanism. We focus mainly on the household sector. Because it is hard to exercise control over electricity demand in this sector, it will be key to alleviating Japan’s electricity shortages.

◆It has been said that the price elasticity of electricity demand is intuitively fairly low, but there is insufficient research focusing on the demand side. In this report, we estimated an electricity demand function in terms of electricity prices and found short-term elasticity was －0.47 and long-term elasticity －1.48 for the household sector. Our conclusion is that it is possible, and indeed desirable, to rebuild the electricity system by putting the price mechanism to work so as to boost efficiency in balancing supply and demand. The new system is expected to help gauge which economic actors truly need electricity at what times of day, while the conventional one is incapable of extracting such information.

◆However, the price mechanism is not a panacea. Building smart grids and deploying smart meters and other two-way communication enabled control devices should complement efforts to balance supply and demand through pricing. This perspective has been the subject of surprisingly little discussion elsewhere.

◆Experiments and experiences in the US of the price-based demand response (controlling electricity demand using the price mechanism) show that demand is reduced more efficiently when smart devices are used. Attention-worthy demonstration trials are also underway in Japan in places like Kitakyushu. These should amass valuable data and research findings concerning the potential for controlling supply and demand using the price mechanism and smart devices when deploying renewable energy on a mass scale.