Analysis of individual natural gas consumption and price elasticity: Evidence from billing data in Italy

The price elasticity of residential and non-residential energy demand is crucial for assessing energy policies and consumption forecasts. In this paper, using the monthly billing data of 51,177 end-users in Veneto (Italy), we implemented two panel-data models, analyzing the elasticity between natural gas demand and price variations. The models differ on how the possible endogeneity between price and demand is treated: (1) the total natural gas price is split into several components and we study only the natural gas price part free of endogeneity; (2) instrumental variable methods are used, considering two external instruments to regress the natural gas price from exogenous sources. We also investigated consumption patterns, underlining the influence of weather factors, market- liberalization, smart-metering technologies and macro-socioeconomic trends. The principal contribution of this paper is twofold: firstly, to supplement the slight empirical literature on natural gas consumption and price elasticity at the micro-level, based on the Italian market, providing a new contribution helpful in defining energy and environmental policies in Italy. Secondly, we provide an empirical method for utilities to exploit information that is often untapped such as billing invoices and technical data. The results show that residential end-users are more reactive to price changes than non-residents. However, the price elasticities found in this analysis are less than 1% for both groups, supporting outcomes found in other countries, i.e., natural gas consumers slightly react to price variations.