Switching behavior in the Norwegian electricity retail market : the effect of Nord Pool spot prices on how households switch electricity retailers

Abstract

This paper has examined the relationship between Nord Pool spot prices on the Norwegian electricity market and the switching rate of residential consumers. Our research question was an attempt to find whether the electricity spot price can be a driver for the retailer switching among electricity consumers. Due to the popularity of spot-price contracts in the country, we assumed that higher spot prices may lead to an increased switching rate. Also, we made an assumption that Norwegian consumers may be forward-looking in their switching behavior. Meaning, spot price fluctuations may induce households to review their expected costs and switch the retailer before it changes the prices. In the research, we used a combination of two panel data methods: Fixed Effects and Instrumental Variable approach. We constructed three models on the relationship between spot price and retailer switching, only one of which proved to be statistically significant. However, it did not show the result that we could consider to be economically viable; hence, we concluded that consumers in Norway are not forward-looking in their switching behavior and that spot prices do not influence switching rate.