Temperature effects on firms’ electricity demand: An analysis of sectorial differences in Spain

• We present a detailed analysis of the sectorial breakdown of temperature effects on firms’ electricity demand.
• In Spain, firms’ aggregate electricity demand is rather insensitive to temperature.
• There are marked differences among sectors.
• The aggregate insensitiveness of electricity demand to temperature is due to composition effects.

Distinct responses of electricity demand to temperature changes are usually assumed for residential, industrial, and service sectors. However, available empirical studies on the temperature effect of electricity demand provide only partial evidence or evidence at a very aggregate level. Our paper aims to partially fill this existing gap in the literature. Using disaggregated data by sectors, we carry out a comprehensive analysis of the sectorial breakdown of temperature effects on firms’ electricity demand. In-depth knowledge of sectorial demand responses to temperature changes is fundamental for improved energy planning because such responses represent a potential source of demand price inelasticity, one of the main obstacles for developing adequate demand response planning mechanisms. Our findings indicate that in Spain firms’ aggregate electricity demand is rather insensitive to temperature. However, there are marked differences among sectors, with the highest sensitivity found for firms in the service sector. We show that the aggregate insensitiveness of firms’ electricity demand to temperature is mainly due to a demand composition effect.