My UK energy provider says my electricity is produced with 100% renewables, so I presume water, wind, solar. So why am I affected by such big increases in electricity charges (price per kWh)?
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Energy produced by wind/solar/hydro is a substitute good relative to energy produced by oil.
When the price increases for a good, it’s causes increased demand for the substitutes, as consumers flock to alternatives. All other things being equal, this increase in demand for the substitute good causes the price of the substitute good to increase.
In this case, the price for oil is going up, which drives people/corporations to pursue substitutes (wind/solar/hydro), and this increase in demand increases the equilibrium price.
Here’s another example with AA batteries. Say Duracell has an issue with its manufacturer and it cannot churn out the same number of batteries as it normally would. Supply for batteries goes down, and Duracell increases the price to maintain current profit margins. Perfectly rational customers would run initially to Energizer, assuming the price is lower. Energizer sees this increase in demand for its batteries, and realizes they can increase the price and still sell the same number of batteries, thus increasing profit. The substitute good here is Energizer batteries, as they are LITERALLY interchangeable.
Hope this helps.
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