Continuing our blog series on Non-Commodity Charges, today we’re discussing an important charge on your bill: The RO Renewables Obligation. This charge has been introduced by the government to support large scale renewable electricity generation in the UK. To summarise: all licensed electricity suppliers are obligated to source a growing proportion of the electricity that they supply to come from renewable sources.
The RO is one of the main support mechanisms to keep the large-scale renewable projects in business, whereas the smaller generation is supported through Feed-In Tariffs (FIT Scheme) which we will discuss in next week’s blog!
The legislation came into effect in 2002 in England and Wales with Scotland and Northern Ireland following in 2005. The RO closed to all new generating capacity on 31st March 2017. If you apply for a grace period, you may still qualify for entry to the RO after March 31st.
Renewable Obligation Certificates (ROCs)
According to Ofgem, “ROCs are certificates issued to operators of accredited renewable generating stations for the eligible renewable electricity they generate. Operators can trade ROCs with other parties. ROCs are ultimately used by suppliers to demonstrate that they have met their obligation.”
If a supplier does not present a sufficient number of ROCs in the reporting period, they will face a penalty. This will be a monetary penalty which will be an equivalent amount, paid out to a buyout fund. The fund basically covers administration costs of the scheme and the rest is distributed back to suppliers in proportion to the amount of ROCs they produced towards their obligation.
We have a number of obligations to generate renewable energy more so now than ever- it’s been reported this month (March 2017) that the UK carbon emissions have dropped to their lowest levels since the 19th century- according to the Carbon Brief’s website. The emissions in 2016 were 36% below those of 1990 which is the year used to create legal targets to cut climate pollution against. According to the Guardian (LINK), “UK coal demand is falling rapidly because of cheaper gas, a hike in carbon taxes on the highly polluting fuel, expansion of renewables, dropping demand for energy overall and the closure of Redcar steelworks in late 2015.”
The UK has started generating more renewable energy than ever and is only set to grow in coming years, meaning the RO is at an ongoing rise. In order to meet the EU legislation, the UK will have to source 15% of its energy consumption from renewable sources by 2020 so the government requires over 30% of electricity to be produced from the renewable generation by 2020 which means more investment.
So how are you charged?
The RO is a third party cost so will be part of your electricity bill. The cost of this is worked out each February which runs from 1st April through to 31st March.
The cost of this is calculated from two things; the obligation level and the buyout price.
The obligation level is the amount of expected ROCs as part of the overall electricity demand within the compliance period.
The buyout price is set by Ofgem and index linked to the retail prices index. The buyout price for 1st April 2014 to 31st March in 2015 for example, was £43.30 over ROC.
To lower the RO cost, you could simply use less electricity. If you’d like to discuss the Renewables Obligation further or if you’re still eligible to apply after March 31st, please get in touch!