Renewables Obligation (RO): addressing electricity supplier payment default under the RO scheme
Applies to England and Wales
Read the full outcome
Detail of outcome
Having considered the responses, it is clear that there are a wide range of differing views on how best to address supplier payment default under the Renewables Obligation (RO). Whilst the responses indicate a preference for addressing supplier payment default through a legislative requirement for more frequent settlement, some concerns were raised that such a move would have a negative effect on some suppliers. There was also support for Ofgem introducing a licence-based requirement, or a combination of a legislative and licenced-based approach, or for continuing with existing policy.
In addition, since consulting on the issue in August 2021, the energy market has changed significantly, with many suppliers exiting the market following a spike in gas prices. As the market has changed so much in recent months, BEIS need to take time to consider the wide range of complex issues affecting the market, and establish how to productively address them whilst making schemes like the RO a better fit for today’s market.
As a result, BEIS does not think that legislating now for more frequent settlement is the right approach. Instead, BEIS will come back to industry later this year to gather more evidence to further develop policy thinking around the RO.
In the meantime, BEIS and Ofgem will continue to pursue a number of other short and long-term interventions, as detailed in the government response.
Detail of feedback received
We received 40 responses to the consultation from:
- electricity suppliers
- renewable electricity generators
- trade associations
- Renewables Obligation Certificate (ROC) brokers
- Power Purchase Agreement (PPA) off-takers
- consultants or advisers
- financiers or investors
- agents for micro stations in NI
- a consumer group
- Balancing Settlement Code managers
Some respondents had an interest in more than one category.
The majority of respondents supported action being taken to tackle supplier payment default but there was a wide range of preferred approaches. Overall, small and medium suppliers were split mainly between supporting a legislative requirement for more frequent settlement, with the flexibility of an in-year letter of credit (option 1c in the consultation document) or doing nothing (option 3). Most large suppliers supported option 1c.
Respondents who were both suppliers and generators or solely generators were spread across the board, with almost equal support for option 1c, or a licence-based requirement for suppliers to protect their accruing obligation against the risk of default (option 2), or a combination of option 1 and 2, or option 3. The other types of respondents were spread across option 1, a combination of option 1 and 2, or option 3.
The government response summarises the comments received and gives an analysis for each question by type of respondent.
Original consultation
Consultation description
The Renewables Obligation (RO) scheme in England and Wales supports the generation of renewable electricity. It operates as a market-based mechanism through a system of tradable green certificates called Renewables Obligation Certificates (ROCs). ROCs are issued to generators free of charge by the scheme administrator, Ofgem, in relation to the amount of renewable electricity they generate. Generators sell the ROCs to suppliers or traders, which gives generators a premium in addition to the wholesale price of their electricity. Electricity suppliers are under an obligation to obtain and present a certain number of ROCs to Ofgem, or instead make a fixed payment into a cash payment fund in lieu of each ROC. Cash payments are recycled back to suppliers who met their obligation with ROCs, so giving ROCs additional value. The cost of the RO to suppliers is passed on to consumers through their electricity bills.
In recent years there has been an increase in the number of electricity suppliers exiting the retail market and defaulting on their obligation under the RO. Defaults manifest as shortfalls in the cash payment fund. The scheme features a mutualisation mechanism which seeks to recover unpaid bills from other electricity suppliers once they exceed a threshold. Government recently increased the level of the mutualisation threshold in England and Wales to make it harder for mutualisation to be triggered, but this did not address the underlying causes of payment default.
This consultation, which has been prepared jointly with Ofgem, focuses on supplier payment default under the RO. It seeks views on:
- the main options available for addressing it, through both legislation and the electricity supply licence. It qualitatively assesses the likely impacts of each
- the introduction of a fixed price certificate based scheme as a way of addressing supplier payment default
See the BEIS consultation privacy notice.
Please do not send responses by post to the department at the moment as we may not be able to access them.
Documents
Updates to this page
Published 10 August 2021Last updated 20 April 2022 + show all updates
-
Government response published.
-
First published.