What is the Renewables Obligation?
The Renewables Obligation (RO) is a scheme in the UK designed to support and promote the use of renewable energy on a large scale. It requires all licensed electricity suppliers to evidence their use of renewable energy, which must be a certain percent (released each year) of the total supplied.
It was previously the main mechanism for supporting renewable energy usage, but has since been replaced with the Contracts for Difference scheme.
Note that the renewables obligation is currently being phased out.
What replaced the Renewables Obligation?
Contracts for Difference (CfD) has replaced the Renewables Obligation as the UK’s main support mechanism for renewable energy production and usage. The RO has been being phased out since March 2017.
Renewables Obligation Certificates
The mechanism uses Renewables Obligation Certificates (ROCs). These are a type of green energy document that evidences the use of renewable energy.
Ofgem (Office of Gas and Electricity Markets) issues ROCs to accredited renewable generators.
When the generator company sells power to an electricity supplier, they transfer the related ROCs through Ofgem’s electronic registry to that supplier.
The supplier then has to present Ofgem with a certain number of certificates according to the published obligation for that year.
Some generating stations are subject to a NFFO (non-fossil fuels obligation). In this case, Ofgem issues the certificate to the nominated electricity supplier.
How long do Renewable Obligation certificates last?
ROCs are issued during the Obligation period year from 1 April to 31st March the following year. Companies must submit their ROCs for the end of the obligation period.
ROCs per MWh
As standard, one ROC is issued per MWh of renewable energy. However, in 2009, bands were introduced so some renewable energy generation technologies get more or less per MWh.
For example, offshore wind installations built after 2006 receive 2 ROCs per MWh (or 1.9/1.8 ROCs per MWh, depending on when Ofgem accredited them).
The Buy Out Fund
An alternative to presenting ROCs is to pay into a buy out fund. Suppliers pay a fixed price per MWh shortfall.
The cost of the buy out fund is dependent on the amount of renewable energy produced. It is a fixed price based on the Retail Prices Index.
The money generated through the buy out fund gets redistributed to suppliers according to how many ROCs they have presented. If one company were to submit 5% of the total ROCs submitted by all companies, they would receive 5% of the buy out funds.
A company can present ROCs and pay into the buy-out fund to cover any deficit.
The Department for Business, Energy and Industrial Strategy (BEIS) releases the obligation, and how it is calculated, each year. This is available through the BEIS on the gov.uk website.
The obligation dictates the number of ROCs an electricity supplier is required to provide to Ofgem at the end of the obligation period.
Each period runs from 1 April to 31st March the following year.
The 2021/22 obligation was:
- 492 ROCs per MWh in Great Britain (England, Wales and Scotland)
- 194 ROCs per MWh in Northern Ireland
The 2022/23 obligation was:
- 491 ROCs per MWh in Great Britain
- 193 ROCs per MWh in Northern Ireland
Failing to meet the obligation requirements results in a fine – in which the company must pay into the buy out fund.
What is the Northern Ireland Renewables Obligation?
The Northern Ireland Renewables Obligation (NIRO) is a very similar mechanism as the Renewables Obligation (RO) for England and Wales. However, it only applies to NI and different obligations are set.
Future of the Renewables Obligation
The UK Government is in the process of phasing out the Renewables Obligation, which has been the case since March 2017 when applications from new generators were closed.
It is being replaced with the Contracts for Difference scheme.
Contracts for Difference (CfD)
Contracts for Difference (CfD), with Feed-In tariffs, has replaced the Renewables Obligation as the primary mechanism for promoting renewable electricity use. Unlike ROCs, CfDs will also apply to nuclear power generation.
Renewable generators in the UK can apply for a CfD, in which they compete in a sealed bid. Successful companies enter into a private law contract with the government-owned Low Carbon Contracts Company (LCCC).
Over 15 years, generators are paid a flat rate for the electricity they produce. The rate is calculated as the difference between the ‘strike price’ and the ‘reference price’. The strike price reflects the cost of investing in a particular low carbon technology, while the reference price is a measure of the average GB market price for electricity.