New RO buy-out price confirmed amid expectations of mutualisation for a second year

Ofgem has published the Renewables Obligation Certificate (Roc) buy-out price and Mutualisation Ceilings for compliance period (CP) 18 of the scheme.

On 21 February it confirmed the buy-out price will be £48.78 per Roc, a 3.3% uplift on the previous year, in line with RPI inflation. This is the amount suppliers will need to pay for each Roc they do not present towards compliance with their 2019-20 obligation, in which the target has been set at 0.484 Rocs/MWh supplied in GB and 0.190 Rocs/MWh supplied for Northern Ireland.

To protect the integrity of the Renewables Obligation (RO), the mutualisation mechanism kicks-in where sufficient missing payments from suppliers creates a shortfall in the buy-out fund. This recovers the missing payments due to the buy-out fund from the remainder of the supply market, but the amount recovered cannot be in excess of the mutualisation ceilings, this is in order to protect customers.

Mutualisation will be triggered in the event that there is a shortfall in the buy-out fund of more than £16.94mn across England, Wales and Scotland. Mutualisation was triggered for CP16 (2017-18) with suppliers failing to make £58.6mn of payments towards the RO – 34 suppliers failed to meet the RO buy-out payment deadline of 31 August 2018, and 14 of these subsequently failed to meet the late payment deadline of 31 October, which then triggered mutualisation.

With 14 suppliers now having exited the market since the start of 2018, 10 of which had supply volumes in CP17 (2018-19), Cornwall Insight expects mutualisation to also be triggered for the current compliance period. Suppliers will need to meet their CP17 obligations by either making buy-out payments or presenting Rocs by 31 August and 1 September 2019 respectively. We expect, from suppliers exits to date, that the shortfall in the buy-out fund will be almost £45mn, and this money will once again need to be recovered by suppliers who met their RO.

Ofgem has also raised the mutualisation ceiling for the 2019-20 obligation period (CP18) to £293,831,481.82 in England and Wales and £29,383,148.18 in Scotland (mutualisation does not apply in Northern Ireland).

If you are interested in the Renewables Obligation, and the forecasting of Roc values, RO targets and consumer costs, please contact t.dixon@cornwall-insight.com.

Related thinking

Regulation and policy

Calm before the storm? 2021 energy supplier compliance developments

The latest update to our Energy Supplier Compliance Portal went live on 4 May and includes changes to the compliance landscape during February to April 2021. While the previous quarter’s update reflected new principles resulting from Ofgem’s Supplier Licensing Review (SLR) and protections for prepayment meter customers facing self-disconnection, Q121...

Business supply and services

Plus ça change, plus c’est la même chose: the RO late payment deadline

Today (11 November 2020) Ofgem has confirmed that there will be mutualisation of the 2019-20 Renewables Obligation. On Monday, in our 'Energy Spectrum' Perspective, we explained to customer’s why this was important and likely and what it means for the energy industry. Find out more about a free trial to Energy...

Low carbon generation

Mutualisation? Oversupply? Banking? Latest developments in the ROC market

We track the ROC markets closely through our within-year and long-term market forecasts of ROC values and supplier costs. In this blog we provide a view on the latest market developments and our current forecast levels. If you are interested in the Renewables Obligation, or our market forecasts for the...

Home supply and services

COVID-19-driven changes to electricity Third Party Charges

The impact of COVID-19 on the energy sector has been a hot topic for the last few months. As we progress further into the UK’s lockdown period we are now beginning to piece together the wider picture of effects across energy Third Party Charges (TPCs). These impacts are expected to...

Energy storage and flexibility

Storage story: a regulatory run-down

While electricity storage has long been recognised as a crucial solution to mitigating the drawbacks of some types of renewable generation, it has taken some time for the regulatory and charging framework to catch up. It has taken years, but recent progress on the licensing and exemptions from some final...

Low carbon generation

Cornwall Insight and the UK EfW market

As the UK has continued its evolution towards decarbonisation, one of the lesser talked about success stories has been in energy from waste (EfW).  EfW in the UK has grown to around 50 operational plants processing around 12mn tonnes of residual waste (but with capacity to potentially process nearly 14mn...

Energy storage and flexibility

Caught in the balance: Assessing amber alerts in the SEM

SEMO announced on 21 January that it was issuing an amber alert. This happens when the system margin is at a level where a trip of the largest in-feed would give rise to a reasonable possibility of either a failure to meet system demand, or cause a significant deviation in system...

Low carbon generation

Winds of change: Analysing SEM wind forecast accuracy

Following the publication of the Tomorrow’s Energy Scenarios (TES) 2019, we can expect to see greater penetration of wind generation in the coming 20 years, with installed capacity forecast between 6.0GW to 8.2GW by 2040. As the growth in wind generation continues, forecasting wind accurately will become increasingly important in order to...