Everything about The Renewables Obligation totally explained
The
Renewables Obligation (RO) is designed to incentivise the generation of
electricity from eligible
renewable sources in the United Kingdom. It was introduced in
England and Wales and in a different form (the Renewables Obligation (Scotland)) in
Scotland in April 2002 and in
Northern Ireland in April 2005.
The RO places an obligation on licensed electricity suppliers in the United Kingdom to source an increasing proportion of electricity from renewable sources. In 2006/07 it's 6.7% (2.6% in Northern Ireland). This figure was initially set at 3% for the period 2002/03 and under current political commitments will rise to 10.4% by the period 2011-12, then by 1% annually for the five years following.
Suppliers meet their obligations by presenting
Renewables Obligation Certificates (
ROCs). Where suppliers don't have sufficient ROCs to cover their obligation, they must make a payment into the buy-out fund. The buy-out price is a fixed price per
MWh shortfall and is adjusted in line with the
Retail Price Index each year. The proceeds of the buy-out fund are paid back to suppliers in proportion to how many ROCs they've presented. For example, if they were to submit 5% of the total number of ROCs submitted they'd receive 5% of the total funds that defaulting supply companies pay into the buy-out fund.
Obligation periods run for one year, beginning on
April 1 and running to March 31st. Supply companies have until the
September 31 following the period to submit sufficient ROCs to cover their obligation, or to submit sufficient payment to the buy-out fund to cover the shortfall.
The cost of ROCs is effectively paid by all electricity consumers, since electricity suppliers pass this cost on as a small increase in the tariff for the electricity they sell.
R.O.C. Percentages and Prices by Year
Renewables Obligation Certificates
A ROC is the green
certificate issued for eligible
renewable electricity generated within the United Kingdom and supplied to customers in the United Kingdom by a licensed supplier. ROCs are issued by
Ofgem to accredited renewable generators (or in the case of generating stations subject to a
NFFO (
non-fossil fuels obligation), Scottish Renewables Obligation or Northern Ireland NFFO contract, to the nominated electricity supplier). It is worth noting that the Scottish Renewables Obligation was superseded by the Renewables Obligation (Scotland) in 2002.
One ROC is issued for each megawatt-hour (MWh) of eligible renewable output. ROCs are issued into the ROC Register and so are electronic certificates.
The legislation
The
Utilities Act 2000 gives the
Secretary of State the power to require electricity suppliers to supply a certain proportion of their total sales in the United Kingdom from electricity generated from
renewable sources. A Renewables Obligation Order is issued annually detailing the precise level of the obligation for the coming year-long period of obligation and the level of the buy-out price. The Renewables Obligation (England and Wales) was introduced by the
Department of Trade and Industry, the Renewables Obligation (Scotland) was introduced by the
Scottish Executives and the Northern Ireland Renewables Obligation was introduced by the
Department of Enterprise Trade and Investment (DETINI). The Orders were subject to review in 2005/06 and new Orders came into effect on
1 April 2006. The relevant pieces of legislation for the period April 2006-March 2007 are:
- The Renewables Obligation Order 2006 (Statutory Instrument (SI) 2006 No. 1004)
The Renewables Obligation (Scotland) Order 2006 (SI 2006 No. 173), and
The Renewables Obligation Order (Northern Ireland) 2006 (SI 2006 No. 56).
All pieces of legislation are published on the Office of Public Sector Information website (External Link
).
Ofgem’s role
The Orders detail Ofgem's powers and functions to administer the Renewables Obligation. These functions include:
Accrediting generating stations as being capable of generating electricity from eligible renewable sources
Issuing ROCs and revoking these as necessary
Establishing and maintaining a Register of ROCs
Monitoring compliance with the requirements of the Orders
Calculating annually the buy-out price
Receiving buy-out payments and redistributing the buy-out fund
Receiving late payments and redistributing the late payment fund, and
Publishing an annual report on the operation of and compliance with the requirements of the Orders.
Ofgem also administers the Northern Ireland Renewables Obligation (NIRO) on behalf of the Northern Ireland Authority for Energy Regulation (NIAER).
Types of energy eligible
The following sources of electricity are able to attract ROCs:
Biogas from anaerobic digestion
Biomass
Hydro electric
Tidal power
Wind power
Photovoltaic cells
Landfill gas
Sewage gas
Wave power
Co-firing of biomass is also eligible. It should be noted that not all technologies which are eligible will actually be supported due to differences in economic viability. Some renewable sources of electricity are not eligible for ROCs (for example larger hydroelectric schemes which were in operation before April 2002).
Government review
The future shape of the scheme is currently being reviewed by Government (External Link) following a consultation period that finished in September 2007. The document at the centre of the consultation set out an amended form of the RO which will see different technologies earn different numbers of ROCs. This hasn't yet been adopted as policy.
On January 22, 2007, Ofgem called for the Renewables Obligation to be replaced, claiming that the scheme is a 'very costly way' of supporting renewable electricity generation (External Link). In particular they're concerned that electricity customers pay for renewables projects even if they're not built due to problems obtaining planning permission, and the failure of the Renewables Obligation to link financial support for renewables to either the electricity price or the price of renewables in the European Union Emissions Trading Scheme.
The British Wind Energy Association, whose members are major beneficiaries of the existing scheme, claims that Ofgem is partly responsible for the costs because it has failed to prioritise work on the National Grid which would allow more renewable capacity to be connected. They also stressed the need to maintain stability in the marketplace to maintain the confidence of investors (External Link).
The concerns of both bodies seem to be shared by the Renewable Energy Association (External Link).
The Scottish Wind Assessment Project has criticised the scheme for rewarding reductions in renewable electricity output: two electricity suppliers, Scottish and Southern Energy and Npower, down-rated several large hydro-power stations in order to qualify for Renewables Obligation Certificates (External Link).
Further Information
Get more info on 'Renewables Obligation'.
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