Renewable Obligation (RO) mutualisation costs

Posted on 28 May 2019

What is the RO cost?

The Renewables Obligation (RO) charge seeks to cover the cost of supplier obligation to source a certain proportion of supplied power from accredited renewable generators.  Ofgem administers the RO scheme and confirms supplier obligation level every October. To be compliant under the scheme, suppliers are required to either present enough Renewable Obligation Certificates (ROCs) to meet their share of the obligation, or pay in to a buy-out fund in order to cover any shortfall in ROCs presented.

So, what has happened to RO costs?

Each RO ‘compliance period’ runs from April to the following March. Suppliers have until the end of September, following a given compliance period, to present sufficient ROCs to offset their obligation or pay the relevant buy-out cost in lieu of ROCs.

For the 2017-2018 compliance year, 14 suppliers have failed to meet their obligations under the scheme, putting the total scheme shortfall at £58.6m across England, Scotland and Northern Ireland.

Under Supplier Licence Conditions, if there has been a shortfall of payments in excess of £16.9m across England and Scotland at 31st October - the late payment deadline - then the ‘Mutualisation’ mechanism is triggered for that period. Mutualisation requires suppliers who have met their relevant obligation to make up for any shortfall relating to non-compliant suppliers. Each supplier’s mutualisation contribution will be in proportion to their RO obligation. The fund shortfall of £58.6m is significantly above the £16.9m cap and as such mutualisation of the RO scheme has been triggered for the first time.

npower is fully compliant in delivering our RO obligations for 2017/18 and we are therefore under our Supplier Licence Conditions required to settle a proportional share of the mutualisation shortfall.

What happens next?

Where there is an agreement in place to pass-through the RO charge, the additional RO mutualisation cost will be applied to all volume consumed at a customer meter over the 2017/18 period.

We are waiting for final confirmation of our supplier share of mutualisation costs. This final figure is not yet known as it is dependent on the payment performance of two suppliers who were permitted to make late payments by Ofgem until 31st March 2019. Ofgem are yet to comment on the level of these payments received. These payments will impact the total mutualisation cost. As a result of this uncertainty, we are currently forecasting the RO mutualisation cost. If you’d like to know these costs, please contact us at nbs@npower.com

We will communicate further updates as and when we know more, but we expect to issue RO mutualisation invoices in Q4 2019.

For further information about the Renewables Obligation (RO), please visit Ofgem’s website here

If you have any questions, please call 0800 193 6866 or email our experts at Energy HQ, nbs@npower.com

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