BEIS/Ofgem joint response to the Consultation on addressing supplier payment default under the Renewables Obligation (RO)
Decision
- Publication date
- Scheme name
- RO
The Renewables Obligation (RO) scheme in England and Wales supports the generation of renewable electricity. It operates through a system of tradable green certificates called Renewables Obligation Certificates (ROCs). Ofgem, the scheme administrator, issue ROCs to generators for the amount of renewable electricity generated. 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 present a certain number of ROCs to Ofgem or make a fixed payment into a buyout fund in lieu of each ROC. Cash payments are recycled to suppliers who met their obligation with ROCs, giving ROCs additional value. The cost of the RO to suppliers is passed on to consumers through electricity bills.
Recently, there has been an increasing number of electricity suppliers exiting the retail market and defaulting on their obligation under the RO. Defaults manifest as shortfalls in the buyout fund. The scheme features a mutualisation mechanism which seeks to recover unpaid bills from other electricity suppliers once they exceed a threshold. The threshold in England and Wales was recently increased to make it harder for mutualisation to be triggered, but this did not address the underlying causes of payment default.
The consultation, which was prepared jointly with BEIS focused on supplier payment default under the RO. It considered the main options available for addressing it, through both legislation and the electricity supply licence, and qualitatively assessed the likely impacts of each. It also sought the views of stakeholders on these options and the preferred way they wanted to proceed.
The consultation closed on 9 November 2021 and we received 40 responses to the consultation. BEIS and Ofgem have reviewed all of the responses and produced a joint response to the consultation including next steps.