Renewables Obligation
The Renewables Obligation (RO) is a market-based mechanism that replaced the previous Non Fossil Fuel Obligation (NFFO), which came into effect on 1st April 2002. The Electricity Act 1989 enabled the Secretary of State for Trade and Industry to impose an obligation on suppliers to supply a specified proportion of their electricity supplies from renewable energy sources. Ofgem (The Gas and Electricity Markets Authority) is responsible for the implementation and administration of this legal obligation on all licensed electricity suppliers known as “the Renewables Obligation” [the Renewables Obligation for England and Wales (RO) and the equivalent Renewables Obligation for Scotland (ROS)]. A similar obligation was introduced in Northern Ireland (NIRO) in 2005. Since its introduction the Renewable Obligation has been amended by statutory instrument to improve its operations.
Under the RO/ROS, Renewable Obligation Certificates (ROCs) issued by Ofgem are designed to reward the generation and supply of electricity from renewable sources. New hydropower schemes and all existing hydropower stations under 20 MW built or refurbished after 1st January 1990 are eligible. All stations with a declared net capacity of 1.25 MW or less are eligible regardless of their date of build or refurbishment. The RO/ROS place a legal obligation on all licensed electricity suppliers to produce evidence that:
• they have supplied a specified proportion of their electricity supplies from renewable energy sources to customers, or
• other electricity suppliers have done so, or
• between them, they have done so.
The ROC separates the renewable attribute from energy production so that its value can be identified and traded separately from the electricity. A supplier may buy ROCs from generators or from another party to be used as evidence to submit to Ofgen on an annual basis that they have complied with the RO. Alternatively, a supplier can discharge its obligation, in whole or in part, by paying the buy-out price, which indicates the maximum theoretical price of ROCs. Ofgem returns the buyout funds to suppliers who had fulfilled their obligation with ROCs in proportion to the number of ROCs each of them had presented.
Suppliers are able to bank ROCs for use only in the period after they are issued although limiting what can be met by ROCs awarded in the previous period (up to 25% of the supplier’s obligation).
The aim of the RO/ROS was to progressively increase the supply of electricity from renewable sources to 10.4% by 2010/11 and to 15.4% by 2015/16. There was concern that this could leave the RO as a “ceiling” rather than a “target” as the value of ROCs would fall to zero once the RO has been achieved. The Government are in the process of increasing the target to 20% by 2020.
In 2006 the government instituted the Energy Review that proposed major changes to the RO in order to better support newer technologies such as off-shore wind, wave and tidal power. The suggested mechanism for this support has been multiple ROCs for these newer technologies and fractional ROCs for established technologies – i.e. banding. The DTI has yet to make firm proposals.
NI Renewables Obligation – Action Renewables in conjunction with OFREG and OFGEM organised a seminar in March to explain the workings of the NIRO, which will be administered by OFGEM. In the first instance, accreditation for NIRO for all renewable generators, including those with NFFO contracts and those that use the energy that they produce, should be sought from OFGEM. Applications can be downloaded from www.ofgem.gov.uk.
Renewable Energy Market - Update
During the last quarter of 2006 energy prices continued to fall back after the sharp price hikes earlier in the year, due to unseasonably mild weather and plentiful supplies of natural gas coming into the United Kingdom.
The LEC market remains fixed at around 80-85% of the Climate Change Levy (£4.30/MWh).
At the end of January the average Compliance Period 5 (i.e. for generation output between 1st April 2006 - 31st March 2007) ROC price, excluding co-fired ROCs, was £46.18, up from £44.81 in October 2006. For co-fired ROCs the average price £35.50 (£20.82 in October). The DTI's Energy Review offers the prospect of major changes and is a potential threat to the ROC market. DTI is considering responses to its formal consultation which proposed fractional or multiple ROCs for different renewable technologies according to their commercial status. The removal of technologies is a considerable threat and is a clear shift in government thinking on the Obligation.
View PDF to see the full Statutory Consultation on the Renewables Obilgation Order 2009
View PDF for the BHA response
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