Renewables Obligation Explained: The RO Charge on Business Bills

How the UK’s main legacy renewable scheme still affects your electricity bill

What the Renewables Obligation is

The Renewables Obligation was the UK’s main support scheme for large-scale renewable power before Contracts for Difference took over. It launched in Great Britain in 2002 and ran for more than a decade as the principal way of funding wind, biomass, hydro and solar farms.

For a business, it matters because the cost lands on your electricity bill. The Renewables Obligation is one of the green levies bundled into your unit rate, sitting alongside the other non-commodity costs you pay without always seeing them.

It is administered by Ofgem, and despite closing to new projects years ago, it remains one of the larger policy costs on commercial electricity.

How the Renewables Obligation works

The mechanism runs on certificates. Renewable generators earn Renewables Obligation Certificates, known as ROCs, for the power they produce. Suppliers are then required to present a set number of ROCs to Ofgem each year for every megawatt hour they supply.

If a supplier cannot present enough ROCs, it pays into a buy-out fund instead. The buy-out price is set annually by Ofgem and rises with inflation. Money in that fund is then recycled back to the suppliers who did present certificates.

Suppliers buy ROCs from generators, which is effectively the subsidy. That cost is passed straight through to you, the customer.

Why you still pay for a scheme that closed in 2017

Here is the part that catches people out. The Renewables Obligation closed to new generating capacity on 1 April 2017. No new projects can join.

But the projects already accredited keep their support for 20 years. So a wind farm signed up in 2015 will still be earning ROCs into the mid-2030s, and your business will keep paying for it until then.

In other words, this is a legacy cost that winds down slowly rather than disappearing. The Renewables Obligation will stay on bills, gradually shrinking, for another decade or so.

How the Renewables Obligation shows up on your bill

On a small business contract you will rarely see it itemised. It is folded into the unit rate. Larger sites on pass-through contracts often do see the Renewables Obligation broken out as a separate line.

It is a volumetric charge, applied per unit of electricity you consume, so heavier users carry more of it. As a rule it is one of the bigger non-commodity items, typically larger than newer levies.

Renewables Obligation versus Contracts for Difference

The two schemes do a similar job but in different ways. The Renewables Obligation gave generators a tradable certificate on top of the market price. Contracts for Difference instead guarantee a fixed strike price.

Government moved to the newer model because it offers better value and more price certainty. Both now sit on your bill at once, which is why funding the shift to renewable energy shows up as more than one charge.

Unlike a time-based cost such as TNUoS, you cannot reduce the Renewables Obligation by shifting when you use power. Only using less brings it down.

Managing the cost

You cannot opt out of the Renewables Obligation, but you can make sure your supplier is applying the correct rate and not inflating it inside a bundled unit price.

The official detail sits with the regulator. You can read Ofgem’s overview of the Renewables Obligation for the current obligation levels and buy-out price.

If you want the non-commodity costs on your bills checked properly, including the Renewables Obligation, talk to us. Catalyst reviews these charges for businesses across the UK as part of energy procurement and bill validation. Get in touch with our team to have your bills reviewed.