Renewables Obligation Mutualisation

Renewables Obligation Mutualisation Problems

Renewables Obligation Mutualisation is about to cause further misery for business customers

At the time of writing this, 22 energy companies have collapsed due to the current energy crisis with a combined customer base of 2,076,800 customers.

These and all the remaining suppliers have an obligation to pay Renewables Obligation (RO) charges.  Because 22 suppliers are removed from the overall scheme this cost is now redistributed to the remaining suppliers.

What is Renewable Obligation or RO

Set up in 2002, the Renewable Obligation or RO places a mandatory requirement on licensed electricity suppliers to source a specified and annually increasing proportion of electricity they supply to customers from eligible renewable sources or pay a financial penalty. The RO is currently the main financial mechanism by which the Government incentives the deployment of large-scale renewable electricity generation and the energy industry regulator Ofgem administers the scheme.  By the 1st of October each year the annual obligation on electricity suppliers is published and comes into effect for the next financial year starting on the 1st April.

Renewables Obligation Mutualisation Problems

For the fourth year in a row Ofgem have notified the industry that a mutualisation of Renewables Obligation (RO) costs will need to be undertaken in order to make up the funds owed by suppliers that have ceased trading over the previous year.

Because of the way that the RO scheme works all suppliers must collect enough Renewable Obligation Certificates (ROCs) to fulfil their obligation or pay a “buy-out price” if they fail to submit enough certificates.

These ROCs or buy out fund must be presented by all suppliers by the 31st August each year.  Failure to do so then means that they have until the 31st October to pay into a late payment fund, along with added interest.

Any supplier that then fails to pay this can be either issued with a final payment order or have their supply licence revoked.

If the collective value outstanding is over a certain threshold, then the regulator will trigger RO mutualisation.

This mutualisation process means that all other suppliers must now make additional payments into the RO fund to cover this shortfall.  So that the price of the ROCs can be honoured to those who hold them.

Ofgem have published figures relating to the shortfall – Renewables Obligation Mutualisation

With this official announcement yesterday comes more misery for suppliers and their customers as this additional total shortfall amount across all RO schemes is a staggering £218,300,151.73 (excluding interest).

As a relevant shortfall has been reached, mutualisation has been triggered and suppliers will be contacted to make quarterly payments to make up the shortfall, in proportion to their obligation.

The full list of suppliers and the amount owed can be found on the official Ofgem website.

Energy Supplier Impact

Suppliers will now be receiving another invoice in proportion to their obligation from Ofgem to cover the shortfall in RO costs on top of an already fragile and volatile energy market.

In some cases, this is a significant additional value to find when some of these businesses will already be on their knees and could force further suppliers into difficult trading positions.

The decision they will have to take now is do they absorb this additional cost or decide to pass this additional cost on to their customers.

The later is highly likely the decision that most suppliers will come to.

Fixed Energy Contract Warning

Because suppliers can use terms and conditions to reopen fixed energy contracts and claw back money from customers, are we going to see the next wave of problems for business users.

At the moment if a “material change” happens then suppliers reserve the right to recover any additional costs.

This situation we believe would be classed as a material change and as such suppliers are highly likely not to want to absorb these costs.

What does that mean for those fixed price customers that are currently shielded from the current record-breaking high prices for this winter?

Well, we are likely to see suppliers now unlocking fixed energy contracts to add in this unexpected new cost, rather than attempting to absorb this within the business.

It will further impact energy costs for everyone moving forward as the same cost has to be spread across less suppliers now.

We fully expect customers to start receiving notifications of these changes as soon as this week.


About Catalyst

Catalyst Digital Energy is an award-winning energy consultancy with a focus on digital energy services, total energy contract lifecycle management and energy management services. It is revolutionising how businesses manage energy with its unique Energy Spend Management Platform, which is powered by Robotic Process Automation (RPA) EaaSi®.

Catalyst is digitising all aspects of energy, including billing, data, consumption, spend, payments, procurement and emissions reporting. When combined with its fully funded renewable energy solutions, Catalyst offers a unique and powerful approach to managing energy.