RO mutualisation: what it is and what it means for your bills
2nd December 2020
The Renewables Obligation (RO) encourages investment in renewable generation sources. Introduced in 2002, the RO requires all energy suppliers to source an increasing proportion of their energy from renewable sources.
Energy suppliers fund the scheme but pay for it in arrears. This can sometimes leave a shortfall. Due to challenging trading conditions over the last two years, several energy suppliers have gone out of business.
These suppliers failed to meet their share of the RO for the latest reporting period, April 2018 – March 2019, leaving a shortfall. Ofgem divided this cost across all participating suppliers to cover the deficit.
Some Haven Power customers who are, or were, in contract for this compliance period - between April 2018 and March 2019 - will soon receive a bill for this charge.
What is the Renewables Obligation?
The Renewables Obligation (RO) requires energy suppliers to source a growing percentage of their energy from low carbon sources. Ofgem administers the scheme.
When an energy supplier buys power from an accredited generator, they receive Renewables Obligations Certificates (ROCs). ROCs are then presented to Ofgem at the end of the compliance period.
Suppliers can either present ROCs or pay a buy-out to meet their obligation. Ofgem fixed this for 2018-2019 at 0.468 ROCS per MWh of energy supplied, or at a buy-out rate of £47.22 per ROC.
Due to tougher trading conditions and suppliers going out of business, 17 suppliers failed to meet their obligation. This leaves a shortfall of almost £100m due to Ofgem.
What does “Mutualisation” mean?
Mutualisation is where Ofgem divides the RO shortfall amongst the remaining suppliers to cover the cost. Ofgem determine the cost for each supplier as a proportion or percentage of their ROC share.
Many suppliers - including us - pass these costs on to customers with contracts that pass through RO costs. We’ll do this by applying a one-off charge to affected customers’ bills.
For 2018/19, suppliers will pay their share of the £97.5m RO shortfall. Our share equates to £4.1m or 0.0219p/kWh.
Each supplier will pay its share in equal quarterly instalments, starting September 2020.
Why is the RO important?
The RO helps to support renewable energy generation, reducing the carbon intensity of the energy we use and creating a more sustainable energy infrastructure.
All suppliers will likely be passing on these costs to their customers. If you’re a Haven Power customer, look out for the latest communications from us or get in touch with your account manager today to find out more.
If you’d like to better understand how the RO and other non-commodity costs are calculated, you can download our 2020 guide to Third Party Charges (TPCs), which summarises all of the non-energy costs which are included in your energy bill.Download now
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