The Renewables Obligation is the main financial mechanism by which the Government incentivises the building of large-scale renewable electricity generation. Ofgem issues Renewables Obligation Certificates (ROCs) to generators in relation to the amount of eligible renewable electricity they produce.
Generators sell these ROCs to suppliers or traders, which allows them to earn a premium in addition to the wholesale electricity price received for the electricity generated.
BEIS has outlined that electricity suppliers will need to produce 0.484 ROCs per MWh during this financial year across England, Scotland, and Wales.
This marks an increase of 3.4% from the 2018/19 Obligation, which was 0.468 ROCs per MWh. The new targets translate to an increase in the cost to consumers of an estimated £2.21/MWh from current levels.
Exemption for Energy Intensive Industries
BEIS established an exemption for Energy Intensive Industries (EIIs) from up to 85% of the indirect costs of the RO in 2017. This was implemented in England and Wales, then subsequently by the Scottish Government, meaning that under current arrangements there is a single obligation level for Great Britain.
The exemption means that the obligation level applies to:
- 100% of electricity supplied to non-EIIs
- 15% or more of the electricity supplied to EIIs
ROCs for biomass
New to the Renewables Obligation Order is the introduction of annual flexible caps on the number of ROCs that certain RO-eligible biomass co-firing and conversion units can receive.
The new regulation will define two types of generating stations – ‘capped’ and ‘mixed’ – to which the flexible cap mechanisms will apply. These stations will be subject to a different amount of ROCs that can be assigned.
Capped generating stations comprise only of non-grandfathered ‘capped’ units, whilst mixed generating stations comprise of these and also grandfathered ‘exempt’ units. A grandfathered unit is one that has a policy commitment to receive no less support under the RO than they have received historically. The cut-off date for grandfather biomass units was 12 December 2014. Any units that generated at the biomass conversion band after this date are not grandfathered.
At capped stations, there is a limit on the number of ROCs that the station can be issued in an Obligation year, equal to 125,000 ROCs for each unit at the station.
At mixed stations, an overall cap will be calculated by adding an allowance of 125,000 ROCS for each of the stations’ capped units to an estimate of the number of ROCS likely to be issued for generation at the exempt units during the Obligation year.
Currently, only Drax Power Station in Selby meets the BEIS definition of a mixed generating station for 2018/19.
How EIC can help
Our Market Intelligence team work hard to demystify the energy markets for clients. When these changes come into effect, we can ensure the accuracy of your energy bills by checking your invoices on an ongoing basis.
We can also provide actionable insights with our Long-term Price Forecast Reports which detail predicted rises for all commodity and non-commodity charges up to five years in advance.