RO mutualisation to return in 2018-19?
Wholesale Team Leader
As generators are receiving their final Renewables Obligation Certificates (Rocs) for generation during compliance period (CP) 17 (2018-19) of the Renewables Obligation (RO), eyes will soon be turning to suppliers regarding the upcoming compliance deadline this summer.
RO compliance hit the energy market headlines last year when 14 suppliers failed to meet their obligation for CP16 (2017-18). Suppliers can meet their obligations either by presenting Rocs or paying a buy-out fee. In CP16 the shortfall in payments totalled £58.6mn. This triggered mutualisation – a mechanism to recover a shortfall in RO buy-out payments above a certain threshold – and means that the rest of the supply market now needs to recover the money.
Regarding CP17, suppliers have a deadline of 1 September to meet their obligations through presenting Rocs. The RO target on suppliers for CP17 was set at 0.468 Rocs per MWh supplied in GB and 0.185 Rocs per MWh in Northern Ireland. With provisional figures showing that RO-liable electricity supply in the UK was around 273TWh in 2018-19, we anticipate the final number of Rocs suppliers will be required to present will be over 125mn, the highest ever under the RO scheme and equal to a total scheme cost of £5.9bn.
Suppliers will need to pay the buy-out price, set at £47.22 for CP17, for every Roc they are unable to source to meet their obligations. As there are not enough Rocs in the market for all suppliers to meet their obligations, we expect that suppliers could owe at least £780mn in buy-out payments, which will be due on 31 August 2019. But, as 11 suppliers have exited the market with supply volumes in CP17, it is expected that there will once again be a shortfall, already well in excess of £40mn assuming the debts remain unfulfilled and that there are no further exits. While this is smaller than the shortfall last year it will still trigger mutualisation again, and we forecast it will add around 15-20p per MWh to the consumer bill.
Our Chart of the Week highlights our current forecast shortfall in the CP17 buy-out fund, from our recently published Long-term Roc Market Forecast.This report forecasts Roc & recycle values, RO targets and consumer costs to 2026-27. Please contact firstname.lastname@example.org for more information.