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New RO buy-out price confirmed amid expectations of mutualisation for a second year

Tim Dixon Tim Dixon Team Lead
27th February 2019

Ofgem has published the Renewables Obligation Certificate (Roc) buy-out price and Mutualisation Ceilings for compliance period (CP) 18 of the scheme.

On 21 February it confirmed the buy-out price will be £48.78 per Roc, a 3.3% uplift on the previous year, in line with RPI inflation. This is the amount suppliers will need to pay for each Roc they do not present towards compliance with their 2019-20 obligation, in which the target has been set at 0.484 Rocs/MWh supplied in GB and 0.190 Rocs/MWh supplied for Northern Ireland.

To protect the integrity of the Renewables Obligation (RO), the mutualisation mechanism kicks-in where sufficient missing payments from suppliers creates a shortfall in the buy-out fund. This recovers the missing payments due to the buy-out fund from the remainder of the supply market, but the amount recovered cannot be in excess of the mutualisation ceilings, this is in order to protect customers.

Mutualisation will be triggered in the event that there is a shortfall in the buy-out fund of more than £16.94mn across England, Wales and Scotland. Mutualisation was triggered for CP16 (2017-18) with suppliers failing to make £58.6mn of payments towards the RO – 34 suppliers failed to meet the RO buy-out payment deadline of 31 August 2018, and 14 of these subsequently failed to meet the late payment deadline of 31 October, which then triggered mutualisation.

With 14 suppliers now having exited the market since the start of 2018, 10 of which had supply volumes in CP17 (2018-19), Cornwall Insight expects mutualisation to also be triggered for the current compliance period. Suppliers will need to meet their CP17 obligations by either making buy-out payments or presenting Rocs by 31 August and 1 September 2019 respectively. We expect, from suppliers exits to date, that the shortfall in the buy-out fund will be almost £45mn, and this money will once again need to be recovered by suppliers who met their RO.

Ofgem has also raised the mutualisation ceiling for the 2019-20 obligation period (CP18) to £293,831,481.82 in England and Wales and £29,383,148.18 in Scotland (mutualisation does not apply in Northern Ireland).

If you are interested in the Renewables Obligation, and the forecasting of Roc values, RO targets and consumer costs, please contact t.dixon@cornwall-insight.com.