An introduction to the Renewables Obligation
The Renewables Obligation (RO) came into effect in the UK in 2002, followed by Northern Ireland in 2005. The scheme was closed to all new generating capacity in March/April 2017.
The RO is designed to encourage licenced energy suppliers to source an increasing proportion of electricity from renewable sources. To achieve this, the RO requires electricity suppliers to present a specified amount of Renewables Obligation Certificates (ROCs) to Ofgem every year. The number of ROCs required is per MWh of electricity that the supplier has produced during the obligation period, which runs from 1 April-31 March.
To meet RO obligations, energy suppliers can present the stipulated number of ROCs to Ofgem. However, if a supplier does not have sufficient ROCs to meet their obligation, they can opt to make a payment to the buy-out fund. The price of this is also fixed per MWh and is adjusted in line with the ‘Retail Prices Index’ each year.
What are ROCs?
Renewables Obligation Certificates are granted to operators of certified renewable generation stations for the qualifying renewable electricity they produce. These operators can either trade ROCs with other entities or sell them directly to energy suppliers.
What impact has the Renewables Obligation had?
Since its introduction, the Renewables Obligation has played a crucial role in the growth of the UK’s renewable energy sector. Since the scheme began in 2002, renewable energy has increased from 1.3% to 23.5% of the UK’s electricity supply. This is a dramatic increase that the RO helped facilitate.
Encouraging investment in renewable energy
One of the primary impacts of the Renewables Obligation is how it has encouraged significant investment in renewable energy projects. By providing a long-term financial incentive for electricity suppliers to purchase ROCs, the RO reduced the financial risk for developers of renewable energy projects, making it easier for them to secure funding and invest in new capacity. This was particularly important for technologies like offshore wind, which were more expensive to develop in the early 2000s. The RO provided higher rewards (in the form of additional ROCs/MWh) for offshore wind and other emerging technologies.
Additionally, solar power saw rapid growth. Solar photovoltaic (PV) farms benefited from the certainty provided by the scheme, and large-scale solar installations became a key component of the UK’s renewable energy mix.
What are the cost impacts to consumers?
While the RO has been instrumental in driving renewable energy growth, it also had an impact on energy prices for consumers. The cost of purchasing ROCs, as well as the cost of integrating renewable energy into the grid, ultimately is passed on to consumers through their electricity bills. This led to some criticism of the scheme, particularly as energy prices rose in the 2010s.
However, as renewable technologies are becoming more cost-competitive, the long-term benefits of the RO are outweighing the initial costs. Over time, as renewable energy becomes a larger share of the energy mix, the cost of renewable electricity is expected to decrease further, bringing long-term savings for consumers.
Transition to Contracts for Difference (CfD)
Following the scheme’s closure to new entrants in 2017, the UK government introduced a new support mechanism for renewable energy – Contracts for Difference (CfD). CfDs offer renewable generators a guaranteed “strike price” for the electricity they produce, reducing market risk and providing long-term price certainty.
While CfDs have now become the primary support mechanism for new renewable projects, the Renewables Obligation continues to play an important role for projects accredited before 2017, which will continue to receive ROCs until the scheme is fully phased out in 2037.
Conclusion
The Renewables Obligation played a key role in shaping the UK’s renewable energy sector, driving investment and growth in technologies like wind and solar power. While it has now been replaced by the Contracts for Difference scheme, its legacy continues to influence the UK’s energy transition. As we move towards a net-zero future, understanding the impact and success of the RO helps illustrate how policy mechanisms can drive significant progress in the fight against climate change.
Renewables Obligation charges on your energy bill
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