Consultation on addressing supplier payment default under the Renewables Obligation

Overview

The Renewables Obligation (RO) scheme in England and Wales supports the generation of renewable electricity. It operates as a market-based mechanism through a system of tradable green certificates called Renewables Obligation Certificates (ROCs).

ROCs are issued to generators free of charge by the scheme administrator, Ofgem, in relation to the amount of renewable electricity they generate. Generators sell the ROCs to suppliers or traders, which gives generators a premium in addition to the wholesale price of their electricity. Electricity suppliers are under an obligation to obtain and present a certain number of ROCs to Ofgem, or instead make a fixed payment into a cash payment fund in lieu of each ROC. Cash payments are recycled back to suppliers who met their obligation with ROCs, so giving ROCs additional value. The cost of the RO to suppliers is passed on to consumers through their electricity bills.

In recent years there has been an increase in the number of electricity suppliers exiting the retail market and defaulting on their obligation under the RO. Defaults manifest as shortfalls in the cash payment fund. The scheme features a mutualisation mechanism which seeks to recover unpaid bills from other electricity suppliers once they exceed a threshold. Government recently increased the level of the mutualisation threshold in England and Wales to make it harder for mutualisation to be triggered, but this did not address the underlying causes of payment default.

This consultation, which has been prepared jointly with Ofgem, considers the main options available for addressing supplier payment default, through both legislation and the electricity supply licence, and qualitatively assesses the likely impacts of each.

Why your views matter

We are seeking:

• Your views on the options for addressing supplier payment default, and your preferred way of proceeding; and

• Your initial views on the introduction of a fixed price certificate based scheme as a way of addressing supplier payment default.

Read the consultation document on GOV.UK.

What happens next

The Government and Ofgem will give careful consideration to all the responses received before it publishes a decision on how to proceed.