Renewables Obligation
03-06-08
Renewables Obligation - latest prices
This year's Renewables Obligation is set at 9.1% of electricity supplied.
The Non-Fossil Purchasing Agency has set a buy-out price of £35.76 per MWh for April 1, 2008 to March 31, 2009.
At its last quarterly ROC auction on July 8, 2008, 143,000 ROCs were sold at an average price of £53.27 per MWh. This was an increase on the £51.39 average seen in January 2008.
This requires electricity suppliers to source a growing percentage of the electricity they sell from renewable sources each year. In England and Wales, this obligation is currently to provide 7.8% of electricity from renewable sources in 2008, rising to 10.4% in 2010 and 15.4% in 2015.
Scotland has its own Renewables Obligation system, with targets to supply 18% of electricity from renewables by 2010.
Suppliers meet this obligation by purchasing renewable electricity from an accredited generator, along with a Renewables Obligation Certificate (ROC) for each MWh of energy purchased.
The system includes a cap on co-firing - the burning of biomass material along with fossil fuels in power stations - which effectively means co-firing ROCs have a different, lower price than regular ROCs.
The ROC demonstrates to Ofgem the supplier's compliance with their annual obligation to purchase renewable electricity. While the price of the renewable electricity remains pegged to the wholesale price of electricity regardless, the price of ROCs sold by generators is related to their availability compared to demand. If the UK is a long way off its annual renewable electricity targets, ROCs will be expensive, but if the UK is meeting or beating its annual targets, prices will be generally low.
The system has a built-in cap on ROC prices in the form of a "buy-out" mechanism. Suppliers unable to get their hands on sufficient ROCs to meet their annual obligation can pay a buy-out fee, set by Ofgem each year based on its forecast for the issuing of ROCs in each year.
The total buy-out fees gathered each year are then shared out among those companies presenting ROCs to Ofgem - acting as an incentive to companies to buy ROCs, rather than opt for the buy-out option.
RO Reforms
Total generation from RO eligible renewable sources was 4.4% of electricity sales in 2006, up from 1.8% in 2002. The government has said its current form is "unlikely" to meet UK renewables targets.
| Band | Technologies | Level of support (ROCs per MWh) |
| Established | Sewage gas; landfill gas; co-firing of non-energy crop (regular) biomass | 0.25 |
| Reference | Onshore wind; hydro-electric; co-firing of energy crops; EfW with combined heat and power; other not specified | 1.0 |
| Post- demonstration | Offshore wind; dedicated regular biomass | 1.5 |
| Emerging technologies | Wave; tidal stream; advanced conversion technologies (anaerobic digestion, gasification and pyrolysis); dedicated biomass burning energy crops (with or without CHP), dedicated regular biomass with CHP; solar photovoltaics; geothermal | 2.0 |
From April 1, 2009, this should provide more financial support to new and underdeveloped renewable energy technologies, and less support to commercially established technologies (see table on the right).
It will see cheaper, more commercially-established technologies like landfill gas issuing less than one ROC per MWh of energy they produce.
More expensive, less established technologies like gasification, tidal and offshore wind power will be able to issue more than one ROC per MWh of energy they produce. Effectively, companies would receive double subsidies to entice them to get involved in the newer or more costly technologies.
Existing renewables projects - and those that submit planning applications before the new system is introduced - will keep their existing ROC bandings under a "grandfathering" system until at least 2027.
After future reviews of the ROC bandings, technologies that have become more established could see their ROC subsidies reduced, but the grandfathering rules will mean existing installations will keep whichever ROC banding they had when they were built.
Other reforms to the system seek to cut red tape involved in ROCs, and reduce the risk of ROC prices collapsing at the end of an over-compliant year in order to reassure investors.
The Energy Bill will provide the enabling powers needed, with subsequent secondary legislation - the Renewables Obligation Order 2009 - laying out the details of the new banding system.
The government believes the reformed RO will cost the taxpayer £1.7 billion over the lifetime of the scheme, bringing in £3.6 billion of investment in renewable energy projects compared to doing nothing.
