The Renewables
Obligation explained...
What is the Renewables Obligation?
Why are we seeing an increase in
the cost of the RO?
The Renewables Obligation (RO) is a mechanism designed
to support large-scale renewable electricity generation.
Through the RO, the Government places an obligation
on all licenced electricity suppliers, like us, to source a
proportion of the electricity we supply to customers from
renewable energy sources. All suppliers in England, Wales
and Scotland are affected by the charge.
To help build a sustainable energy future we need to invest
in and support power plants that can generate renewable
energy, so we can hit ambitious Government climate
reduction targets. Due to this, the UK is generating much
more renewable energy than ever before, so the level of
supplier obligation and consequently the cost to you - as
our customer - has also increased. In the early years of
the RO, the charge was relatively stable and predictable.
However, future renewable energy sources, such as
generation plant conversions (eg fossil fuel to biomass)
and large offshore windfarm developments, have less
predictable capacities and delivery timescales, making
forecasting for future years difficult. The graphs below
show how quickly the RO charge has increased over the
last ten years and our predicted view for the next
three years*:
We meet our obligation by purchasing Renewables
Obligation Certificates (ROCs), either from renewable
generators or from the ROCs market.
The Department of Energy and Climate Change (DECC) sets
the RO obligation level each year; this dictates the number
of ROCs that suppliers - like us - are required to produce for
each MWh we supply.
*These are predictions only and were last made in December 2012.
Historic buy-out price and forecasts
Historic obligation level and forecasts
0.30
£50.00
£34.30
£35.76
2007
2008
£38.69
£33.24
2006
£36.99
£32.33
2005
2010
£31.39
2004
£37.19
£30.51
£30.00
£20.00
0.111
0.124
0.079
0.091
0.097
0.067
£25.00
£15.00
£10.00
RO level
RO level forecast
Source: RO levels - 2002-09 Ofgem, 2010-12 DECC, 2013-15 E.ON forecast
£/MWh
Buy-out price
2015
2014
2013
2012
£0.00
2011
2015
2014
2013
2012
2009
2008
£5.00
2006
2007
2004
2005
2002 0.030
2003 0.043
0.05
0.049
0.055
0.10
0.0
£/ROC
0.158
0.15
2010
2011
ROCs/MWh
£30.00
2002
2003
£35.00
0.20
2009
£40.00
£40.69
£45.00
0.25
Buy-out price forecast
Source: 2002-12 Ofgem, 2013-15 E.ON forecast
Helping our customers.
We’re on it.
A4FAQs/03/13
What has changed and how will it affect you as
our customer?
How is the Renewables Obligation charge
calculated?
To make it more flexible for our customers, we’re giving you
a choice of two ways to pay for the RO charge. When you
ask for an electricity quote from us, you can either:
The RO charge is calculated annually, from 1 April to 31
March (known as the compliance period) from
two elements:
•Pay the most up-to-date RO charge each month based
on what we know (the Government published rate). This
charge may vary from one April to the next, depending
on what the Government agrees to set the charge at.
Until recently, if you chose this option, we were only able
to reconcile this charge at agreed intervals (normally
every six months) and you were subject to a variation
clause in your terms and conditions. We’ve now changed
our systems so you’ll only pay the exact charge that the
Government sets. By choosing this option, you’ll also
start to see the RO charge broken down separately on
your bill so you’ll know how this contributes to your total
invoice amount. This is part of our drive to make things
clear and simple about how we charge our customers for
third party costs.
or
•Pay a fixed RO charge that won’t change for the length
of your contract. This fixed charge will include a premium
to cover the extra risk we’re taking on as a supplier, and
this charge will be included in your unit rate. By paying
this way you benefit from not receiving any unexpected
increases in RO charges and can manage your costs
more easily.
•Obligation level – the amount of expected renewable
generation as a proportion of overall electricity
generation within the compliance period, eg 0.158 ROCs
per MWh for 1 April 2012 to 30 March 2013.
•Buy-out price - the buy-out price is set by Ofgem and is
index linked to the Retail Price Index. The buy-out price
for 1 April 2012 to 30 March 2013 is £40.69 per ROC.
The charge is calculated as obligation level x buy-out price –
eg in the above example, 0.158 x £40.69, so the Renewables
Obligation charge for 1 April 2012 to 30 March 2013 is 0.643
pence per kWh or £6.43 per MWh.
Where can I go for further information?
More information is available on the following websites, or
alternatively, you can call your E.ON Account Manager.
DECC: Click here
Ofgem: Click here
Renewables Obligation Order 2009: Click here
The Renewables Obligation (Scotland) Order 2009: Click here
Helping our customers.
We’re on it.
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