Renewables Obligation
Tuesday 03 June 2008
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. 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 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
ROC bandings in force (per MWh)
- Hydro-electric: 1
- Onshore Wind: 1
- Offshore Wind: 1.5
- Wave: 2
- Tidal: 2
- Solar Photovoltaic: 2
- Geothermal: 2
- Geopressure: 1
- Landfill Gas: 0.25
- Sewage Gas: 0.5
- Energy from Waste with CHP: 1
- Standard gasification: 1
- Standard pyrolysis: 1
- Advanced gasification: 2
- Advanced pyrolysis: 2
- Anaerobic Digestion: 2
- Co-firing of Biomass: 0.5
- Co-firing of Energy Crops: 1
- Co-firing of Biomass with CHP: 1
- Co-firing of Energy Crop with CHP: 1.5
- Dedicated Biomass: 1.5
- Dedicated Energy Crops: 2
- Dedicated Biomass with CHP: 2
- Dedicated Energy Crops with CHP: 2
- Microgeneration (under 50kW): 2
From April 1, 2009, a new system of "banded" ROCs came into effect (including in Northern Ireland), after ministers feared that newer technologies were not getting enough support compared to more established renewable energy technologies.
Cheaper, more commercially-established technologies like landfill gas now has to generate 4MWh of power before it can sell a ROC.
More expensive, less established technologies like gasification, tidal and offshore wind power can issue two ROCs per MWh of energy they produce - giving them effectively double subsidies.
Renewables projects built before the reforms came into force - and those that submitted planning applications before the new system was introduced - 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 were also brought in under the Renewables Obligation Order 2009, seeking 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.
But, although the government has now announced that the RO scheme will be extended through until 2037, a consultation will have to be carried out on this, which will form part of the 2010 Renewables Obligation Order.
