Renewables Obligation

The Renewables Obligation ('RO'), requires electricity suppliers to source a proportion of the electricity they supply to UK customers from renewable sources (implemented via the Renewable Obligation Order 2002, which started in Great Britain in April 2002 and April 2005 in Northern Ireland) and which remained open to new projects until 31 March 2017. The most significant amendments to the scheme were made via a series of orders in 2006 which created 'banding', and in 2010 which extended the scheme to 2037 (2033 in Northern Ireland).

Ofgem are responsible for setting annual obligation levels. Electricity suppliers are required to comply with their obligation by either generating renewable power themselves, for which they are issued a ROC per megawatt hour of power generated, or they can purchase a ROC from a renewable power generator with surplus ROCs - and so the creation of the obligation creates a tradeable market for ROCs which flexes according to supply (generation) and demand (the obligation level to be met by a company). Those electricity generators that developed renewable generation projects during the running of the scheme had contracts for 20 years from the date of implementation - meaning the first projects in 2003 will be coming to the end of their arrangements in 2023, and the last projects implemented in 2017 will come to an end at the end of the scheme in 2037 (although some adjustments were made to solar power and wind power projects which were closed earlier).

In 2006 certain types of renewable project were given enhanced incentives to encourage their development and a banding was created. This was achieved by applying a multiplier to the ROC issued to the renewable project according to its desirability for the future UK energy mix (so that there was more, or less, than one ROC issued per megawatt hour of power generated). In the case of 'less desirable projects' the multiplier was structured to give less than one ROC per megawatt hour of power generated. As an example, conventional combustion technology was set at 0.5 of a ROC per megawatt hour, and Advanced Conversion Technology was set at 2 ROCs per megawatt hour. Additionally, the ROC could only be issued for that proportion of the waste that could be demonstrated as renewable, requiring extensive monitoring of the input tonnage and an annual report setting out the sustainability of the material - an Annual Sustainability Report. As an example an Advanced Conversion Technology that was taking mixed Residual Waste with 50% renewable content would be eligible for one ROC per megawatt hour (2 ROCs multiplied by 50%) having demonstrated the sustainability of the renewable/biomass content.

The Renewables Obligation approach was replaced in 2013 for new projects by Contract for Difference (CFD) - implemented under the Energy Act 2013. The first year of the new CFD regime ran from 2014, and for the period of overlap from 2014 to 2017 (the end of the RO) projects were able to apply for the Renewables Obligation route or the Contracts for Difference route.