The Renewable Obligation (RO) came into effect in 2002 in England, Wales and Scotland and in 2005 in Northern Ireland. It places an obligation on UK electricity suppliers to source an increasing proportion of electricity they supply to customers from renewable sources. Renewable Obligation Certificates (ROCs) are issued to operators of accredited renewable energy generating stations for the eligible renewable electricity they generate. Operators can then trade the ROCs with other parties, with the ROCs ultimately being used by suppliers to demonstrate that they have met their obligations.
Where suppliers do not have a sufficient number of ROCs to meet their obligation they must pay a set amount into a central fund at a pre-defined buy-out price which is increased annually by RPI. This provides investors in renewable generation with an inflation-linked, government-backed revenue component. The administration cost of the scheme is recovered from this fund and the rest is distributed back to suppliers in proportion to the number of ROCs they produced in respect of their individual obligation, creating an additional ROC recycle component to the price. The value of this recycle component will be the best estimate of the present value of the buy-out fund distributions. The ROC price at any point in time is therefore a function of the government determined buy-out price, plus the recycle value.
ROCs are not stapled to the power generation they relate to and therefore can be marketed as a separate commodity from any power sales, where doing so will create additional value for the Project. Currently legislation allows ROCs to be claimed for twenty years from the date of accreditation of the Project with the buy-out price providing a theoretical floor that is indexed annually by RPI. The RO is due to end for new projects in March 2017, to be replaced by Contracts for Difference (CfDs).
Region / Country: United Kingdom
