Renewable Energy Certificates explained
First up, an apology – we’re going to use a few acronyms. They come with the territory but we’ll explain each one.
There are three types of renewable certificates in the UK: LECs, ROCs and REGOs. You’ll get them when your installation is accredited with Ofgem through their Renewables and CHP Register. LECs and ROCs have a cash value to you and REGOs help suppliers tell their customers where their energy has come from.
Renewable Obligation Certificates (ROCs)
ROCs are a key part of the Renewables Obligation scheme and are useful to suppliers who are incentivised to support the growth of renewable generation.
The number of ROCs you receive for each MWh of electricity you produce depends on the technology (wind, solar PV, anaerobic digestion etc.) of your generation asset and when it was built. This is called ROC banding and helps promote newer technologies which receive more support with multiple ROCs per MWh.
You can bundle your ROCs with the power you are selling in one Power Purchase Agreement (PPA), or sell the certificates separately in a stand-alone contract by entering into a ROC Trading Master Agreement (RTMA). We offer contracts lasting from one month to five years. Choose from three main pricing options to fit your appetite for risk and exposure to the variable recycling fund payment along with how you’d like to be paid:
- a fixed price gives you budget certainty and improved cash flow
- a percentage share option (Buyout Price / Recycling Value) can be a good choice for generators looking to achieve a better return over the longer term and who are less focused on cash flow certainty
- the processing fee (per ROC) option is similarly a good choice for generators looking to achieve a better return over the longer term. This is a two-stage ROC payment consisting of the Buyout price less a processing fee and the Buyout fund.
Register your generation asset with Ofgem and provide meter readings to receive ROCs digitally if your installation meets Ofgem’s requirements
Levy Exemption Certificates (LECs)
LECs are given to accredited renewable energy generators. They are valuable because businesses can buy them rather than pay the Climate Change Levy (CCL), which is a tax on business to reduce energy consumption and encourage renewable energy use
- You receive 1 LEC per MWh of renewable electricity
- LECs have to be sold with the accompanying power but you can choose when they’re sold and how you’d like to be paid.
Renewable Energy Guarantees of Origin (REGOs)
REGOs show electricity has been generated from renewable sources. Electricity suppliers use REGOs to demonstrate to customers the renewable content of electricity they’ve supplied each year.
- You’ll receive one REGO per MWh of electricity you generate
- You can’t sell REGOs. They have no cash value and are included with the electricity you sell
Register your generation asset with Ofgem and provide meter readings from your generation meter according to its guidance (.pdf).
Changes are under way in the UK electricity market to ensure there are future supplies of secure and affordable low carbon electricity. One change will see Contracts for Difference (CFD) gradually replace the Renewable Obligation (RO) scheme.
How this affects low carbon generators
The RO will continue to operate until 2037 for those already registered, but from 2017 new installations can only join the CFD scheme.
And from 2017, the Capacity Market becomes an alternative option for generators that can control when they generate and produce electricity when the system is under stress. And we do mean alternative. You can’t participate in the Capacity Market if you’re already registered in the FIT, RO or CFD schemes.
How CFDs work to support renewable generators
CFDs incentivise investment in new low carbon electricity generation by reducing the risk and cost of investing.
They overcome the issue that electricity prices are hard to predict over the life of a low carbon power plant. A CFD sets an agreed fixed price – called a strike price – for 15 years to reduce uncertainty about volatile wholesale prices and encourage long-term investment.
A strike price works this way. When the market rate for electricity falls below the strike price, generators are paid from a fund, run by the Low Carbon Contracts Company. When the rate exceeds the strike price, generators pay back into the fund.
We are ensuring our contracts, processes and systems are ready for CFDs from April 2015.
Even if your renewable energy project is still a twinkle in your eye, you can begin thinking about how you could produce and sell your energy for the best returns
First ask yourself: how big are my plans? Because until you have a commissioning date, your project’s size (or installed capacity as we call it) is the best pointer towards how to sell what you produce in future.
- If you are building on a commercial scale (typically more than 1-2MWs), the Renewable Obligation (RO) scheme or Contracts for Difference (CFD) (starting in April 2015) scheme could offer the best rewards. You’ll need a Power Purchase Agreement (PPA) to sell through these schemes.
- Watch the film that explains PPAs.
- Is it a small installation, under 250kW? Then Feed-in-Tariffs (FITs) are probably a better option for you.
- Read how we can help you benefit as a FITs generator
- More information on Power Purchase Agreements
You’ll need to opt out of receiving the FIT Export Payment, but this may be more beneficial to you. Your PPA would be a separate agreement to your FIT contract and you can continue to receive your FIT Generation Payment through your existing FIT supplier.