Renewable Obligation updates and how they impact your business

Your Renewable Obligation (RO) – helping to build our low carbon future.

RO is one of the non-energy costs that make up your business’s energy bill. It goes towards supporting large-scale renewable electricity projects in the UK. At the end of September, the government published the Obligation Level (OL) of the RO scheme for the 2018/19 period and it’s higher than anticipated.

Read on for info on what these changes are, how they’ll impact your energy bill and what you can do to manage your non-energy costs. .

How your RO is calculated

The Renewable Obligation represents the percentage target of eligible demand supplied in Great Britain, backed by Renewable Obligation Certificates (ROCs). ROCs are certificates issued to operators of accredited renewable generating stations for the eligible renewable electricity they generate. Operators can trade ROCs with other parties. ROCs are ultimately used by suppliers to demonstrate that they have met their obligation. It’s expressed in ROCs/MWh or in % of the national demand.

The Obligation Level is the main driver of the RO cost and is confirmed at the end of each September for the following charging year starting 01 April. Prior to this annual announcement suppliers need to forecast what this percentage will be based on what they believe the government’s view will be on some key variables such as:

-  the assumed installed capacity of various renewable technologies in the country

-  the assumed seasonal normal load factors for these technologies and, of course

-  the forecast of eligible demand in the country (the eligible demand is the national demand from which is subtracted any exemption such as Energy Intensive Industries (EIIs).

What are the changes for 2018/19?

The Obligation Level published by the Department for Business Energy Innovation and Strategy (BEIS) for the 2018/19 year is higher than we anticipated, set at 0.452 ROCs/MWh (or 45.2%) when considering the total national demand. The main reason behind this increase is the higher installed capacity of biomass technology assumed by the government.

It has not yet been confirmed whether EIIs will be exempt from paying some of the RO costs next year however we currently expect this will be the case.  BEIS have indicated that the equivalent obligation level without EIIs would be 0.468 ROCs/MWh (or 46.8%) and this is what we have used to form the basis of our latest best view for the 2018/19 period. This gives an RO cost of £22.11/MWh for the year starting in April 2018.

We have also updated our cost forecast for further years, considering that the increase in biomass capacity will impact all future periods. You can view our forecasts on NEC costs in our next issue of Monitor due out on 30 November. Sign up to Market Insight to read this and previous issues 

If you’re a Pass-through customer…

The increase in Obligation Level means that the cost of the RO scheme is now expected to be higher, and if your current contract permits, it is highly likely that you will see the impact as part of your reconciliation process.

However, if your business qualifies as part of an Energy Intensive Industry (EII), you will be partly protected against this increase should BEIS decide the exemption applies.

If you’ve fixed your Non-Energy costs…

Good news if you’re on EDF Energy’s Peace of Mind contract or one of our alternatives, or have taken the decision to fix your Non-Energy Costs on products as you will not have to worry about any further increases relating to this change.

Next steps

BEIS plans to publish a revised Obligation Level for both 2017/18 and 2018/19 periods by the end of the year. This revised obligation will take into account EII exemptions, which government is likely to implement from the 1st of March 2018, subject to parliamentary approval.

Forewarned is forearmed: how to keep up with Non-energy (NEC) costs

With NEC’s forecast to make up over 60% of your bill over the next decade it’s worth keeping an eye on them. Here’s our key advice for staying on top of them.

1/ Keep an eye out for news from BEIS announcing the revised Obligation Level and approval process for EIIs exemptions –  sign up to our Market Insight service for regular updates on all the costs that make up your bill.

2/ Check your company’s current electricity tariff to find out how your supplier treats changes like these – especially if they promised you a fixed price when you signed.

3/ Check your T&C’s- some tariffs include terms and conditions that let your supplier increase your bill amount to recover unforeseen costs. No supplier can promise a rate that stays fixed under absolutely all circumstances, but the terms and conditions should be clear about when and why your rate can change. View our fixed tariffs 

4/ Check the status of your EII - simply call your supplier or energy broker and ask how the EII exemption will affect your business.

5/ For more about the different costs in your bill and what they pay for, take a look at our cheat sheets for non-energy and power costs.

For regular updates on developments like this and their effects on your bill, sign up for our Talk Power updates, events and webinars. You can also log in to or register for our Market Insight service to read Monitor, our quarterly publication on NEC costs. The next issue of Monitor is due out at the end of November.


 

Bio

Posted by Glenn Lamotte

Senior Manager of Market Analysis at EDF Energy.

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