Ofgem has launched a consultation on addressing supplier payment default under the Renewables Obligation (RO) scheme in England and Wales.
Recently there has been an increasing number of electricity suppliers exiting the retail market and defaulting on their obligation under the RO scheme, which operates through a system of tradable green certificates called Renewables Obligation Certificates (ROCs).
Ofgem, the scheme administrator, issues ROCs to generators for the amount of renewable electricity generated and generators sell the ROCs to suppliers or traders, which gives generators a premium in addition to the wholesale price of their electricity.
Electricity suppliers are under an obligation to present a certain number of ROCs to Ofgem or make a fixed payment into a buyout fund in lieu of each ROC.
Cash payments are recycled to suppliers who met their obligation with ROCs, giving ROCs additional value. The cost of the RO to suppliers is passed on to consumers through electricity bills.
This consultation, which has been prepared jointly with BEIS, focuses on supplier payment default under the RO.
Defaults manifest as shortfalls in the buyout fund, with the scheme using a mutualisation mechanism to recover unpaid bills from other electricity suppliers once they exceed a threshold.
The threshold in England and Wales was recently increased to make it harder for mutualisation to be triggered, but this did not address the underlying causes of payment default.
The consultation considers the main options available for addressing it, through both legislation and the electricity supply licence, and qualitatively assesses the likely impacts of each.
It seeks the views of stakeholders on these options and their preferred way of proceeding.
Details on how to respond can be found on the Renewables Obligation (RO): addressing electricity supplier payment default under the RO scheme page and the Cornwall Insight report referred to in the consultation can also be found on the BEIS website.
The consultation ends on 9 November 2021.