Explanatory note

This Order amends the Renewables Obligation Order 2015 (S.I. 2015/1947) (the “2015 Order”).

The 2015 Order imposes on all electricity suppliers licensed under the Electricity Act 1989 that supply electricity in England and Wales, an obligation (the “renewables obligation”) to produce a certain number of renewables obligation certificates (“ROCs”) in respect of each megawatt hour of electricity they supply to customers in England and Wales during periods known as “obligation periods”.

The renewables obligation is administered by the Gas and Electricity Markets Authority (“Ofgem”) which issues ROCs to accredited renewable electricity generators based on their output. These certificates are sold to electricity suppliers with or without the associated renewable electricity.

In lieu of each ROC, suppliers can also make a cash payment to Ofgem at a set price (the “buy-out price”). The buy-out price is indexed to inflation and has changed in line with the retail price index each year since the renewables obligation came into force. This Order provides for the buy-out price to increase (or decrease, as the case may be) in line with the consumer price index instead of the retail price index for all obligation periods from 1st April 2026 onwards.

The renewables obligation has a mechanism known as mutualisation which seeks to recover a shortfall of payments from suppliers if there is a payment default and the level of default is equal to or in excess of a threshold. There is a cap on the amount of mutualisation payments that can be made in respect of each obligation period (the “mutualisation cap”). As with the buy-out price, the mutualisation cap is indexed to inflation and has changed in line with the retail price index each year since the renewables obligation came into force. This Order provides for the mutualisation cap to increase (or decrease, as the case may be) in line with the consumer price index instead of the retail price index for all obligation periods from 1st April 2026 onwards.

A full impact assessment has not been prepared for this instrument because the Renewables Obligation scheme has been classified as a notional or imputed tax by the Office for National Statistics and is not a regulatory provision.