What Is RO Mutualisation and What Does It Mean for Businesses?
This intel talks about Renewable Obligation (RO), RO mutualisation and what it means for you, the customer.
Before we explain what mutualisation is, here’s a brief explanation of why the Renewable Obligation (RO) exists: The Renewables Obligation (RO) is a UK government scheme to support the development of large-scale renewable energy generation, the obligation is needed in order to help meet the UK’s climate change objectives.
The Department of Energy and Climate Change (DECC) sets the RO obligation level each year – the Obligation periods run from 1 April to 31 March every year. This dictates the number of Renewables Obligation Certificates (ROCs) that suppliers are required to produce for each MWh supplied.
When a supplier buys power from an accredited renewable energy generator, they receive Renewable Obligations Certificates (ROCs). The suppliers then present the ROCs to Ofgem at the end of the compliance period.
It was introduced in 2002 but closed to all new generation contracts at the end of March 2017, and was replaced by the Contracts for Difference (CfD) scheme. However, existing RO contracts will continue to run until 2027.
RO charges for customers are charged monthly. The charge is based on the published rate for the applicable obligations period, either as a pass-through cost or consolidated in the overall supply rate for the contract period.
So what is RO Mutualisation?
RO Mutualisation is the difference between what has been paid and what is owed to Ofgem. However, because the shortfall still needs to be paid to Ofgem, the balance is split across suppliers who have already paid their portion for the relevant period. This means suppliers have to pay an additional amount.
For the fifth year in a row, RO mutualisation was triggered after numerous suppliers failed to meet their 2021-22 Renewables Obligations by the late payment deadline (31 October 2022). The shortfall for 2021-22 equated to £119.7 million, a decrease compared to the previous year’s £218.3 million. With many suppliers ceasing to trade there is a greater shortfall that needs to be met by a reduced number of suppliers.
What does this mean for customers?
Most, if not all, suppliers pass these charges on to the customer. This means customers with Pass Through or Flexible purchasing contracts, will see an increase to the RO portion of their energy bill as suppliers apply one-off charges to those contracts during the obligation period.
The impact of RO Mutualisation is different for every business. The charging methodology is a fixed pence per kilowatt hour of electricity used during the period. This could mean hundreds, thousands or even tens of thousands of pounds in additional, unbudgeted energy costs.
RO Mutualisation ceilings for 2023-24
Ofgem has confirmed that the mutualisation ceilings for the 2023-24 obligation period are £355,489,397.56 in England and Wales and £35,548,939.74 in Scotland. This is the maximum amount suppliers will need to pay back to Ofgem if RO Mutualisation is triggered.
If you’re a client and would like more information about the impact of the RO Mutualisation to your energy bills then drop us a message or contact your Account Manager directly.
Authors: Chris Bennett, Pricing Manager and Michele Martin, Head of Customer Experience
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