Renewables Obligation costs set to increase for consumers in 2017/18

The Government have just published the Renewables Obligation (RO) for 2017/18. Renewables Trader Vishnu Aggarwal explains how this will impact customer bills and the implications of the Energy Intensive Industries (EII) Exemption.

Each year, the Government calculates the amount of Renewables Obligation Certificates (ROCs) that suppliers need to procure based on the expected renewable generation and demand. This figure has just been released for 2017/18 (or Compliance Period CP16) and is 0.409 ROCs per MWh in England, Scotland and Wales, 17.5% higher than the 2016/17 rate.

Suppliers use this figure to set the RO costs that will need to be recovered from their customers. This is done by multiplying the expected ROC Buy-Out Price (currently £44.77, which increases year on year by RPI), by the obligation percentage. The Buy-Out price for CP16 ROCs will be officially confirmed in February and is based on annual change in RPI.

So what might this latest Government forecast mean for customer bills in 2017/18?

In short, this translates to an increase in the cost to customers. This is due to an increase in new generation capacity, demand erosion and inflation. And yet it may rise further still!

Following a Government commitment to reduce the energy costs for Energy Intensive Industries (EII), a consultation was released in April 2016 on implementing an exemption for EII from the indirect costs of RO and Small Scale Feed-in Tariff (FiT).

The proposed Exemption Scheme will mean EIIs will be exempt from paying up to 85% of the cost of the RO and FiT schemes, and the exempted cost would be spread across non-exempt consumers. If implemented, this would mean that most consumers would see an increase in their RO and FiT costs.

The exemption proposal has yet to receive state-aid approval and requires necessary legislative changes, so hasn’t been included in the published RO forecast from Department for Business, Energy & Industrial Strategy (BEIS). If the proposal is successful, the Government would recalculate the obligation percentage with their latest forecast of exempted volumes.

It is our understanding BEIS are seeking to have the necessary approvals and state-aid approvals prior to April 2017. Should this go through on this timetable we could see an additional 5% rise in costs of the RO and FiT from April 2017.

Clearly this could have a major impact, so we will continue to keep our customers updated on the most accurate view of RO costs.

We will be holding our next Non-Commodity Costs Forecast webinar on 9th November, so hope to provide more information in this session.

> Register for the webinar here