The RO requires electricity retailers -- known in the UK as suppliers -- to buy a percentage of their power from renewables. In the 2002/03 period, the RO target was 3% and will rise to 10.4% in 2010/11, with plans to raise it further to 15% by 2015. Suppliers demonstrate their compliance by submitting ROCs to demonstrate they have met their obligation by buying the required volume of green electricity. Alternatively, they can pay to "buy out" of their obligation. In 2002/03 the buy out penalty was £30/MWh, for 2003/04 it was £30.51 and Ofgem has just announced that in the current year it will be set at £31.39/MWh. Funds from the buy-out payments are shared among suppliers in proportion to their compliance with the obligation.
Nearly 50% of all ROCs in the first year were issued to landfill gas generators. Wind came next at nearly 20%, followed by biomass (11%), hydro (10%), co-firing of biomass (8%) and sewage gas (3%). A total 5,562,669 certificates were issued over all technologies, but this represents a 40% shortfall from the total size of obligation on suppliers to meet the 3% target, which was 9,261,568 MWh.
The report also shows that out of 38 supply companies in England and Wales, 12 met 100% of their obligation through producing ROCs, while nine suppliers opted to pay 100% buy-out. Most of the others met part of their obligation and bought out of the remainder. In Scotland, 16 out of a total of 28 suppliers met their obligation wholly through ROCs, with four paying 100% buy-out.
Seven suppliers failed to produce enough ROCs or make the full buy-out payment by the deadline. Five of these have agreed to make up their shortfall, but the remaining two companies -- TXU UK Ltd and Maverick Energy -- have both ceased trading. TXU went into administration owing £20 million in buy-out money. The company's administrators have agreed to make interim payments to cover some of the money owed and could make a further repayment out of any final distribution to TXU's creditors. No further money is expected from the £500,000 in buy-out owed by Maverick, which is in the hands of the receivers.
"Implementing the renewables obligation with all its complexities has been a challenge for Ofgem and has created a great deal of administrative, technical and legal work," comments Ofgem's Boaz Moselle.