Renewables Obligation shortfall unleashes millions in penalties

Renewable energy supply in the UK fell well short of government requirements, unleashing over £304 million in penalties that must be paid by electricity retailers. Under the Renewables Obligation (RO), retailers have to buy a rising percentage of their power from green sources or pay a penalty to "buy out" of their obligation. They fulfil their obligation by buying Renewables Obligation Certificates (ROCs); one ROC is equivalent to 1 MWh. In 2007-08, the RO required that 7.9% of electricity in England, Scotland and Wales come from renewable sources of energy and 2.8% in Northern Ireland. The price to buy out of the obligation was £34.30/MWh. According to electricity market regulator Ofgem, which administers the RO, out of a total obligation of 25.5 million ROCs, retailers presented only 16.5 million, a 35% shortfall. This meant they had to fork out a total £304.69 million in buy-out payments. Proceeds from the buy-out penalties are redistributed to retailers in proportion to their compliance with the RO; each received £18.59 for each ROC presented. In the current year, 2008-09, the RO stands at 9.1% in Britain and at 3% in Northern Ireland.