Commons Library Analysis: Energy: The Renewables Obligation
The Renewables Obligation has provided financial support for large scale renewable electricity. Some elements of the scheme have already closed and it will close in 2017 as part of Electricty Market Reform, to be replaced by Contracts for Difference.
The Renewables Obligation (RO) was introduced in 2002 as a support scheme for renewable electricity projects. It provides participants with support per MWh of renewable electricity generated at a fixed rate for 20 years.
When is the scheme closing?The scheme is due to close to all new entrants in April 2017 and be replaced with Contracts for Difference. It has already closed to solar PV and onshore wind generation.
How does the RO work?The RO places an obligation on UK suppliers of electricity to get an increasing proportion of their electricity from renewable sources. Companies do this through purchasing a Renewable Obligation Certificate (ROC) issued to an accredited generator for renewable electricity generated. It is proof that a certain amount of electricity has been generated from a renewable source.
A renewable generator therefore has two sources of income: income generated from the sale of electricity to the wholesale market (which does not distinguish between renewable and non-renewable energy) and income from the sale of ROCs.
Originally, one ROC was issued for each megawatt hour (MWh) of eligible renewable output generated. Since April 2009, the RO has been banded to provide more targeted levels of support to different renewables, to reflect differences in technology costs and market readiness.
Since April 2010, Feed-In Tariffs (FITs) have been available for schemes of 5 MW or smaller, aimed at increasing microgeneration, and so schemes have had the choice of applying for either FITs or ROs (but not both).
The Commons Library briefing on feed in tariffs provides more information and the briefing Energy policy overview looks more broadly at current issues. Other briefings on energy matters are available on parliament’s topic pages for energy and climate change.