Ofgem increases RO mutualisation thresholds

The mutualisation threshold for the Renewables Obligation (RO) scheme has been set at more than £72 million in England and Wales for scheme year 2023/24, Ofgem has confirmed.

The RO requires licenced electricity suppliers to source a proportion of the electricity they supply to customers from renewable sources. Suppliers must present enough RO Certificates (ROCs) to Ofgem each year to demonstrate they have met their yearly obligation and make up any difference with buyout payments.

Under the scheme retailers are obliged to present their obligations by 1 September, with those who miss the deadline having to make late payments by 31 October. Any payments still owed after this point and above the relevant thresholds will be mutualised.

Each year Ofgem updates the buyout price and mutualisation ceilings to reflect the average monthly percentage change in the Retail Prices Index (RPI) during the previous calendar year. According to figures from the Office for National Statistics, the average RPI percentage change during the 2022 calendar year was 11.6%.

Ofgem has confirmed that the buyout price for the 2023/24 obligation period is £59.01 per ROC, a significant jump from the previous period’s buyout price of £52.88.

Meanwhile the regulator has confirmed the mutualisation ceilings are £355.5 million in England and Wales and £35.5 million in Scotland (mutualisation does not apply in Northern Ireland).

Ofgem also updates the mutualisation thresholds annually, but this is based on the value of the scheme.

For England and Wales, the total mutualisation threshold for 2023/24 will be £72.2 million. In Scotland, this will be £7.2 million.

Mutualisation has been a contentious issue in the energy sector in recent years, with compliant suppliers having to pick up the costs when other retailers fail to pay.

Earlier this year Utility Week reported that Ofgem has only managed to redistribute £3.7 million in RO funds from failed energy suppliers in a period which saw half a billion pounds picked up by the rest of the market.

Since 2016 the regulator has recovered late payments from just four suppliers overall, with the vast majority (£3.4 million) coming from GB Energy, which left the market owing £7.1 million.

Mutualisation was first triggered in 2018 and has occurred every year since. In total £527 million was owed by retailers, many of which have exited the market.