Quarterly RO payments could have reduced mutualisation bill by 67%

More frequent payments into the Renewables Obligation (RO) scheme could have resulted in a reduction of £145 million to last year’s mutualisation bill, according to calculations by SSE.

In 2021 a total of 28 suppliers, the vast majority of which had exited the market, left more than £218 million in RO payments to be picked up by the rest of the industry.

The figure constitutes the largest ever amount to be mutualised under the scheme. It is more than six times larger than the 2019/20 period and more than double the previous record amount of £97.5 million set in 2018/19.

RO mutualisation has long been a source of contention in the sector, with compliant suppliers having to pick up the tab for businesses which, in some cases, leave the market owing millions. The money is partly absorbed by the retailers themselves, and partly recouped from consumer bills.

Last year the government issued a consultation exploring ways to address supplier payment default. One of the solutions being considered is the introduction of quarterly, rather than annual, payments.

Nikki Flanders, SSE’s managing director for energy customer solutions, said the company had calculated that the mutualisation bill for 2020/21 could have been reduced by as much as 67% had quarterly payments been a requirement.

SSE’s modelling accounted for suppliers failing with a smaller obligation because quarterly settlement would mean they were more up to date with RO payments at the point of failure, as opposed to having a year’s worth of payments outstanding.

Speaking to Utility Week, she said: “If we have more frequent settlement of the RO payments than the current annual process, we are going to encourage better business practices.

“If payments had been quarterly and we apply what has happened in terms of recent past mutualisations, our internal modelling shows the shortfall would have been reduced by £145 million to around £73 million for the 2020/21 year.”

Dangerous and misleading

Flanders also highlighted concerns about the debate around rising energy bills sparking resentment at spending on renewable generation.

She said: “While obviously it’s right that attention is on the near term, there’s an unhelpful narrative out there in terms of solving current issues or having renewables. Pitting these two against each other is actually pretty dangerous and misleading.

“Our CEO has pointed out that the contracts for difference (CfD) scheme is actually really beneficial to domestic and business customers alike.

“One example he gave is of Dogger Bank, if that had been operational through the winter, £1.6 billion would have been taken off bills this winter alone.

“We need to continue investing in renewables and reduce reliance on wholesale gas.”