RO mutualisation avoided for first time since 2017

Ofgem has confirmed that for the first time in six years the mutualisation of missed Renewables Obligation (RO) payments will not take place.

The energy regulator has revealed that for the 2022-23 obligation year, four unnamed suppliers failed to meet their total obligations by the 1 September deadline, resulting in a combined shortfall of more than £7.2 million in the buy-out funds. These suppliers consequently owed late payments.

The breakdown of the shortfall by jurisdiction was:

• England & Wales – £6,849,226.56
• Scotland – £374,390.40
• Northern Ireland – £0.00

While Ofgem has not yet revealed how much of the shortfall was paid by the 31 October late payment deadline, it has confirmed that the shortfalls in the buy-out funds were below the respective mutualisation thresholds of £65.8 million for England and Wales and £1.5 million for Scotland and that as such, mutualisation has not been triggered.

This year’s figures are in stark contrast to those revealed in 2022 when mutualisation was confirmed for the fifth consecutive year days after the regulator revealed that 36 retailers, most of which were no longer active in the market or were insolvent, left a £163 million shortfall in the RO buyout funds.

Ofgem recently redistributed the RO buy-out fund for 2022-23.

Suppliers that presented ROCs towards their obligations received buy-out fund recycle payments on 19 and 31 October. Suppliers received approximately £6.81 for each ROC they presented.

The deadline for suppliers to make late payments was 31 October and Ofgem will redistribute them before 1 January 2024. This will include interest paid by the suppliers at an annualised rate of 10.25% (5% + Bank of England base rate as of 1 September). When the regulator redistributes the late payments, it will also confirm the final recycle value, which will include an extra amount on top of the £6.81 per ROC.

RO mutualisation was confirmed for the first time in late 2018 after an “unprecedented” 34 suppliers had missed the 1 September deadline for meeting their obligations and collectively owed almost £103 million in buyout payments.

It was subsequently triggered in every scheme year up until now.

The subject has been a source of major contention in the energy sector, with compliant suppliers having to pick up the costs for those who are not.

Last year a High Court judge ordered failed energy retailers to hand over unpaid RO payments to Ofgem in what the regulator labelled a “significant outcome”.

The case was brought by the administrators and liquidators of Igloo Energy, Economy Energy, Green Supplier, PFP Energy, Utility Point, Peoples Energy, Avro Energy and Neon Reef and sought to determine whether insolvent retailers are liable for monies owed both via the RO and customer credit balances.

Mr Justice Zacaroli ruled that Ofgem is a creditor of these companies for liabilities due under the RO and that it can therefore claim for owed payments from the insolvent estates.