Suppliers still owe over £50m in outstanding RO payments

Suppliers still owe more than £50 million in outstanding Renewables Obligation (RO) payments for 2017/18, Utility Week understands.

An industry source has said some struggling firms may be using the missing money to help keep themselves afloat.

The RO scheme requires suppliers to buy a certain percentage of the power they sell to customers from renewable sources.

Accredited generators receive a set number of Renewable Obligation Certificates (ROCs) for each megawatt hour they produce, with the rate depending on a number of factors including technology type. They can then sell these certificates to suppliers.

Suppliers must present enough ROCs to Ofgem each year to demonstrate they have met their yearly obligation and make up any difference with buy-out payments. These payments are first used to cover the administration costs of the scheme, with the rest being returned to suppliers in proportion to the number of ROCs they submitted to Ofgem.

The buy-out rate for 2017/18 was set at £45.58 per ROC.

Last month it was revealed an “unprecedented” 34 suppliers had missed the 1 September deadline for meeting their obligations, and collectively owed almost £103 million in buy-out payments.

They had until Wednesday (31 October) to make late payments, including interest.

However, an industry insider told Utility Week: “There are a number of suppliers who haven’t paid, and more than half of that ROCs bill is outstanding.

“The challenge that suppliers have is if they have been unable to pay this year’s ROCs bill it also means they will have a difficult time paying next year’s bill.”

They also said that suppliers who are unable to make the payments may have been using the money to “fund their working capital”.

Another industry source suggested the amount still owed could be as high as £70 million.

If the outstanding payments following the final deadline exceed a certain threshold known as the relevant shortfall, a process called mutualisation is triggered. The relevant shortfall is £15.4 million for England and Wales and £1.54 million for Scotland.

Suppliers who met all or part of their obligation must together fill the gap over four quarterly payments, with the combined bill being capped by a mutualisation ceiling. The ceiling for 2017/18 has been set at roughly £275 million for England and Wales and £27.5 million for Scotland.

The charges for each individual supplier are calculated on the basis of their obligation as a share of the total obligation for the year in question, taking into account that failed suppliers cannot contribute.

The money collected, including any interest accrued, is redistributed to suppliers in proportion with the number of ROCs they presented to Ofgem, again in four quarterly instalments. Those which have failed to meet their obligation in full are not entitled to receive any payments.

Although there is no mutualisation process if a shortfall occurs in Northern Ireland, suppliers in the region do still receive proceeds if it is activated elsewhere in the UK.

To date, the process has never yet been triggered. A number of suppliers are believed to be considering taking legal action against Ofgem if this happens.

Its unclear what consequences will be faced by suppliers which did not meet the final payment deadline.

An Ofgem spokesperson previously told Utility Week: “If they fail to do so, they will be in breach of the Renewables Obligation Order 2015 and Ofgem will consider what steps to take.”

The regulators in Great Britain and Northern Ireland both have the power the impose financial penalties for non-payment.