‘Unprecedented’ number of energy suppliers miss RO payments

An “unprecedented” number of energy suppliers have missed the deadline for making their Renewables Obligation Certificate (ROC) payments in full.

A total of 34 suppliers failed to meet their full obligations by the 1 September deadline, resulting in a combined shortfall of £102.9 million in the England and Wales, Scotland, and Northern Ireland buy-out funds (up from £18.7 million in 2017). This works out as an average of £3.02 million per supplier.

These suppliers now owe late payments, with interest, which are due by 31 October.

A letter from Ofgem to suppliers, seen by Utility Week, said the regulator is “concerned” to have seen an “unprecedented” number of companies deferring payments into the late payment period.

It said compliant companies may be forced to pick up the slack if late companies fail to meet their obligations by the late deadline, and this could lead to these non-compliant companies benefitting from “unwarranted financial gain”.

Failure to meet the late deadline could also mean renewable generators receive less income, as the “recycle value” of the ROC will be impacted. Although there is a £15 million mutualisation fund to protect renewable generators, it is likely that this year the mutualisation fund will be used up. In this instance, the shortfall will be covered by compliant suppliers and, ultimately, consumers.

In 2015/16, five suppliers made late payments, this increased to 21 suppliers in 2016/17. One industry source said there are some “relatively large” suppliers in the mix for late ROC payments. They told Utility Week they foresee a “bloodbath” in the small and mid-tier supplier space.

It is unclear what will happen if suppliers fail to meet the late payment deadline. The letter from Ofgem to suppliers merely states that any supplier to miss the deadline “will not have met its statutory obligation”. One industry source said that, in practice, this means the enforcement committee will sit and determine the action on a supplier-by-supplier basis.

Ofgem states that any company which fails to provide assurance that they will meet the late deadline could be referred for “formal investigation and enforcement sanctions”.

A spokesperson for Ofgem told Utility Week: “Suppliers who have missed their Renewable Obligation payments have until the 31 October 2018 to make the payment. 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 RO was introduced in 2002 (2005 in Northern Ireland) to support large-scale renewable electricity projects in the UK.

It requires licensed electricity suppliers to source a proportion of the electricity they supply to UK customers from renewable sources. These obligations are set as Renewable Obligation Certificates.

Suppliers could meet their obligations for 2017/18 by 1 September 2018 (31 August for buy-out payments) by either: presenting ROCs to Ofgem, making a buy-out payment of £45.58 per ROC, or using a combination of the two.

A market expert told Utility Week late ROC payments are an indication that they are under cash flow pressure, or they are under some form of other covenant – such as a banking covenant – which doesn’t allow such a large adverse one-off movement in the balance sheet.

Many small and mid-tier suppliers have struggled with tough market conditions. Two suppliers – Usio and Snowdrop Energy – have ceased trading in the last month alone.