New RO ringfencing requirement for UK electricity suppliers

The requirement mandates suppliers to protect their RO by holding ROCs or preserving funds equivalent to the buy-out price of their obligation

Starting from the 2023/24 scheme year, licensed electricity suppliers in Britain are mandated to protect their Renewables Obligation (RO) through a process known as ‘RO ringfencing.’. 

This requirement obliges suppliers to fulfil their accruing RO by holding Renewables Obligation Certificates (ROCs) or safeguarding funds equivalent to the buy-out price of their obligation in an ‘RO Credit Cover Mechanism,’ or a combination of both.

The RO is a scheme supporting the deployment of renewable electricity generation in Britain and Northern Ireland, achieved through ROCs.

Licensed electricity suppliers must present a specific number of ROCs for each MWh of electricity supplied to customers during an obligation period.

Those failing to meet their obligation must make payments to cover the shortfall, contributing to the ‘buy-out’ fund.

If a supplier cannot meet its RO obligation due to insolvency or license revocation, a shortfall may occur in the buy-out fund.

Should this shortfall exceed a minimum threshold, the ‘mutualisation’ process is triggered, requiring other suppliers to cover it.

The additional costs incurred during mutualisation are typically passed on to electricity customers.

The RO ringfencing process, introduced for the 2023/24 scheme year, aims to ensure that suppliers protect their RO, specifically relating to domestic electricity supply volumes.

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