Call for Evidence on introducing Fixed Price Certificates in the RO

On 31 July of this year, the Northern Ireland Executive, together with HM Government and the Scottish Government, issued a call for evidence on introducing Fixed Price Certificates (FPCs) in the UK wide Renewables Obligation (RO) schemes, as a replacement for the existing live-traded scheme (the Call for Evidence).

The RO has been a key driver in incentivising renewable electricity generation in the UK for more than twenty years and Northern Ireland introduced its own Northern Ireland Renewables Obligation (NIRO) scheme in 2005. The three schemes across the UK closed to new applications on 31 March 2017 with a limited grace period extending the deadline for certain projects up to 31 March 2019. The RO will close in its entirety in 2037.

The UK Government previously announced its intention to introduce a new FPC based scheme in England and Wales in 2027 and the purpose of the Call for Evidence is to obtain views on options for a future FPC scheme across all three jurisdictions (England and Wales, Scotland, and Northern Ireland). Responses are requested from anyone with an interest in the policy area, especially those currently in receipt of ROCs, electricity traders and suppliers, businesses operating in the energy sector, and consumers and environmental groups with an interest in the electricity sector.

FPC Scheme

Both proposed FPC models outlined in the Call for Evidence involve the appointment of a central counterparty.

In model 1, the counterparty has responsibility for paying generators for the certificates they have earned and settling suppliers’ obligations by collecting the funds owed, thereby removing the need to trade certificates, as required under the current system.

Model 2 proposes that the scheme administrator retains its current functions in issuing certificates to generators and confirming suppliers’ obligations and notes that the central counterparty’s role would be to purchase the certificates at a fixed price and levy suppliers according to their individual obligation. Trading of FPCs would still be allowed and the generators can either hold their certificates and sell them to the counterparty or decide to sell them to suppliers who could then sell on to the counterparty.

The UK Government has identified key potential benefits and drawbacks of the proposed FPC scheme, as follows:

Benefits

  • Price stability and, hopefully, a removal of generator vulnerability to price volatility
  • Reducing the risk of supplier payment default by enabling more frequent payments
  • Reducing the cost of the scheme by reducing or removing the in-built financial headroom required due to the scheme’s existing live-traded nature
  • Rebalancing electricity costs will be significantly easier once the trading element of the RO scheme has been removed

Drawbacks

  • Risk of short-term disruption for generators, suppliers and/or the scheme administrator i.e. Ofgem and the Utility Regulator
  • Design redundancies: upcoming new mechanisms may be sufficient to address supplier payment default and mutualisation and therefore rendering the FPC model redundant
  • Reduction in suppliers’ working capital due to more frequent settlements.
  • Reduction in scheme value (impacting generators), in part due to cost reduction opportunities such as new headroom and indexation arrangements.

Next Steps

The Call for Evidence closes on 9 October 2023 and asks respondents for their thoughts on the proposals outlined and to comment on what length of time would be reasonable to allow interested parties to make the adequate transitional arrangements.

Interested parties can respond at the following links and are asked to respond online, where possible.

Respond online at: https://beisgovuk.citizenspace.com/clean-growth/renewables-obligation-call-for-evidence

or

Email to: ro@energysecurity.gov.uk

The response form is available on the GOV.UK Call for Evidence page: www.gov.uk/government/consultations/introducing-fixed-price-certificates-into-renewables-obligation-schemes-call-for-evidence

For more information, please contact Niamh Collins, Associate or your usual Belfast Energy, Infrastructure & Natural Resources contact.

Date published: 18 September 2023.