Renewables Obligation Certificates (ROCs) Explained.

The Renewables Obligation (RO)[1] is designed to incentivise the generation of electricity from eligible renewable sources in the United Kingdom. It was introduced in England and Wales and in a different form (the Renewables Obligation (Scotland)) in Scotland in April 2002 and in Northern Ireland in April 2005.

The RO places an obligation on licensed electricity suppliers in the United Kingdom to source an increasing proportion of electricity from renewable sources. In 2006/07 it is 6.7% (2.6% in Northern Ireland). This figure was initially set at 3% for the period 2002/03 and under current political commitments will rise to 10.4% by the period 2011-12, then by 1% annually for the five years following.

Suppliers meet their obligations by presenting Renewables Obligation Certificates (ROCs). Where suppliers do not have sufficient ROCs to cover their obligation, a payment is made into the buy-out fund. The buy-out price suppliers pay is a fixed price per MWh shortfall and is adjusted in line with the Retail Prices Index each year. The proceeds of the buy-out fund are paid back to suppliers in proportion to how many ROCs they have presented. For example, if they were to submit 5% of the total number of ROCs submitted they would receive 5% of the total funds that defaulting supply companies pay into the buy-out fund.

Obligation periods run for one year, beginning on 1 April and running to March 31st. Supply companies have until the 31 September following the period to submit sufficient ROCs to cover their obligation, or to submit sufficient payment to the buy-out fund to cover the shortfall.

The cost of ROCs is effectively paid by all electricity consumers, since electricity suppliers pass this cost on as a small increase in the tariff for the electricity they sell. One ROC is issued for each megawatt-hour (MWh) of eligible renewable output. ROCs are issued into the ROC Register and so are electronic certificates.