Renewables Obligation

What are ROCs?

ROCs are a government scheme aimed at encouraging renewable energy generation across the UK. Generators and suppliers of electricity are involved in the scheme, which operates via a market mechanism, where certificates can be traded in order to meet government targets for generation. It is primarily aimed at medium to large scale businesses, but if you have a renewable generation system with over 50kW of capacity, you will be eligible to apply. The Feed in Tariff (FiT) is used to encourage uptake of small scale renewable installations.

How do they work?

The certificates are issued to generators for each unit of renewable energy they produce. The operators can then trade their certificates at the market rate, with energy suppliers then using the certificates to meet their ‘obligation’. Each year the obligation increases, with the current level meaning that 20.6% of generation must be met by ROCs, or by the ‘buy out’.

Where suppliers do not have enough ROCs to meet their obligation, they must pay a buyout price currently set at £42.02 per MWh (this increases annually in line with the RPI), or buy more ROCs from the market.

The buy out money collected by Ofgem (who regulate the scheme) from the suppliers is then redistributed in proportion to the amount of ROCs they produce, creating a ‘win-win’ for those suppliers that produce the most ROCs.

What is the value of a ROC and how does it vary?

The value of ROCs fluctuates with the market. If there is an excess of production in the market, the price would fall below the buyout price, whereas if there is a dearth of production, the price will rise above the buyout, as suppliers anticipate a windfall from defaulting suppliers having to make up their obligation with a large buy out.

Although there has been some variability in the price, generally the value of ROCs has stayed fairly steady just above the buy out price, and is currently sitting at around £43 per MW. This is partly due to the government ensuring that there is always a demand for ROCs by creating an artificial excess demand of 10%.

Who is eligible for ROCs?

Any company generating more than 50kW of renewable power is eligible to receive ROCs. Renewables covered under the scheme include: Anaerobic Digestion, Biomass, Hydroelectric (excluding some large scale installations), Tidal, Wind, Solar PV, Landfill Gas, Sewage Gas and Wave Power. Some technologies, although eligible, tend not to receive support due to the prohibitive cost involved.

Are all renewables treated equally?

Originally when the scheme launched more than 10 years ago, each type of renewable covered received 1 ROC per MW. This was to allow as free a market as possible for all technologies. There have been some tweaks over the years however, and now there are a few exceptions to this rule: Offshore wind in particular receives 2 ROCs per MWh, whilst Sewage Gas now only receives half a ROC per MWh. Solar also benefits more than other technologies, with roof mounted systems receiving 1.7 ROCs per MW and ground mounted 1.6 ROCs.

How do they compare with Feed in Tariffs?

Feed in Tariffs are much more straight forward, and are aimed at smaller generators (less than 5MW). They offer a guaranteed price for the energy produced, whereas ROCs can vary greatly from one time to another. They are fixed for 20 years and generally offer a greater return than ROCs. If you are eligible for both schemes, you will need to decide which one benefits you more, as you cannot receive both.

The future of ROCs

By 2017, ROCs will be phased out in favour of the Contract for Difference (CfDs), although a grandfathering scheme will mean that those who have already signed up will be allowed to choose whether to opt for the new scheme or stay on with ROCs.

The CfD scheme will include nuclear generation and carbon capture and storage, somewhat controversially. From mid 2014, new generating capacity will be able to apply for either scheme – you can read more about CfD here.

How do I apply for ROCs and how do I manage them?

An application can be submitted via the ‘Renewables and CHP Register’, where you will be expected to complete an application, make certain declarations, and submit monthly meter readings. The system also allows you to receive or transfer the certificates once accepted. Typically the ROCs are either auctioned to the highest bidder (with an administration fee), or a Power Purchase Agreement is made with a supplier.