[February 2006]  J.A Chappell, Managing Director, PRC Energy Ltd.

This article provides an overview and an update on the Renewables Obligation Order (ROO), which is one of the key elements of legislation that has been introduced by the Government to encourage the development and production of renewable electricity supplies.

The ROO was introduced in April 2002 as legislation enacted under the 1989 Electricity Act, after an extensive period of consultation by the Government. The principle of the effect of the ROO has been to place an obligation on electricity suppliers to ensure that a proportion of the electricity that they supply is from certified renewable sources. The proportion of the supply to be provided started at 3.0% in 2002, rising to 6.7% for the current year 2006/07; with the proportion set at 15.4% by 2015.

In the event that suppliers can not demonstrate that they have supplied electricity from a renewable source then they pay a penalty (the Buyout Price) which is pre-set each year into the Buyout Fund which is administered by Ofgem (the Power and Gas markets regulator for the UK). This fund is then recycled back to the holders of the Renewable Obligation Certificate (ROC) who invariably are the generators, who have produced the renewable electricity. Thus over the past few years a market has developed for the trading of ROCs; and thus in a market where the supply of ROCs is “short” then the value of a ROC can be significantly higher than the buyout price. It is through this market mechanism that an incentive is provided to generators to produce renewable electricity.

In the recently published energy review consultation document “Our Challenge” published by the DTI; the proportion of renewable electricity currently generated is quoted at 4% where the sources for this renewable generation capacity are illustrated in the figure below:



The above figure shows the total amount of ROCs produced in England and Wales (ROCs) Scotland (SROCs) and Northern Ireland (NIROCs) from April 2004 to date; where one ROC has been issued for each qualifying MWhr of renewable electricity generated. It can be seen that the largest contributors are landfill gas and co-firing of biomass in coal fired plants.

In the most recent review of the ROO, a number of changes have been proposed by Government with purpose of refining how the legislation operates and to provide some further incentives for the production of renewable electricity. These changes include: 

• The inclusion of good quality CHP plants (per the CHPQA definitions) using a fuel derived from a waste stream. Thus, if the waste stream contains a portion of biomass, then ROCs in proportion to the energy content of the biomass element used to produce the electricity are generated. 
• The relaxing of the 98% biomass purity rule to a proposed 90% limit to encourage further biomass streams, such as waste wood (that could otherwise have been land filled) into the biomass fuel supply chain. 
• A reduction in the support for new landfill gas projects after 2009 as the generation technology is viewed as being sufficiently mature not to require additional economic support from the ROO.

Thus with an “aspirational” Government target set at 20% of our electricity supplies to come from renewable sources by 2020; and with the current level of renewable electricity supplies produced at a fraction of this, the Renewables Obligation Order certainly presents a number of challenges (and opportunities!) for the UK’s Power Industry as a whole.

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