Renewable Obligation Certificate
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| Renewable Obligation Certificate | |
|---|---|
| Name | Renewable Obligation Certificate |
| Introduced | 2002 |
| Country | United Kingdom |
| Administered by | Office of Gas and Electricity Markets |
| Related legislation | Electricity Act 1989 |
| Status | partially closed to new entrants (from 2017) |
Renewable Obligation Certificate The Renewable Obligation Certificate is a market-based instrument introduced to incentivize electricity generation from renewable energy sources in the United Kingdom. It operated alongside statutory instruments such as the Electricity Act 1989 and regulatory bodies including the Office of Gas and Electricity Markets to drive investment in technologies like wind power, biomass, solar power, and hydroelectricity. The scheme intersected with policy frameworks overseen by the Department for Business, Energy and Industrial Strategy, regional administrations such as the Scottish Government and the Welsh Government, and grid operators including the National Grid (Great Britain).
Overview
The Renewable Obligation Certificate mechanism required electricity suppliers to present tradable certificates proportional to the volume of eligible generation, enforced by the Electricity Act 1989 compliance provisions and monitored by the Office of Gas and Electricity Markets. It sat alongside instruments such as the Contracts for Difference (CfD), the Feed-in Tariff Scheme, and the Carbon Reduction Commitment and was administered with interaction from entities like the Balancing and Settlement Code Company and the Elexon. The scheme aimed to accelerate deployment of technologies exemplified by projects at Orkney, Shetland, Drax Power Station, and the London Array.
History and Development
The policy was announced following energy reviews influenced by debates in the House of Commons and legislation introduced during administrations led by Tony Blair and Gordon Brown. Initial implementation through the Public Electricity Suppliers framework reflected precedents set by renewable portfolio initiatives in jurisdictions such as California and Denmark. Subsequent modifications were shaped by consultations involving the Institution of Mechanical Engineers, the Royal Society, the Committee on Climate Change, and stakeholders including RenewableUK and the Confederation of British Industry. Devolved considerations led to variations in support across Scotland, Wales, and Northern Ireland, while market realities prompted policy shifts under ministers such as Chris Huhne and Ed Davey.
Mechanism and Operation
Eligible generators received certificates for each megawatt-hour of electricity delivered to the electricity transmission and distribution systems, tracked through systems interfacing with the Balancing Mechanism and settlement arrangements managed by Elexon. Suppliers had annual compliance obligations enforced via the ROO (Renewables Obligation Order) and could discharge shortfalls by paying into a buy-out fund administered by the Office of Gas and Electricity Markets. The buy-out fund redistribution mechanism returned funds to compliant suppliers proportional to submitted certificates, creating secondary markets involving brokers, exchanges, and traders operating in venues similar to ICE (Intercontinental Exchange) structures and participants such as Centrica, EDF Energy, ScottishPower, SSE plc, and RWE. Interaction with transmission operators including National Grid ESO affected locational value for projects at sites like Walney Wind Farm and Beatrice Wind Farm.
Eligibility and Certification Criteria
Eligibility criteria referenced technology lists and accreditation procedures aligned with statutory instruments and guidance from the Office of Gas and Electricity Markets. Technologies recognized included generators using onshore wind, offshore wind, solar photovoltaics, hydropower, geothermal energy in designated projects, and biomass plant meeting sustainability requirements. Accreditation required metering standards, demonstration of delivery to the network, and compliance with fuel and sustainability criteria influenced by consultations with bodies such as Ofgem staff, the Environment Agency, and the Department for Environment, Food and Rural Affairs. Site-specific approvals sometimes interacted with planning authorities including The Planning Inspectorate and local councils such as Cornwall Council and Suffolk County Council.
Market and Trading Dynamics
Certificates created a secondary market traded bilaterally and through brokers, with prices influenced by expected compliance buy-out levels, supply from projects like Hornsea Project One and demand from suppliers including British Gas, E.ON UK, and Iberdrola UK. Market liquidity varied with build-out cycles of assets such as Dudley Renewable Energy Plant and capital flows from investors including Macquarie Group and Hastings Funds Management. Risk management tools, hedging via power purchase agreements with counterparties like Ørsted and Vattenfall, and interactions with carbon pricing under mechanisms debated in the European Union Emissions Trading System era affected valuations. Transparency and reporting involved organizations such as Ofgem and data services used by market analysts including BloombergNEF and Platts.
Impact and Effectiveness
The scheme contributed to increases in renewable generation capacity across regions with notable deployments at Isle of Wight solar arrays, Cornwall wind clusters, and repowering at sites such as Whitelee Wind Farm. Evaluations by the Committee on Climate Change, academic institutions like Imperial College London and University of Edinburgh, and industry groups including RenewableUK attributed part of the UK's decarbonization trajectory to the instrument alongside infrastructure upgrades led by National Grid ESO. The mechanism stimulated supply chains involving manufacturers such as Siemens Gamesa, Vestas, and GE Renewable Energy and supported jobs documented in reports by the Department for Business, Energy and Industrial Strategy.
Criticisms and Reforms
Critiques by think tanks such as the Institute for Public Policy Research and the Centre for Policy Studies targeted price volatility, allocation efficiency, and distributional impacts on suppliers and consumers represented in debates in the House of Lords and House of Commons energy committees. Reforms included transitional arrangements favoring newer mechanisms like Contracts for Difference and policy decisions made under ministers including Amber Rudd and Greg Clark, leading to banding adjustments, closure of new capacity eligibility from 2017, and schemes for legacy accreditation monitored by Ofgem. Litigation and judicial review instances involved stakeholders represented by firms such as Freshfields Bruckhaus Deringer and Clifford Chance in disputes over accreditation and state aid interpretations linked to European Commission assessments.