Ofgem has confirmed that mutualisation has been activated for the fifth year in a row.
Several suppliers failed to discharge the 2021 to 2022 Renewables Obligation (RO) in full by the late payment deadline, which closed on 31 October 2022, Ofgem has stated.
According to the energy regulator, under Article 72 of the RO Order 2015 and Article 48 of the RO (Scotland) Order 2009, a “relevant shortfall” has been reached. The shortfall amount would therefore be mutualised in respect of both RO (England and Wales) and RO (Scotland).
Ofgem is currently completing its calculations and internal checks on late payments received and payments to be redistributed.
The RO scheme requires energy suppliers to purchase a set percentage of the power that is sold to customers from renewable sources helping to continue decarbonisation of the UK. These can be addressed in two primary methods. One is the through the purchase of RO certificates and the other is via payment into a buy-out fund.
Ofgem identified a shortfall in RO payments made in leu of suppliers using renewable generation distributed among suppliers who have made their payments meaning mutualisation would therefore be activated.
Mutualisation was triggered for the fourth year in a row in December 2021 after high power prices left many suppliers struggling with 29 suppliers having collapsed since September 2021. In doing so, it was reported that this left an RO shortfall of £218,300,151.73.
After Ofgem had redistributed the £58,375,203 RO late payment fund in December 2021 to energy suppliers, a further £384,278.28 had been recovered by the regulator, it revealed earlier this year.
In 2021, Ofgem announced plans to consult on how to better address supplier payment default under the RO scheme.
Over the period of the year, 37 supplier groups across 66 obligations failed to meet the initial 1 September deadline for RO payments. Of those, 12 obligations were fully discharged by making the late payment deadline of 31 October.
Ofgem said some stakeholders had defined the cause as the ability for suppliers to accrue significant levels of obligation without any specific measures in place to ensure their obligations are settled in the event of default.