Renewables Obligation (RO)

RO Explained: Top-line

What is the Renewable  Obligation? 

Well it's designed to support the  development of renewable energy. Put simply,  it encouraged generators to build more renewable  technology to grow the UK supply of low carbon  energy. 

Here's how it works. 

Suppliers  are told what percentage of their total  energy supply they need to have certified as  renewable. They can do this in three ways:  

• by generating renewable energy;
• by purchasing RO  certificates;
• or by paying directly into the RO  fund. 

The RO charge on your bill is how the cost  of the fund is shared amongst all energy users.  It's roughly 15% of your bill, and it makes it  one of your biggest non-energy costs. 

So why do different suppliers quote different costs for RO?

Well that comes down to when the actual RO cost  is known. The RO cost runs from April to March  each year, but the actual cost is finalized the  February before. 

So for contracts bought ahead  of February the RO cost must be forecast. And  here's is the thing: each supplier will  have their own approach to forecasting, so they can predict the three key factors  that drive this cost. 

One: the total capacity of generators taken part in the RO scheme;  

Two: how much energy they will then produce;  

Three: how much energy customers will use  that the supplier can spread the cost across.