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What is the Renewables Obligation scheme?
The Renewables Obligation scheme is a UK government subsidy designed to support the growth of large-scale renewable electricity generation.
It was launched in 2002 and served as the main mechanism for the expansion of solar and wind generation in the UK until it closed to new generators in 2017.
Under the scheme, energy suppliers are legally required to purchase Renewables Obligation Certificates (ROCs) generated by scheme participants for each megawatt hour (MWh) of renewable electricity they produce.
The sale of ROCs provides a valuable additional revenue stream for renewable developers, making these projects more economically viable.
Currently, the requirement to purchase ROCs adds approximately 3p/kWh to domestic and business electricity bills.
Although the scheme ceased accepting new participants in 2017, existing projects will continue to generate and sell ROCs to energy suppliers until 2037.
Here’s what we cover in this guide to the Renewables Obligation scheme:
- How does the Renewables Obligation work?
- What are Renewables Obligation Certificates (ROCs)?
- Renewables Obligation Certificates prices and buy out price
- Renewables Obligation charges on business energy bills
- Phase out of the Renewables Obligation scheme
- How businesses can manage Renewables Obligation costs
How does the Renewables Obligation work?
The Renewables Obligation scheme closed to new entrants in 2017; however, the following process still occurs annually for participating generators in the scheme.
1. The government sets the annual obligation level
The Renewables Obligation scheme year runs from 1 April to 31 March. Six months prior to the year starting, the government defines:
- Obligation level – How many ROCs per megawatt hour (MWh) of electricity each supplier must purchase.
- Buy-out price – The fallback price that suppliers can pay per ROC if they fail to purchase enough ROCs to meet their obligation.
The government sets the obligation level based on the number of ROCs it expects accredited generators to generate during the upcoming scheme year, plus an additional 10% headroom. This extra margin ensures there are enough ROCs in the market for suppliers to meet their individual obligations.
2. ROCs are issued monthly to generators
Generators submit generation data using business electricity meters to measure the power they export to the grid.
Each generator receives a defined number of ROCs per megawatt hour (MWh) of electricity generated, depending on its technology and the date of registration.
ROCs are issued to each generator via the Renewables and CHP Register, an online platform administered by Ofgem.
3. ROCs are sold to suppliers
Renewable energy asset owners sell the ROCs they generate to licensed energy suppliers through private transactions.
Once a sale is agreed, the generator initiates a transfer on the register to the account of the energy supplier.
4. End of the obligation year calculation
After March 31, each supplier calculates the number of megawatt-hours (MWh) of electricity they supplied to customers to determine their obligation for the year.
By the deadline on 1 September, a supplier must retire a sufficient number of ROCs on the register to meet their obligation.
Suppliers who have a shortfall of certificates must pay the buy-out price for each ROC they fail to provide.
Suppliers with a surplus of certificates may sell them to other suppliers or roll them over for use in the following year’s obligation.
5. Buy-out fund redistribution
Any money paid into the buy-out fund is redistributed to suppliers that submitted ROCs, on a pro-rata basis for each ROC submitted.
The redistribution per ROC is calculated by Ofgem and paid to individual suppliers.
The buy-out fund redistribution effectively increases the value of ROCs, encouraging suppliers to purchase them directly from generators.
What are Renewables Obligation Certificates (ROCs)?
Renewables Obligation Certificates (ROCs) are electronic certificates issued to accredited renewable electricity generators in the UK for every megawatt hour (MWh) of eligible renewable electricity they produce.
ROCs are only issued to renewable generators that joined the scheme between April 2002 and March 2017, for a period of 20 years from the date they began generation.
ROCs are issued to UK wind farms, solar farms, hydroelectric power plants, and biomass power plants.
Each generator submits energy meter readings to verify the amount of renewable power it has exported to the grid.
The number of ROCs issued depends on the project’s registration year and the type of technology used. More ROCs are awarded to more expensive or higher-risk technologies, reflecting the greater support required to make them viable for private investors.
| Technology | ROCs per MWh | Notes |
|---|---|---|
| Onshore wind | 0.9 | Reduced from 1 ROC in 2013. |
| Offshore wind | 1.8 – 2.0 | Gradually reduced as the technology matured. |
| Solar PV | 1.2 – 1.6 | Gradually reduced as the technology matured. |
Controversially, the Drax biomass power plant generates ROCs from burning wood chips imported from abroad.
Renewables Obligation Certificates prices and buy out price
Domestic and business energy suppliers have the following options to comply with the Renewables Obligation scheme:
- Present ROCs to match each megawatt hour (MWh) of electricity they supply to customers.
- Make a buy-out payment at the buy-out price for each MWh of electricity supplied.
- Use a combination of both options.
This section explains both purchase options and the redistribution mechanism of the buy-out fund.
Purchasing ROCs from generators
ROCs are sold by generators to licensed energy suppliers through private contracts between the two parties.
There are two main ways in which this occurs:
- Power Purchase Agreements – Under a Power Purchase Agreement, an energy supplier purchases both the electricity generated and the associated ROCs through a long-term agreement, typically lasting between 5 and 20 years.
- Separate ROC-only sales – Alternatively, generators may unbundle the ROCs they generate from the electricity sold on the wholesale electricity market, using separate private transactions.
The buy-out price mechanism
The Renewables Obligation scheme provides a back-up mechanism if a licensed energy supplier has not purchased sufficient ROCs to cover the electricity used by their customers.
This mechanism allows suppliers to make a buy-out payment at a fixed price, which rises with inflation each year.
The buy-out price for 2025/26 is £67.06 per megawatt hour (MWh). This price effectively sets a ceiling on the cost of ROCs, as it provides an alternative that suppliers can use instead of purchasing directly from generators.
Buy-out fund recycling
Payments made by energy suppliers at the buy-out price are held by Ofgem and distributed proportionally to all suppliers that purchased ROCs directly from generators.
This mechanism increases the attractiveness of purchasing ROCs issued by generators.
In the most recent year of the scheme, 91% of electricity supplied in Great Britain was covered by purchased ROCs. The remaining 9% of the obligation was met through payments into the buy-out fund, which was recycled back to suppliers at a rate of £5.81 per ROC presented.
Renewables Obligation charges on business energy bills
The Renewables Obligation scheme places a financial burden on licensed electricity suppliers for all domestic and business energy consumption by their customers.
The cost of purchasing ROC certificates is passed on to domestic and business electricity prices per kWh.
The table below shows an estimate of the impact of the Renewables Obligation scheme on prices over the past five years:
| Scheme Year (Apr–Mar) | Buy-out Price (£/ROC) | Obligation (ROCs/MWh, GB) | Estimated Cost Impact (p/kWh) |
|---|---|---|---|
| 2021–22 | £50.80 | 0.492 | 2.50 |
| 2022–23 | £52.88 | 0.491 | 2.60 |
| 2023–24 | £59.01 | 0.469 | 2.77 |
| 2024–25 | £64.73 | 0.491 | 3.18 |
| 2025–26 | £67.06 | 0.493 | 3.31 |
The obligation to purchase ROC certificates applies to both standard and green business energy tariffs, except for power supplied to certain energy-intensive industries.
Visibility of Renewable Obligation charges on business electricity bills
Although Renewables Obligation charges affect most business electricity bills, their visibility depends on the type of business energy contract you have.
- Fixed contracts – The cost of purchasing ROCs is bundled into the headline unit rate in your contract and is not itemised on your bill.
- Pass-through contracts – These separate non-commodity costs (such as the Renewables Obligation) from the wholesale electricity price, showing them as separate line items on your bill.
- Half-hourly supply – Some suppliers provide more detailed cost breakdowns for customers with half-hourly electricity meters, allowing them to track the non-commodity components of their electricity costs.
Most business electricity suppliers apply a mark-up on top of the Renewables Obligation charges they incur. Find a cheaper tariff with our free, no-obligation business electricity comparison service.
Renewables Obligation mutualisation explained
Mutualisation is a cost recovery mechanism that comes into effect when business energy suppliers go bust and fail to meet their obligations under the scheme.
It ensures that renewable energy generators are still paid, even if some suppliers default on their obligations.
Under the mutualisation mechanism, the shortfall of ROCs from failed suppliers is recovered from all remaining suppliers, in proportion to their market share.
The most recent application of the mutualisation mechanism occurred in November 2022, following a surge in supplier failures during the energy crisis.
Relief for energy intensive industries
Energy-intensive industries based in the UK are eligible for 100% relief from the Renewables Obligation scheme.
Electricity supplied under large business energy tariffs to energy-intensive customers does not create an obligation to purchase ROCs. This enables energy suppliers to offer significantly cheaper tariffs to these customers.
The cost of providing this exemption to certain industries is socialised, meaning that the electricity supplied to all other users carries a greater obligation to be backed by ROCs.
To receive the relief, electricity costs must account for at least 20% of the Gross Value Added (GVA) of their products, and the business must conduct an eligible activity, which includes:
- Food production
- Textile manufacturing
- Oil refining
- Glass manufacturing
- Plastics manufacturing
- Cement manufacturing
- Steel and aluminium production
- Manufacturing of electronics and batteries
Phase out of the Renewables Obligation scheme
The Renewables Obligation scheme spurred the growth of green energy generation in the UK by making private investment in renewables economically viable.
The graph below shows how the fuel mix of electricity generation in the UK has changed since the scheme was introduced in 2002.
Source: Department for Energy Security and Net Zero.
The success of the scheme comes at the cost of additional electricity charges for most consumers until 2037, when the final developments will cease generating ROCs.
In 2017, the subsidy for large-scale renewable energy projects was replaced by the Contracts for Difference scheme, which offers a price guarantee per megawatt hour (MWh) to developers.
The Contracts for Difference scheme operates through competitive auction rounds, enabling the UK government and electricity consumers to benefit from the improving efficiency of renewable technologies.
How businesses can manage Renewables Obligation costs
Renewables Obligation costs are incurred with every unit of electricity consumed through a business electricity connection to the grid.
Here, we explain the two most effective business energy procurement strategies to reduce the cost of the Renewables Obligation scheme:
Improve energy efficiency
Renewables Obligation costs are not business electricity standing charges; instead, they are incurred for each kilowatt hour (kWh) of electricity a business consumes.
This means that using electricity more efficiently in commercial operations has a direct impact on lowering these costs.
Visit our guide to improving business energy efficiency for both short- and long-term improvement strategies.
On-site generation
Renewables Obligation costs are only incurred on electricity imported from the grid.
Electricity generated on-site, such as through commercial solar panels, does not incur these charges.
Visit our guide to installing commercial solar panels to learn how the process works.
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