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Citizens Advice response to the consultation on addressing supplier payment default under the Renewables Obligation (RO)

9 November 2021

Citizens Advice response to the consultation on addressing supplier payment default under the Renewables Obligation (RO) [ 250 kb]

In 2019 we published research on the implications of supplier exit and the ensuing costs for consumers and wider industry, particularly in relation to the Renewables Obligation (RO).  Our analysis puts the cost, as of December 2019, at £97 million in unmet RO costs to be mutualised across the market, even factoring in unpaid RO payments reclaimed from administrators. Supplier exits result in financial detriment, with consumers bearing the burden of higher costs, as well as hassle and stress for those whose energy supply company fails. Historically, the largest costs have come from RO mutualisation, placing additional financial strain on energy suppliers, and ultimately resulting in higher costs for consumers. 

We have previously advocated for a move to quarterly payments to minimise the size of outstanding RO payments that failing suppliers are able to leave behind. In January 2021, we agreed with the BEIS proposals to change the mutualisation arrangements, increasing the threshold to 1% of scheme size, but we also reiterated our call for more frequent RO payments by suppliers.In that context, we strongly support the overall intent of the consultation to move towards quarterly payments. We particularly support option 1C, which puts more frequent payments on a legislative footing and removes the late payments window, but recognises the need for some flexibility given the identified challenges of seasonality, ROC shortages and contractual issues. 

We would also emphasise that current circumstances, with a high volume of suppliers exiting the market, only reinforces the case for rapid reform. External estimates from Cornwall Insight have already projected a potential shortfall in the 2021-22 compliance period (CP20), with the shortfall already predicted to be over £80 million, potentially triggering mutualisation for the fifth year in a row. The failure to act more quickly to address the inherent risks in the current scheme design has contributed to the development of unsustainable business models and will ultimately mean that consumers will pay a higher cost as a result. We therefore welcome the intent behind the consultation to reduce the consumer impact of mutualisation.