Utility Week

6 | 16TH - 22ND NOVEMBER 2018 | UTILITY WEEK News Inside story U sually, it's the suppliers sending out ominous bills marked "late payment" and "final notice". However, recent months have seen something of a role reversal. Many will have opened their mail to find a sternly worded letter from Ofgem warn- ing they risk facing "formal investigation" and "enforcement sanctions" unless they cough up the money they still owe under the Renewables Obligation (RO). The regulator said an "unprecedented" number had failed to meet their obligations for 2017/18 by the original deadline of 1 Sep- tember. It later revealed that 34 companies collectively owed almost £103 million in outstanding buyout payments. The letter told suppliers in arrears they had until 31 October to make late payments, including any interest. The final deadline has now come and gone. But industry sources have told Utility Week the unpaid bill still stands at more than £50 million, and perhaps as much as £70 million. "There are a number of suppliers who haven't paid, and more than half of that ROCs [Renewables Obligation Certificates] bill is outstanding," said one. "The challenge that suppliers have is if they have been unable to pay this year's ROCs bill it also means they will have a dif- ficult time paying next year's bill." And the introduction of the price cap at the beginning of next year will only add to this challenge. With wholesale costs rising rapidly as they head into winter, the figures suggest some suppliers are already struggling hard to keep themselves afloat. Another indus- try insider said they foresaw a "bloodbath" among small and medium suppliers. Ryan Thomson, partner for energy and resources at the consultancy Baringa, says a lot of suppliers have used the scheme as a way of managing their cash flow as "obviously they get the money from cus- tomers in before they have to make the ROC payments". He believes some may have mis- judged their position and been caught short. However, he has also heard rumours the debtors include several "larger independents". More generally, Thomson adds: "There is a feeling that the market, certainly at the smaller end of the switching market, is a bit out of whack at the moment in terms of the prices being offered being quite unsustainable." He says suppliers running at a loss in a bid to attract customers with cheap tariffs may be finally running out of investors' cash. Managing director at BFY Consulting Ian Barker says it's also possible that "the level of switching has meant that customers are not building up credit balances going into winter, and customers are not paying their debts on time". Mutualisation imminent? Ofgem has refused to confirm or deny the fig- ures quoted to Utility Week. If correct, a pro- cess called mutualisation will be triggered for the first time since the scheme was launched in 2002. The RO requires suppliers to buy an increasing percentage of the power they sell to customers from renewable sources. Accredited generators receive a set num- ber of ROCs for each megawatt hour they produce, with the rate depending on a num- ber of factors including technology type. They can then sell these certificates to sup- pliers, giving them a supplement to the wholesale price. Suppliers must present enough ROCs to Ofgem each year to demonstrate they have met their annual obligation and make up any difference with buyout payments. This money is first used to cover the administra- tion costs of the scheme, with the rest being returned to suppliers in proportion to the number of ROCs they submitted to Ofgem. In previous years, any shortfalls have been le unfilled, lowering the amount handed back to suppliers and reducing the "recycle" value of ROCs. However, if the outstanding payments fol- lowing the final deadline exceed a threshold known as the relevant shortfall, the mutu- alisation process is activated. The relevant shortfall is £15.4 million for England and Wales and £1.54 million for Scotland. The process is intended to punish suppli- ers that failed to meet their obligation and reward those that met more of their obliga- tion using ROCs. The missing money is recovered from all operational suppliers, which pay into a mutualisation fund according to the size of their obligation as a share of the total. The amount that can be recovered in 2017/18 has been capped at roughly £275 million for England and Wales and £27.5 million for Scotland. The proceeds are later returned to sup- pliers in proportion to the number of ROCs they presented to Ofgem. Those that failed to meet their obligation in full do not receive anything. Although there is no mutualisation pro- cess if a shortfall occurs in Northern Ireland, suppliers in the region still receive payments if it is activated elsewhere in the UK. Payment procedure The money is collected and redistributed in four quarterly instalments. Suppliers will have to make the first payment into the fund by 1 September 2019 and will receive the first payment back by 1 November 2019. There are several important things to note at this point. First, although the procedure should ultimately benefit suppliers that have met a higher proportion of their obligation using ROCs, they will still have to foot the Suppliers join the 'can't pays' Ofgem's final deadline for suppliers to pay what they owe under the Renewables Obligation was 31 October, but as much as £70 million is still outstanding, say industry sources. Tom Grimwood reports. THE TEN SUPPLIERS THAT PRESENTED THE HIGHEST PROPORTION OF ROCs EDF Energy 14.29% SSE 14.13% Npower 13.74% Eon UK 12.68% British Gas 10.57% Scottish Power 8.09% Haven Power 5.69% Engie 3.79% Total Gas & Power 3.74% Smartest Energy 2.79%

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