Ofgem taking action over £58.6m shortfall in ROCs

The UK’s energy regulator Ofgem has announced it will take action over the missing payments to the Renewables Obligation schemes (ROCs).

As of the end of August, the shortfall in ROCs amounts to £102.9 million. Suppliers were given until the end of October to make their payments, and several did so. However, at the end of November, Ofgem confirmed that a total of £58.6 million was still outstanding.

The Renewables Obligation schemes apply to suppliers who are not sourcing the required amount of electricity from renewable sources. Instead of providing renewable electricity, they pay into a buy-out fund which is administered by Ofgem.

Not making these payments puts suppliers in breach of their Renewables Obligation Orders and could lead to prosecution by Ofgem.

Who’s not paying?

Following a flurry of failed suppliers, Ofgem have named several companies as being in breach of their Renewables Obligation Orders. Specifically, Ofgem are launching investigations into Spark Energy and Economy Energy, both of whom have failed to pay the outstanding amounts.

Other suppliers of concern are URE Energy and Eversmart, These suppliers have been given until 31st March 2019to deliver all outstanding payments.

Failing to make payments is often a signal of suppliers being in financial trouble. Since the start of the investigation, Spark Energy have gone bust, and just this week Economy Energy also announced they would cease trading.

In 2018, nine suppliers collapsed, in one of the worst years for supplier failure on record. With the energy price cap now in effect, it’s likely further suppliers will struggle to maintain profitability through the first few months of 2019.

Problems with FIT too

Separately, there is a shortfall of supplier payments into the fund for the governments Feed in Tariff. Administered by Ofgem, this scheme makes payments to owners of small scale renewable installations, through funding from energy suppliers.

The amount outstanding to this scheme has been specified by Ofgem as standing at £4.2m. Similarly, suppliers who fail to pay into the levelisation fund are in breach of the Feed in Tariffs Order and could face prosecution as a result.

Ofgem have not released the names of suppliers who have yet to meet their financial obligations to the Feed in Tariff scheme but have said that they plan to write to them soon. Suppliers who do not make their payments by the deadline face action from the regulators enforcement team.

The cost to consumers

Shortfalls in both these funds need to be made up somewhere. Payments from the Renewables Obligation and the Feed in Tariff levelisation fund will already have been paid out to generators and installers, leaving the nation at a deficit on these schemes.

The shortfall, if unable to be recovered from suppliers such as in the instance that they have ceased trading, will be made up through mutualisation. This means that other suppliers, those who have already made their payments, will be required to pay extra to make up the missing money.

As a result, householders can expect to see increments added to their bills in order to pay back these extra funds to their suppliers. While it hardly seems fair to punish the consumer for poor business management on the part of failed suppliers, the funds to need to be replaced and, at this time, this is the only way.

Bad business planning and poor financial management are some of the issues under consideration in Ofgem’s forthcoming supplier licensing tests. While this could protect consumers (and other suppliers) from such shortfalls in the future in regards to new energy companies, no such testing will be mandatory for existing suppliers.

This means we could see many more failures before the market is stable once again, and potentially have more financial voids to fill as a result.

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