Renewables Obligation (RO) costs explained

The information in this video and article was accurate as of 1 April 2025. We update our TPCs Explained hub every Spring to reflect any changes.

What’s the Renewables Obligation (RO)?

The RO is a government support scheme that supports low-carbon electricity generation across Britain. It stopped accepting new generation projects in 2017, and was replaced by the Contracts for Difference (CfD) scheme.

However, the RO provides 20 years of support for generators and the early adopter schemes receive subsidies until 2027. Therefore, power consumers are still paying for the RO.

How does the RO work?

The RO scheme works by placing an obligation on suppliers to buy a certain proportion of RO-backed renewable electricity within the total volume of power they sell to customers.

To prove they’ve done this, suppliers must purchase renewable obligation certificates (or ROCs) that relate to the power produced by accredited generators. However Ofgem, the scheme administrator, looks to ensure there’s a shortfall in the number of available ROCs when setting the obligation each year. Any suppliers unable or unwilling to purchase ROCs must pay into a buy-out fund.

All parties that meet the obligation through a ROC submission earn some residual “recycle” value from the buyout pot. The RO charge is applied all year round and spread across consumers as an annual £/MWh value.

How much of your energy bill does the RO account for?

The RO is expected to be the largest third-party cost in 2025, making up around 17% of the total electricity bill. This cost will decline after 2027, as the early beneficiaries reach the end of their subsidy period.

Will you know about the RO costs in advance?

Suppliers get only a few weeks’ advance notice about the RO charge. The annual RO obligation is published at the end of September, six months before it comes into effect. The buy-out price is known in February, only one and a half months before coming into force. However, it typically changes in line with inflation, so isn’t particularly volatile.

Suppliers typically charge the RO at the buy-out price multiplied by the obligation. However, there’s the risk of ‘mutualisation’ if one or more of the suppliers defaults during the year. In this scenario, all the other suppliers are likely to be obliged to cover the missed obligation payments.

What drives the RO charge?

The main drivers for the RO charge are:

• Inflation, as this affects the buyout price
• The forecast and out-turn demand and renewable generation levels - largely influenced by the hours of sun and wind speed – will all impact the obligation

To learn more about the other TPCs in your energy bill, head to our TPCs explained hub using the button below. Or, to understand more about electricity prices, download our latest bi-annual Electricity Prices Explained guide.

Disclaimer

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