The government is preparing to raise the threshold for mutualisation under the renewables obligation (RO) after a review deemed the current arrangements not fit for purpose, Utility Week can reveal.

In addition the Department for Business, Energy and Industrial Strategy (BEIS) says it is considering changes to the way the mutualisation amount is determined in England and Wales in order to lessen its impact on suppliers.

As the government’s biggest renewables subsidy scheme, the RO supports almost 30 per cent of the electricity supplied to homes and businesses. Suppliers are required to buy green RO certificates from renewable generators or make cash payments in lieu of each ROC. These are then recycled back to those suppliers who met their obligation with certificates.

The scheme has been a major source of contention in the industry over the past three years, with an increase in the number of suppliers defaulting on their RO payment resulting in £53 million being mutualised in 2018 and £88 million last year.

Earlier this month Ofgem confirmed mutualisation was to be triggered once again, after debts exceeded the £15.4 million threshold.

BEIS acknowledges that many suppliers feel the current process is unfair and says it undertook a review into mutualisation arrangements to “ensure they remain fit for purpose”, coming to the conclusion that the existing arrangements need updating.

A consultation on the proposals to increase the threshold, which BEIS admits has failed to keep track with the size of the scheme, as well as how the amount to be mutualised is calculated, will be published either before the end of this year or early next year.

In 2019 it was revealed that Ofgem had urged the government to amend the RO scheme to require suppliers to pay monthly instead of annually.

At the time, then-chief executive Dermot Nolan said: “We have written to BEIS asking that they might change the legislative framework to make sure payments are perhaps quarterly but ideally every month, as happens with capacity auctions. I think that would change the incentive somewhat. I think BEIS will make changes in that regard, although I can’t speak for them.”