New arrangements to link the renewables obligation (RO) mutualisation threshold to the annual cost of the scheme come into effect today (31 March).
Mutualisation has long been a source of contention in the energy sector, with compliant suppliers obliged to pick up the shortfall when others do not pay.
The process has been triggered three times in as many years, with many suppliers ultimately exiting the market and leaving millions of unpaid bills to the rest. The Department for Business, Energy & Industrial Strategy (BEIS) has previously admitted the mutualisation threshold has failed to keep pace with growth in the RO scheme.
Under the new arrangements, the threshold would be determined as 1 per cent of the forecast cost of the scheme for the obligation year in question, which is broadly in line with the original arrangements when mutualisation was introduced to the scheme in 2005.
Under the new rules, the mutualisation threshold will be increased from £15.4 million to around £62 million for the 2021 to 2022 obligation year, but that figure will rise or fall in future years as the cost of the scheme changes.
If this formula were applied retrospectively to the three obligation years where mutualisation was triggered, ie 2017/18 (£53.4 million shortfall), 2018/19 (£88.1 million shortfall) and 2019/20 (£31.4 million shortfall), mutualisation would not have been triggered in 2017/18 and 2019/20 but would still have been triggered in 2018/19.
BEIS said the proposal would ensure those suppliers that have met their RO are not unduly exposed to the unmet obligations of their competitors.
Additionally, BEIS has issued a call for evidence on the way the mutualisation amount is calculated. Currently, the entire shortfall is mutualised once the level of default exceeds the threshold.
However BEIS believes a fairer and more progressive approach might be to require only the amount in excess of the threshold to be mutualised, subject to an additional administrative threshold being exceeded.
A spokesperson for the department said a response on the call for evidence will be published in due course.