Ofgem has confirmed the remaining shortfall in Renewables Obligation (RO) late payments for 2017/18 is £58.6 million.
The regulator has launched investigations into Spark Energy and Economy Energy over non-payment and proposed new financial and customer service tests for suppliers seeking a license.
Ofgem revealed in October an “unprecedented” 34 suppliers collectively owed £102.9 million in buyout payments. They had until the end of the month to make late payments.
Last week, the regulator announced a mutualisation process would be triggered for the first time ever after the outstanding payments following the final deadline exceeded a threshold known as the relevant shortfall. It has now confirmed the level of the shortfall at £58.6 million, although the figure is subject to a review by an auditor.
The effect of the process will be to transfer money away from suppliers who failed to meet their obligation in full and towards suppliers who met a higher proportion of their obligation by presenting Renewable Obligation Certificates (ROCs) to Ofgem.
Spark Energy recently disclosed it had entered merger talks with another energy supplier after missing £14.4 million in late RO payments. An industry source has told Utility Week Economy Energy is responsible for around £17 million of the shortfall.
According to Companies House, Economy Energy has extended its accounting reference period from the end of March to the end of September. Their next set of results is now due by 30 June 2019. The source said the sudden change could be a sign the company is facing financial difficulties.
A spokesperson for Spark Energy said: “We will continue to work closely and openly with Ofgem on this matter, as we have always done.”
Economy Energy has yet to respond to a request for comment.
Two other non-compliant suppliers – URE Energy and Eversmart – have be given until 31 March 2019 by Ofgem to make outstanding payments through monthly instalments. The regulator said it is ready to issue a final order to requiring full payment if they fail to do so.
Meanwhile, Ofgem has also revealed the outstanding shortfall for the Feed-in Tariff levelisation fund for three months to the end of September is £4.2 million.
The fund is intended to distribute the costs of the scheme evenly among suppliers. Companies whose share of payments to generators is less than their market share pay into to the fund. This money is then transferred to suppliers whose share of payments to generators exceeds their market share.
Earlier this month, Ofgem announced a mutualisation process would be activated after the shortfall exceeded the lower limit of the trigger range for 2018/19 of £4 million to £40.7 million.
When the process is triggered, the shortfall is filled by all suppliers that paid into the levelisation fund in proportion to their market share.
The RO scheme and mutualisation
The RO scheme requires suppliers to buy a certain percentage of the power they sell from renewable sources. Accredited generators receive a set number of ROCs for each megawatt hour they produce. They can then sell these certificates to suppliers.
Suppliers must present enough ROCs to Ofgem each year to demonstrate they have met their yearly obligation and make up any difference with buyout payments. These payments are first used to cover the administration costs of the scheme, with the rest being returned to suppliers in proportion to the number of ROCs they submitted to Ofgem.
If the outstanding payments following the final deadline exceeds the relevant shortfall – £15.4 million for England and Wales and £1.54 million for Scotland – a mutualisation process is triggered.
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 proceeds are later returned to suppliers in proportion to the number of ROCs they presented to Ofgem. Those that failed to meet their obligation in full do not receive anything.
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.