The mutualisation process for the Renewables Obligation (RO) scheme is to be triggered for the fourth consecutive year after a number of energy retailers failed to discharge their full obligations for 2020/21.
The process is triggered if the deficit in buyout and late payments from suppliers that did not meet their entire obligation using Renewables Obligation Certificates (ROCs) hits a pre-determined threshold known as the relevant shortfall.
For 2020/21, the relevant shortfall for the RO scheme in England and Wales is £15.4 million, whilst the figure for the scheme in Scotland is £1.54 million.
Although it is still completing its calculations and internal checks on late payments received, Ofgem confirmed in a short announcement on Wednesday (10 November) that the relevant shortfalls for England and Wales and for Scotland have both been reached.
Ofgem said it will publish further details, including the total shortfall, around the beginning of December.
The mutualisation process is designed fill significant deficits in the buyout and late payments funds, which are redistributed to suppliers based on the number of ROCs they submitted as a proportion of the total received by Ofgem.
Suppliers make mutualisation payments according to the size of their obligation as a proportion of the total obligation, taking into account that failed suppliers cannot make any payments. They are then redistributed suppliers that met their obligation in full on the same basis as the buyout and late payment funds.
Earlier this month, Ofgem confirmed that 37 suppliers failed to meet their total obligation by the deadlines for presenting ROCs and making buyout payments, resulting in a record combined shortfall of £276.5 million in the buyout funds for the RO schemes for England and Wales, Scotland and Northern Ireland.
There were shortfalls of around £105 million last year and £206 million the year before that.
Ofgem also recently issued orders to seven suppliers to make £17.9 million of late payments by 31 October or risk further enforcement action.
Earlier this year, new arrangements came into effect to link the mutualisation threshold for England and Wales to the annual cost of the scheme.
Under the new rules, the relevant shortfall for England and Wales will increase to around £62 million for the 2021/22 obligation year.