Energy suppliers may face another big Renewables Obligation (RO) bill after a spate of market exits.
Cornwall Insight forecasts a potential shortfall in the RO Buyout Fund of up to £43.8m for 2018-19.
Under the Renewables Obligation, energy suppliers are obliged to buy a certain amount of power from renewable sources. If they do not, they pay into a buyout fund.
The cost of the RO is added to the customer bill and the suppliers then pay into the fund at the end of the year. The problem is, many of the 14 small suppliers that have gone bust since the start of last year spent the RO money.
The resulting shortfall is mutualised – or smeared – across all other suppliers. It was £58.6m light for the 2017-18 period, leading Ofgem last November to announce it was tightening rules for new market entrants. Within days, several more firms that owed millions in RO payments had ceased trading.
Solvent suppliers picked up that tab. Should Cornwall’s estimates prove correct, it will mean customers end up paying around £100m in total through their energy bills, effectively subsidising the unsustainable prices with which the failed suppliers gained customers.
That will add further pressure to smaller suppliers already struggling with cashflow issues, rising prices and tougher terms imposed by traders in the wake of market failures.
Meanwhile, renewable generators that qualify for RO payments will have to wait many months longer to get paid the full amount they are due, said Cornwall Insight team lead, Tim Dixon.
Dixon urged policymakers to think about collecting payments more regularly to avoid repeat episodes.