ROCs rates & finances for large-scale systems
When considering a renewable energy investment, no matter how small, you will need to make sure there is a reliable system in place that will deliver cost savings and earnings to make it worthwhile. Many of you are already familiar with the government Feed in Tariff scheme, which pays you for the electricity you produce, but the ROCs scheme for larger systems is far more complex.
Researching ROCs (Renewable Obligation Certificates) I have found very little information that explains clearly how processes involved in the government ROCs trading scheme actually work. In fact, it took me some time to get my head round exactly what is going on! Since we are now in a new financial year with new finances for renewable energy, I would like to expand on my earlier article ROCs Explained, with more information about the financial implications of the new bandings and rates, along with a little more detail about how the whole scheme works.
What are ROCs?
ROCs form part of a trading scheme that allows you to receive payment for the electricity you produce from renewable energy sources. A ROC is a certificate that is issued for every MWh of renewable energy and anyone can take part in the scheme if you own a renewable energy system that is 50kW or larger.
Different technologies are awarded different rates of ROCs, with roof-mounted solar receiving 1.7 ROCs per MWh and ground-mounted solar receiving 1.6 ROCs per MWh. In order to receive ROCs, you (the generator), must receive accreditation from Ofgem. You will also need to submit monthly meter readings from an Ofgem approved generation meter and an annual declaration.
Unlike Feed in Tariffs, the value of ROCs can vary because they are traded at auction. Electricity suppliers can purchase renewable electricity (via ROCs) in order to meet their targets set out under the government Renewables Obligation. Each ROC records exactly how the unit of electricity was produced, who produced it and who bought it.
A Power Purchase Agreement can be used to arrange a contract between a generator and a supplier for purchasing ROCs. Alternatively ROCs can be traded at auction where the ROC is sold to the highest bidder. The price of ROCs sold via auction varies and auction administrators charge a fee for selling the ROCs.
Those suppliers who fail to meet their Renewables Obligation targets by presenting enough ROCs, are forced to pay an equivalent buy-out price to Ofgem. This price is fixed for 12 months and RPI linked. As of April 2013 the buy-out price for ROCs will be £40.71 per ROC. Historically the auction price and buy-out price for ROCs have been roughly the same.
Each generator who presented ROCs receives a payment from the redistribution of the buy-out fund. This is known as the Recycle Payment and it is driven by the percentage of Renewables Obligation targets met by presenting ROCs. The price is calculated annually after electricity suppliers have submitted their ROCs and bought out their Renewables Obligation. In 2011-2012 91% of the Obligation was met by ROCs and the Recycle Price was £3.38 per ROC.
Until April of this year the rate of ROCs for solar PV was 2 per MWh. Now there are two bands for solar – 1.7 ROCs for roof mounted systems and 1.6 ROCs for ground mounted systems, so what impact will the new rates have on your financial returns?
- Average ROC auction price for 2011/12 was £43.86
- Average price for 2 ROCs – £87.72
- Average price for 1.7 ROCs – £74.56
- Average price for 1.6 ROCs – £70.18
Whilst this is a significant reduction it is important to remember that the price for ROCs varies according to the market and increasingly stringent targets under the Renewables Obligation means that there will be demand for ROCs.
What are the risks?
Many people feel unsure about signing up for ROCs because your income can vary according to the market. However, if you look at the historical prices then you will see that there isn’t a huge variation between the highest and lowest prices. Many auctions will allow you to set a reserve price but also advise that it is unlikely that your ROCs will be sold for much less than their current market value.
ROCs are ideal for large-scale systems of 250kWp+ where you would otherwise fall into the lowest band under Feed in Tariffs. For example, under new FiT rates for a system of this size you would receive £68.00 per MWh compared to an average of £70.18 or £74.56 per MWh via ROCs.