Executive summary
The Renewables Obligation helped transform Britain’s electricity system.
Introduced in 2002, it encouraged investment in renewable generation at a time when wind, solar and other technologies were considerably less mature than they are today.
It worked.
But it also created one of the most complicated mechanisms in the electricity market: Renewables Obligation Certificates, or ROCs.
More than two decades later, electricity suppliers still have to obtain these certificates according to the amount of electricity they supply. Generators sell electricity into the market while separately receiving valuable certificates. Suppliers can buy certificates, pay a buy-out price if they do not have enough, and subsequently receive money recycled from the buy-out fund.
The scheme closed to most new generation in 2017, yet existing accredited generators can continue receiving support until their individual entitlement expires, with the final ROCs disappearing by 31 March 2037.
We do not propose retrospectively taking that support away.
Our principle is simple: honour the generators, but untangle the mechanism.
Existing generators should continue receiving the economic value of the support they were promised. But electricity suppliers and consumers should no longer need to participate in an artificial certificate market designed more than twenty years ago.
Instead, the remaining certificates should move to a centrally settled run-off system, with the declining cost funded through general taxation and, subject to strict safeguards, contributions from the Electricity Resilience Fund.
The electricity itself would continue to be sold normally.
The legacy subsidy would progressively disappear as existing support expires.
And crucially, using another kilowatt-hour of electricity would no longer create another legacy policy cost.
What is the Renewables Obligation?
The Renewables Obligation was introduced in Great Britain in 2002 as a mechanism for encouraging renewable electricity generation.
Rather than simply giving renewable generators a guaranteed price for their electricity, government created a second commodity alongside the electricity itself:
the Renewables Obligation Certificate — ROC.
Eligible renewable generators receive ROCs according to the amount of qualifying electricity they actually generate and the support band applicable to their technology.
For a generator entitled to 1 ROC/MWh:
100 MWh generated = 100 ROCs
If turbines fail and the same wind farm only generates 80 MWh:
80 MWh generated = 80 ROCs
The ROC is therefore separate from the electricity.
The generator can sell its electricity into the electricity market and separately sell its ROCs.
That distinction is fundamental to understanding the system.
Think of it as tea
Imagine government wanted to encourage environmentally friendly tea production.
It tells qualifying tea producers:
For every cup of qualifying tea you produce, we will give you one Green Tea Certificate.
The producer now has two things of value:
The cup of tea
and
The Green Tea Certificate
The producer can sell the tea at the normal market price.
It can then separately sell the certificate.
Government creates demand for those certificates by telling supermarkets:
For every quantity of tea you sell to customers, you must obtain a specified number of Green Tea Certificates.
That is essentially how the Renewables Obligation works.
The renewable generator produces electricity and receives ROCs.
Electricity suppliers sell electricity to households and businesses and acquire ROCs to meet their statutory obligation.
How does a ROC acquire a value?
A ROC does not have a conventional contract price.
It is a tradable certificate.
Government creates its economic value through the Renewables Obligation.
Suppliers have three basic options:
1. Acquire ROCs and present them to Ofgem
2. Pay the buy-out price for certificates they are missing
3. Use a combination of the two
For 2026/27, the buy-out price is £69.34 per ROC.
That immediately gives suppliers a reason to acquire certificates.
If obtaining a ROC allows a supplier to avoid paying £69.34 into the buy-out fund, that ROC clearly has substantial economic value.
But the system goes another step.
Money paid into the buy-out fund is subsequently redistributed to eligible electricity suppliers according to the number of ROCs they presented.
Imagine two suppliers each have an obligation of 100 ROCs.
Supplier A obtains all 100.
Supplier B obtains only 80 and buys out the remaining 20.
The buy-out payment is:
20 × £69.34 = £1,386.80
Together the suppliers presented:
180 ROCs
The recycle value in our simplified example would therefore be:
£1,386.80 ÷ 180 = £7.70 per ROC
Supplier A would receive a larger share of the recycled money because it presented more certificates.
This is why the economic value of a ROC can be higher than the headline buy-out price.
The system deliberately creates a valuable second revenue stream for qualifying renewable generators.
Electricity revenue and ROC revenue are different
This distinction is particularly important.
An RO-supported wind farm doesn’t simply receive one guaranteed price for its electricity.
Its economics can broadly be thought of as:
Electricity market revenue + ROC revenue
Imagine a wind farm receiving 1 ROC/MWh.
If electricity is worth £50/MWh and its ROC is worth around £75, its overall revenue might broadly resemble:
£50 electricity + £75 ROC = £125/MWh
If wholesale electricity suddenly rises to £150/MWh:
£150 electricity + £75 ROC = £225/MWh
These figures are illustrative, but they demonstrate the structure.
This was particularly advantageous to generators during periods of exceptionally high wholesale electricity prices.
Unlike a modern Contract for Difference, the ROC support did not automatically fall simply because the generator was receiving much more money for its electricity.
That doesn’t mean renewable generators did anything wrong.
They invested according to the system government deliberately created.
The appropriate response is therefore not retrospective punishment.
It is reform of the system.
How does government decide how many ROCs suppliers need?
This is where things become even more complicated.
Every year government calculates the overall Renewables Obligation using two calculations.
Calculation A — the fixed target
For Great Britain, forecast relevant electricity supply is multiplied by:
0.154 ROC/MWh
This originated from the RO’s historic renewable electricity target.
For 2026/27, Calculation A produced an overall UK requirement of approximately:
41 million ROCs
Calculation B — expected ROC generation
Government separately forecasts how many ROCs accredited generators are expected to produce.
For 2026/27 it forecast approximately:
109.2 million ROCs
Government then adds 10% headroom:
109.2 million × 110% = approximately 120.1 million ROCs
Whichever calculation is higher determines the overall obligation.
For 2026/27:
Calculation A: 41.0 million
Calculation B: 120.1 million
Calculation B therefore wins comfortably.
After adjustments including exemptions, the resulting Great Britain supplier obligation for 2026/27 is:
0.472 ROC/MWh supplied
What does that mean for an electricity supplier?
Imagine a supplier delivers:
1,000 MWh
At 0.472 ROC/MWh, it incurs an obligation equivalent to:
472 ROCs
The supplier can acquire those ROCs from generators or traders.
If it cannot obtain enough, it can pay the buy-out price for the shortfall.
And remember: it doesn’t necessarily need to buy the electricity associated with those particular ROCs.
The electricity and the certificate are separate commodities.
This creates an entire parallel market sitting alongside the electricity market.
The cost ultimately reaches electricity consumers
Using the 2026/27 numbers gives an indication of the scale.
The headline calculation is:
£69.34 per ROC × 0.472 ROC/MWh = £32.73/MWh
That is approximately:
3.27p/kWh
The actual economics of the scheme are more complicated because of ROC trading, recycling and other factors, but this gives a useful representation of the obligation embedded in electricity supply.
Indeed, government is currently funding 75% of domestic RO costs through the Exchequer between April 2026 and March 2029.
For 2026/27, the resulting domestic tariff reduction is approximately:
2.45p/kWh
This is important.
Government has already accepted the fundamental principle that historic renewable support does not necessarily have to be financed through today’s domestic electricity unit price.
We propose completing that transition.
The RO is now a legacy scheme
The Renewables Obligation closed to most new generation in 2017.
That means the pool of supported generation is now effectively finite.
Existing generators continue receiving their grandfathered support, generally for their applicable support period and subject to the final scheme end date.
The earliest large group of generators reaches the end of support from 2027.
Ofgem’s guidance states that stations accredited on or before 25 June 2008 generally cannot receive ROCs for generation beyond 31 March 2027.
Government’s Clean Power 2030 Action Plan estimates that around 1,000 active RO generators representing approximately 9 GW of capacity will reach the end of subsidy by December 2030.
The final cut-off for ROC issuance is 31 March 2037.
And something important happens when the support expires:
The generator does not necessarily disappear.
A wind farm can continue generating electricity.
It simply stops receiving ROCs.
Britain can therefore retain electricity-producing assets while progressively shedding the legacy subsidy attached to them.
The strange relationship with electricity demand
Calculation B exposes another peculiarity.
While Calculation B dominates, government essentially takes the expected number of ROCs and spreads the obligation across forecast electricity supply.
Simplifying considerably:
ROC/MWh obligation ≈ expected ROCs × 110% ÷ electricity supplied
Imagine the required ROC pool were 110 million.
If suppliers delivered 250 TWh:
110m ÷ 250m MWh = 0.44 ROC/MWh
If electrification increased supply to 400 TWh:
110m ÷ 400m MWh = 0.275 ROC/MWh
The same legacy burden has effectively been spread across substantially more electricity.
That is potentially beneficial during a period when Britain needs to electrify transport, heating and industry.
But Calculation A operates differently.
Calculation A is based directly on:
electricity supplied × 0.154 ROC/MWh
Once Calculation A eventually becomes higher than Calculation B, additional electricity consumption increases the total Calculation A obligation.
Nothing fundamental about electricity has changed.
The wind farms haven’t suddenly become more expensive.
Heat pumps haven’t suddenly become undesirable.
Electric cars haven’t suddenly become a problem.
The winning equation has simply changed.
That is an unnecessarily strange incentive to retain during the final years of a closed legacy support scheme.
We should honour the generators
Our proposal is not to cancel existing ROC entitlements.
That would undermine investor confidence and retrospectively change the basis upon which billions of pounds were invested in British energy infrastructure.
Grandfathered generators should continue receiving the support to which they are legitimately entitled.
If a wind farm is entitled to 1 ROC/MWh until its support expires, the economic value of that support should be honoured.
Our disagreement is with the mechanism used to finance it.
There is no compelling reason why millions of electricity consumers should continue participating indirectly in a complicated certificate market simply because that was how renewable investment was incentivised in 2002.
How we would untangle the Renewables Obligation
We propose turning the remaining RO into a centrally funded legacy run-off scheme.
The principle would be:
Protect the generator. Remove the supplier obligation. Simplify the settlement.
Ofgem would continue verifying eligible renewable generation.
Existing generators would retain their grandfathered ROC/MWh entitlement.
Instead of selling certificates into a market created by supplier obligations, those certificates would be settled through a central purchasing mechanism at a transparent value designed to preserve the legitimate economic value of existing support.
The electricity itself would continue being sold normally into the electricity market.
The two transactions would therefore become:
Electricity → electricity market
Legacy renewable support → central settlement
As each generator reaches the end of its support period, the government’s liability automatically falls.
Eventually:
RO liability → £0
This is not starting from a blank sheet
There is already an important foundation for this reform.
The Energy Act 2013 provided powers for a certificate purchase scheme, and government has previously proposed replacing the supplier ROC obligation with Fixed Price Certificates during the final years of the Renewables Obligation.
Under that concept, a central purchasing body would purchase certificates from eligible generators at a fixed price.
Government is again considering the transition to a Fixed Price Certificate system as the RO enters its final decade.
That is encouraging.
But the historic proposal still envisaged recovering the cost through a levy on electricity suppliers.
We would go further.
If the purpose of electrification policy is to persuade households and businesses to replace petrol, diesel and gas with electricity, we should not attach a legacy renewable subsidy to every additional unit of electricity they purchase.
Our proposal: change who pays, not what generators receive
Our proposal is deliberately conservative.
We do not propose cancelling ROCs. We do not propose replacing them with a new certificate. We do not propose changing the support entitlement of existing renewable generators, and we do not propose retrospectively rewriting the investment framework under which projects were built.
Instead, we propose changing one thing:
Who ultimately pays the cost.
The existing Renewables Obligation would continue operating under its existing rules as the scheme runs down.
Ofgem would continue issuing ROCs. Eligible generators would continue receiving their existing ROC/MWh entitlement. Generators would continue selling their electricity normally. ROCs would continue being traded, and suppliers would continue acquiring and presenting them to meet their obligations.
The existing buy-out and recycling mechanisms would remain.
The ROC market would therefore continue determining certificate values in the same way it does today.
The change comes at the end of the chain: the verified cost of the Renewables Obligation would no longer be recovered through electricity tariffs. Government would cover it instead.
Why keep the existing ROC market?
An alternative would be to replace ROCs with a centrally purchased Fixed Price Certificate.
At first glance, that sounds simpler. But it creates another problem:
What should that certificate be worth?
A ROC does not currently have one fixed market value. Its value is influenced by the statutory buy-out price, expected recycle payments, certificate availability and agreements between generators, suppliers and traders.
Government would therefore have to establish a replacement price.
Set it too low and existing generators could reasonably argue that government had retrospectively reduced the value of their support.
Set it too high and taxpayers could overpay.
Automatically link the new certificate to inflation and we risk creating another long-term government liability that can increase substantially following an unexpected period of high inflation.
There is a simpler answer.
Don’t try to recreate the ROC market. Keep it.
We can preserve the existing mechanism and existing generator rights while changing how the resulting cost is ultimately funded.
The reform happens at the end of the chain
Today, the system can be simplified as:
Renewable generator
↓
Generates electricity and receives ROCs
↓
ROCs are traded in the existing market
↓
Electricity supplier acquires ROCs
↓
Supplier meets its Renewables Obligation
↓
Cost is ultimately recovered through electricity prices
Our proposal changes only the final step:
Renewable generator
↓
Generates electricity and receives ROCs
↓
ROCs are traded in the existing market
↓
Electricity supplier acquires ROCs
↓
Supplier meets its Renewables Obligation
↓
Ofgem verifies the qualifying net cost
↓
Government funds that cost
For the generator, almost nothing changes.
For the supplier, the compliance system remains.
For consumers, however, an important legacy policy cost disappears from the electricity tariff.
Suppliers must not receive a blank cheque
There is an obvious problem we need to prevent.
Government cannot simply tell suppliers:
“Buy whatever ROCs you need and send us the bill.”
If taxpayers automatically reimbursed whatever a supplier chose to spend, the incentive to procure certificates efficiently could be weakened.
The reimbursement system therefore needs strict rules and independent verification.
Ofgem should determine the qualifying cost using a standard national methodology that takes account of the supplier’s obligation, ROCs presented, applicable buy-out payments, recycled payments received and other relevant RO settlements.
The principle should be:
Verified net Renewables Obligation cost = eligible government funding
Government would fund the legitimate cost of the policy.
It would not guarantee supplier trading profits, excessive intermediary margins or inefficient procurement decisions.
The precise methodology should be developed by Ofgem and DESNZ with a specific objective of ensuring that moving the cost to government does not create a new opportunity for suppliers or certificate traders to increase margins.
Government has already accepted the principle
This is not as radical a change as it might initially appear.
From April 2026, government moved 75% of the domestic Renewables Obligation cost from electricity bills to Exchequer funding.
For 2026/27, the government’s methodology produces an electricity tariff reduction of approximately 2.45p/kWh from the RO element alone.
Government has therefore already established an important principle:
The Renewables Obligation does not have to be funded through domestic electricity consumption.
Our proposal completes that transition.
Instead of temporarily removing part of the domestic RO cost, we would progressively move the remaining legacy liability away from electricity tariffs altogether.
Why general taxation is fairer
The Renewables Obligation was national energy policy.
Governments decided that Britain should encourage investment in renewable generation and designed a support mechanism to achieve it.
That investment has delivered infrastructure that benefits the country as a whole.
It therefore makes more sense for the remaining cost of that national policy to be treated as a national legacy expenditure rather than a surcharge attached to electricity consumption.
This becomes particularly important as Britain electrifies.
A household replacing a gas boiler with a heat pump may substantially increase its electricity consumption while reducing its overall primary energy use.
An EV replaces petrol or diesel with electricity.
Industrial electrification replaces fossil fuels with electricity.
Government policy actively wants all three things to happen.
It makes little sense to encourage people to move away from fossil fuels while simultaneously attaching historical policy costs to every additional kilowatt-hour of electricity they consume.
The Electricity Resilience Fund can help
Under our wider electricity-market reforms, the Electricity Resilience Fund (ERF) would provide a financial buffer for the electricity system.
Its first responsibility would always be resilience.
It could help protect consumers from exceptional wholesale price shocks, provide funding for strategic reserve capacity and contribute towards extraordinary costs caused by major system events.
But there will also be periods when electricity is inexpensive and the ERF accumulates surplus reserves.
Once a defined minimum resilience reserve has been maintained, part of that surplus could contribute towards the government’s Renewables Obligation expenditure.
The funding structure could therefore be:
General taxation + permitted ERF surplus = remaining RO funding
We would place strict limits on this.
The ERF should never be depleted simply to make the government’s annual spending figures look better. Resilience funding must remain protected.
But when genuine surplus exists, using some of it to retire a declining legacy electricity-system liability is entirely reasonable.
A liability that naturally disappears
One of the strongest features of this proposal is that we are not creating another permanent government programme.
The Renewables Obligation is already closed to most new generation.
The remaining supported fleet is finite.
As generators reach the end of their existing support periods, they stop receiving ROCs.
Government forecasts already show ROC issuance declining substantially over the coming decade.
The government’s forecast for 2026/27 is around 109.2 million ROCs.
That falls to around 84.5 million in 2027/28, before continuing to decline through the 2030s.
By 2036/37, the forecast is approximately 22.3 million ROCs.
The final scheme cut-off is 31 March 2037.
The important point is that when a generator’s RO support ends, the generating asset does not necessarily disappear.
A wind farm can continue producing electricity.
Britain retains the generation.
We simply stop paying the historic subsidy.
So the government’s liability progressively declines:
Existing RO support → declining RO support → £0
This also removes a barrier to our 15p electricity ambition
Our proposed national domestic electricity tariff aims to make electricity sufficiently inexpensive that electrification becomes the obvious economic choice.
Our target is 15p/kWh for standard domestic electricity, alongside cheaper off-peak electricity.
Getting there means looking at every component currently added to the electricity unit price.
Legacy policy costs are one of those components.
The current government’s decision to move 75% of domestic RO costs to the Exchequer demonstrates the significance: approximately 2.45p/kWh in 2026/27.
Completing that process would help separate the price consumers pay for electricity today from the cost of renewable investment decisions made decades ago.
And unlike simply abolishing the RO, our approach does not require breaking promises to investors to achieve it.
We are not proposing a windfall tax
This distinction matters.
It is easy to look at some older renewable generators receiving wholesale electricity revenue alongside valuable ROCs and conclude that they received an exceptionally generous deal.
In some circumstances, they did.
The structure was particularly favourable during periods when wholesale electricity prices became extremely high because ROC support did not automatically decline as market electricity revenues increased.
With hindsight, mechanisms such as Contracts for Difference provide much better protection against that situation.
But those investors did not design the Renewables Obligation.
Governments did.
Investors responded to the incentives offered to them.
Retrospectively confiscating revenue or changing existing support because government now considers the original policy too generous would undermine confidence in future British infrastructure investment.
Our approach is different.
Learn from the mistake. Honour the commitment. Don’t repeat it.
Future long-term energy-support mechanisms should contain appropriate protections, review mechanisms and safeguards against extraordinary market conditions.
Existing commitments should be allowed to run their course.
The principle behind the reform
The Renewables Obligation helped Britain build renewable generation at a time when doing so required substantial financial support.
That was the purpose of the policy, and it succeeded in attracting investment.
But Britain is now entering a different phase of the energy transition.
Our challenge is increasingly not simply to build renewable generation.
It is to electrify the economy.
Transport needs to move from petrol and diesel to electricity.
Heating needs to move from gas towards electricity.
Industry needs viable alternatives to fossil fuels.
That requires electricity to become cheap and abundant.
We therefore propose a simple compromise between protecting investors and protecting consumers:
Keep the existing ROC market.
Honour every existing generator’s legitimate entitlement.
Keep the existing market mechanism for determining ROC value.
Allow the scheme to run down naturally.
But remove its verified cost from electricity tariffs and fund it nationally, with the Electricity Resilience Fund contributing when sufficient surplus exists.
By 2037, the Renewables Obligation disappears.
The renewable generating assets can remain.
And consumers are no longer asked to make today’s electricity more expensive to pay for yesterday’s energy policy.
Policy Seed principle
Honour the promises made to generators.
Learn from the mistakes in how those promises were structured.
But don’t make electrification more expensive simply because Britain is still paying for a policy designed in 2002.
Sources
UK Government — Renewables Obligation level calculations 2026/27
Explains how the annual Renewables Obligation is calculated, including Calculation A, Calculation B, the 10% headroom mechanism, forecast ROC generation and the resulting ROC/MWh obligation placed on electricity suppliers.
Ofgem — Renewables Obligation overview
Explains the operation of the Renewables Obligation, including how ROCs are issued to eligible renewable generators and how electricity suppliers use them to meet their obligations.
https://www.ofgem.gov.uk/environmental-and-social-schemes/renewables-obligation-ro
Ofgem — 2026/27 ROC buy-out price
Confirms the Renewables Obligation buy-out price of £69.34 per ROC for 2026/27 and provides the relevant mutualisation thresholds and historical information.
Ofgem — Renewables Obligation guidance for generators
Detailed guidance explaining generator accreditation, how ROCs are issued, ROC eligibility and the duration of support. It also covers the final dates by which different generations of RO projects can receive certificates.
https://www.ofgem.gov.uk/sites/default/files/2025-05/renewables_obligation_ro_guidance_generators_20250509100650.pdf
UK Government — Introducing Fixed Price Certificates
Government work examining how the existing ROC system could transition to Fixed Price Certificates during the final years of the Renewables Obligation. This is particularly relevant to our proposal for centrally settling the remaining legacy support.
UK Government — Energy Act 2013 five-year review
Explains the legislative framework for a certificate purchase scheme, including the possibility of a central purchasing body buying certificates as the Renewables Obligation approaches its end.
UK Government — RO-to-Exchequer scheme
Explains the government’s decision to move 75% of domestic Renewables Obligation costs from electricity bills to Exchequer funding. It also sets out the calculation used to reduce domestic electricity tariffs, demonstrating that legacy RO costs do not have to remain attached to electricity consumption.
UK Government — Clean Power 2030 Action Plan
Provides wider government policy context for the transition of Britain’s electricity system and discusses existing renewable generation approaching the end of subsidy support.
UK Government — Renewables Obligation final consultation analytical annex
Provides government forecasts for the number of ROCs expected to be issued as the scheme runs down. The forecasts show ROC issuance declining from around 109.2 million in 2026/27 to 22.3 million in 2036/37, illustrating the progressively declining nature of the remaining liability.