Renewables Obligation (Scotland) Order 2009 amendments consultation: partial business and regulatory impact assessment

Section 3: Costs, impacts and benefits

Costs to businesses

The RO operates as a market-based system of tradable green certificates. The scheme places an obligation on UK electricity suppliers to present a certain number of Renewable Obligation Certificates (ROCs) to the scheme administrator (Ofgem), for each unit of electricity they supplied to non-exempt customers during an obligation year.

Suppliers can purchase these ROCs from generators or traders (with the precise value of a ROC a matter for negotiation) or can meet their annual obligation (in part or in full) by paying into a buy-out fund. The prices of ROCs sold through the buy-out fund is set by the Department for Energy Security and Net Zero (DESNZ), with the price indexed each year in line with inflation.

Although the majority of suppliers meet their obligation by purchasing ROCs rather than paying the buyout price, the predefined buyout price is assumed to directly impact on the traded price of ROCs. Any adjustment to the rate of indexation will therefore directly impact on the total spend required by suppliers and the total revenue received by generators. More detail will be provided in the final BRIA following analysis of consultation responses from stakeholders.

Estimated benefits

DESNZ have provided an initial analysis of the potential savings from both Options 1 and 2 described above as shown in Table 1. These savings have been calculated by multiplying the projected ROC volumes by the buy-out prices adjusted for different inflation indices and uplifted by 10% to account for headroom. These projections are based on high-level aggregate modelling and are subject to uncertainties. Updated estimates will be provided in the final BRIA.

Scottish firms’ international competitiveness

This proposal is unlikely to affect Scotland as a place to invest in renewable electricity generation, due to the very small magnitude of the expected change. We will consult with generators during the consultation period.

Benefits to business

Businesses that are high electricity consumers, as well as energy intensive industries, may benefit proportionately more from this proposal. The savings set out are for an average household.

For electricity generators and energy suppliers operating across the UK, there is also benefit in aligning with the rest of the UK to ensure consistency in business planning.

Small business impacts

Small businesses are expected to benefit from this proposed change similarly to households. In 2024, 95.4% of Scottish Energy registered enterprises were small (0-49 employees)^[4] and are defined as consumers in the Consumer Scotland Act 2020. The cumulative benefit for Scotland’s small businesses is therefore potentially significant.

Investment

There is unlikely to be a significant impact on investment due to small magnitude of the expected change.

Workforce and Fair Work

While there are currently no known impacts for workforce and fair work, consumers, stakeholders and businesses will have an opportunity to raise any during the consultation.

Climate change/ Circular Economy

The schemes continue to play an important role in powering the UK - over 30 per cent of the UK’s electricity generation is supported by the RO. Ensuring the schemes provide stable and consistent support to these generators, at a fair cost to consumers, remains a priority for the Scottish Government.

Competition Assessment

While there are currently no known impacts for competition between firms, consumers, stakeholders and businesses will have an opportunity to raise any during the consultation.

Consumer Duty

This update to the RO legislation has been brought about with consumer benefits in mind. While the figures may be a small amount per household (around £3-£11 per household per year by 2030/31 as referred to previously), it still represents money saved by consumers. Business consumers can also expect to benefit.