Renewables Obligation (Scotland) Order 2009 - inflation indexation changes: equality impact assessment

Background

The RO schemes provide incentives for accredited renewable generators to produce renewable electricity, through providing additional income separate to that which they receive for selling their electricity on the wholesale market. The RO schemes were introduced at a time when renewable electricity was significantly more expensive, and when generators faced higher capital costs than those building new generating assets today. As such, the scheme leaves a substantial cost legacy and one that is ultimately borne by consumers through levies on electricity bills. This cost has been rising over time; the scheme’s value is forecast to total over £8.5bn a year across the UK in 2025/26^[1][2]. While the RO Schemes closed to new capacity in 2017, generators across the UK will continue to receive payments until they come off the scheme between 2027 and 2037.

The UK Government, Scottish Government and Northern Ireland Executive are in the process of implementing legislative changes which will alter how the costs of the RO schemes are adjusted for inflation in future. We consider that it would be proportionate and fair to domestic and non-domestic consumers, and renewable electricity generators, to change the price index used to adjust RO scheme costs for inflation from the RPI to the CPI. The CPI is generally a more stable and widely used measure of inflation than the RPI and excludes the housing costs (in CPIH) which we do not consider to be relevant to generators with the majority of capacity on the RO schemes. It is therefore a more accurate reflection of cost pressures. Further, changing inflation indexation to the CPI is expected to generate savings in the energy system, which could be passed onto consumers though reducing the levies on electricity bills, and is in alignment with broader policy and regulatory direction across the UK.

Without pre-emptive action, changes to indexation would otherwise take effect in 2030, in line with the Office for National Statistics (ONS) decision to realign the RPI to CPI including owner occupiers’ housing costs (CPIH)^[3]. This would see scheme costs continue to rise in line with the RPI in the short-term.

By changing how the RO schemes are adjusted for inflation, the UK Government, Scottish Government, and Northern Ireland Executive intend to reduce the levies on electricity bills and move to a more accurate measure of estimating annual growth. The Scottish Government recognises the balance that must be achieved between ensuring that generators continue to receive an appropriate return on their investments and managing costs to domestic and non-domestic consumers.

This change reinforces Scotland’s commitment to the Just Transition spatial principle set out in the National Planning Framework^[4] and advances the National Strategy for Economic Transformation^[5] ambitions of a fairer, greener economy by reducing inequality through fairer energy costs while still supporting renewable energy generation.

From 31 October 2025 to 2 December 2025, a joint consultation between UK Government, Scottish Government and the Northern Ireland Executive sought views on two policy options for transitioning from the RPI to the CPI:

Option 1 – Immediate switch to CPI Indexation: This option would involve a simple switch in the price index used to adjust the RO buy-out price from the RPI to the CPI. This approach would ensure generators continue to receive a stable and predictable return that maintains its value, whilst making savings in the energy system.

Option 2 – Temporary freeze and gradual realignment with CPI: This alternative would involve freezing the RO buy-out price at the 2025/26 level (£67.06 per ROC), taking effect from April 2026 (subject to legislative schedules). This option goes further than Option 1 and would not only prevent further overcompensation in future but gradually realign scheme costs after presumed historical overcompensation caused by RPI’s tendency to overstate inflation

In deciding which option to pursue, the Governments have been guided by three overarching principles:

• Reducing the burden on consumers and ensuring the energy system remains fit for future demands
• Ensuring long-term stability and confidence for investors
• Alignment with broader energy schemes

On balance, the Governments consider Option 1 is the least disruptive approach, avoiding the prolonged uncertainty and more severe impacts associated with a temporary freeze, while still delivering savings to energy consumers to support cost-of-living. We consider that this approach strikes the most appropriate balance between reducing the cost burden on consumers while maintaining strong investor confidence in the UK’s renewable energy sector and ensuring consistency with other energy schemes such as the CfD and the Capacity Market.

Following a recommendation from the Secretary of State for Energy Security and Net Zero, and conclusion of the consultation process, the UK Government, Scottish Government and Northern Ireland Executive have therefore jointly agreed to proceed with Option 1, an immediate switch to CPI-based indexation of the RO buy out price ahead of the next annual adjustment scheduled in April 2026. This will apply across the RO schemes in England and Wales, Scotland and Northern Ireland (subject to respective legislative processes).