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

Consultation and stakeholder engagement

The Scottish Government, UK Government, and Northern Ireland Executive ran a joint public consultation on the two policy options proposed to implement this change. The overarching message from consultation responses is that the renewables industry is opposed to any change to indexation prior to 2030 on the grounds a retrospective change will undermine the UK’s reputation for stability and predictability which will in turn undermine investor confidence and increase the cost of capital.

Other concerns raised through consultation responses include:

• Reduced revenue – generators with assets supported by RO schemes could experience a decrease in forecast revenue from RO projects.
• Quickly eroding consumer benefits – stakeholders questioned whether initial reduced costs for consumers would be outweighed by increasing capital costs which will eventually pass through to consumer bills.
• Risk related to project financing – financial projections underpinning project obligations such as leases, debt and financing have been calculated using RPI, and changes to indexation may jeopardise some arrangements.

Having considered the full range of evidence, the Governments recognise that both options carry risks for investor confidence. We acknowledge that neither option was preferred by the majority of consultees. However, respondents were clear that Option 2 would create materially greater uncertainty and disruption. On balance, we 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.

Following a recommendation from UK Government’s Secretary of State for Energy Security and Net Zero, the UK Government, Scottish Government and Northern Ireland Executive have therefore jointly agreed to proceed with an immediate switch to CPI-based indexation of the RO buy out price ahead of the next annual adjustment scheduled in April 2026 (Option 1).

Island communities had the opportunity to raise any concerns during the joint consultation. Initial analysis of consultation responses found that some of the above concerns were echoed in responses that specifically referenced Scottish islands, however it should be noted that only 5 out of 247 responses referenced Scottish Island communities.

Additionally, we consulted policy leads in local energy, onshore electricity networks and Local Energy Scotland for their views on the potential impact of changes.

There are no design features or mitigations that specifically consider island communities in this policy.