Supplier obligations: environmental and social schemes

There are government schemes in Great Britain to incentivise renewable energy generation, energy efficiency and to support vulnerable energy consumers. Some of these schemes place obligations on licensed energy suppliers. The nature and level of obligations depend on a supplier’s:

licence type(s) (gas or electricity supply)
supply volumes
domestic supply customer count

To help suppliers meet these obligations, we have briefly outlined the purpose and requirements for each environmental and social scheme along with links to further information. The schemes are listed below according to the organisation that administers them.

On a specific date each year all energy suppliers are required to notify Ofgem of their number of domestic customers and the volume of gas and electricity they have supplied. This information is used to determine their obligations under each environmental and social scheme that we administer.

If suppliers fail to meet their obligations, Ofgem may take enforcement action in accordance with its powers as Great Britain’s independent energy regulator.

See the full conditions for the supplying of electricity or gas to domestic and non-domestic premises.

Supplier obligation schemes administered by the Low Carbon Contracts Company and Elexon

The Electricity Market Reforms (EMR) introduced the Capacity Market (CM) and Contracts for Difference (CfD) schemes. These place an obligation on suppliers that is ultimately enforced by Ofgem as the energy regulator, but payments are administered by the Low Carbon Contracts Company (LCCC), Electricity Market Reform Settlement (EMRS) and the Electricity Settlements Company (ESC).

Schemes administered by Ofgem

The Energy Company Obligation (ECO) is a programme of government energy efficiency schemes in Great Britain designed to tackle fuel poverty and decarbonise home heating. It places obligations on participating energy suppliers to reduce consumers’ heating bills and carbon emissions by funding improvements to the energy efficiency of eligible homes.

Gas and electricity suppliers who have 150,000 domestic customers on 31 December preceding the relevant scheme year (‘phase’) and have supplied 700GWh of gas or 300GWh of electricity in the calendar year preceding the relevant phase will be obligated under the Energy Company Obligation schemes, ECO4 and the Great British Insulation Scheme (GBIS).

ECO4

ECO4 focusses on a combination of insulation and heating measures exclusively for vulnerable and fuel poor households. ECO4 launched on 1 April 2022 and is due to end with the Great British Insulation Scheme on 31 March 2026. ECO4 sets a main obligation across this period, the home heating cost reduction target, and two sub-obligations, the 'solid wall' minimum requirement and the ‘EFG’ minimum requirement.

Read more about this scheme on the Energy Company Obligation (ECO) page.

The Great British Insulation Scheme launched on 25 July 2023 and is due to end on 31 March 2026. GBIS has a main obligation: the home heating cost reduction target, and one sub-obligation: the low-income minimum requirement.

Unlike ECO4, suppliers obligated under GBIS must meet a defined proportion of their obligations in the first 2 scheme years.

GBIS mostly delivers a single insulation measure to each home and is available to a wider range of consumers, including households who are not identified as fuel poor.

Read more about this scheme on the Great British Insulation Scheme (GBIS) page.

Electricity suppliers that meet the domestic customer thresholds listed below are obligated under the Warm Home Discount (WHD) scheme. Electricity suppliers can also become voluntary participants of the WHD.

Obligated Suppliers must provide a £150 annual electricity rebate to those at risk of fuel poverty, as well as further contributions towards preventing fuel poverty.

The number of obligated suppliers is determined by their number of domestic electricity customers. The customer number threshold may be reduced throughout the WHD scheme.

Date range

1 April 2022 to 31 March 2023

1 April 2023 to 31 March 2026

Scheme year

13-15

Number of domestic electricity customers

≥50,000

≥1,000

Read more about this scheme on the Warm Home Discount (WHD) page.

All licensed electricity suppliers are obligated under the Renewables Obligation (RO) schemes.

The RO is the main support mechanism for large-scale renewable electricity projects in Great Britain. It’s closed to new capacity, but supplier obligations continue until 31 March 2037 with the last payments due by 31 October 2037.

Electricity suppliers must report their electricity supply volumes and meet their annual obligation by presenting Renewables Obligation Certificates (ROCs), making a payment into a buy-out fund or a combination of the two. Suppliers who fail to fully meet their obligation by 1 September must make a late payment during the late payment period, which runs from 1 September to 31 October.

Read more about this scheme on the Renewables Obligation (RO) page.

All electricity suppliers are obligated under the Feed-in Tariffs (FIT) Scheme.

The FIT scheme is designed to promote the uptake of small-scale renewable and low-carbon electricity generation in Great Britain.

Electricity suppliers must report their electricity supply volumes and make payments towards the cost of the scheme each quarter and separately at the end of each scheme year.

Electricity suppliers with 250,000 or more domestic electricity customers on the 31 December before each scheme year, are also obligated to be a ‘FIT Licensee’ and make payments to generators of accredited installations who switch to them. Suppliers can also volunteer to be a FIT Licensee if their customer numbers are below the threshold.

Read more about this scheme on the Feed in Tariff (FIT) page.

All electricity suppliers are obligated under the Offtaker of Last Resort (OLR) scheme.

The OLR scheme is designed to offer a backstop auction for generators with an Investment Contract or Contracts for Difference (CFD) contract, but cannot obtain a power purchase agreement (PPA).

All suppliers are obligated to participate in OLR levelisation. Electricity suppliers that supplied 6% or more of all electricity supplied to consumers in the previous year (1 April – 31 March), are also obligated to bid in all our OLR auctions. Non-obligated suppliers are also able to bid in these auctions.

Read more about this scheme on the Offtaker of Last Resort (OLR) page.

Electricity suppliers that have supplied electricity for a full disclosure period (1 April – 31 March), are obligated under the Fuel Mix Disclosure (FMD) scheme.

FMD is the annual process whereby all suppliers must disclose to their customers the mix of fuels used to generate electricity.

FMD ensures that there is transparency over the proportion of electricity generated from renewable sources.

To demonstrate supply of renewable electricity, suppliers must hold REGOs on Ofgem’s Renewable and CHP Register, or must present EU Guarantees of Origin (GoOs) to Ofgem. They must provide this information by 1 October annually. From the disclosure period beginning 1 April 2023 and onwards, GoOs are no longer recognised for use in GB FMD, FIT annual levelisation, or CfD.

Read more about this scheme on the Fuel Mix Disclosure (FMD) page.

Electricity suppliers that have at least 150,000 domestic customers on 31 December of a given year are Mandatory Smart Export Guarantee (SEG) Licensees for the following SEG Year (April – March). They must offer at least one SEG tariff to pay small scale generators for low-carbon electricity that they export to the National Grid.

Suppliers determine the rate they will pay generators, but SEG tariff rates must always be above zero. Suppliers with fewer than 150,000 domestic customers can choose to be voluntary SEG licensees.

Suppliers must notify Ofgem whether they are a Mandatory SEG Licensee, a Voluntary SEG Licensee or neither by 14 February annually.

The SEG ensures that small-scale generators of low carbon electricity have a route to market and can be paid for the low carbon electricity they export to the grid.

Read more about this scheme on the Smart Export Guarantee (SEG) page.

All gas suppliers are obligated under the Green Gas Levy (GGL) which funds the Green Gas Support Scheme (GGSS).

The GGSS provides financial incentives for new anaerobic digestion biomethane plants to increase the proportion of green gas in the gas grid.

Under the GGL gas suppliers make quarterly levy payments which are calculated according to the number of meter points they serve. Obligated suppliers are also required to lodge credit cover, either in cash or as a letter of credit.

Read more about this scheme on the Green Gas Support Scheme (GGSS) and Green Gas Levy (GGL) page.

Schemes administered by the Low Carbon Contracts Company and Elexon

All electricity suppliers are obligated under the Contracts for Difference (CfD) scheme, administered by the Low Carbon Contracts Company (LCCC).

The CfD provides revenue stability for eligible low carbon generators through a guaranteed strike price. Generators will receive or make payments based on the differential between their specific strike price and the market price. Under its regulatory obligations, the LCCC provides online forecasts of supplier levies and administers daily payments of the supplier obligations to and from suppliers through their settlement provider, EMRS.

The CfD contains the Electricity Supplier Obligations, which place a compulsory levy on suppliers to meet the costs of the scheme. Suppliers must make pre-payments consisting of a unit cost fixed ‘Interim Levy Rate’, chargeable as a £/MWh rate on eligible demand on a daily basis, and lump sum ‘Individual Supplier Reserve Amount’ payments at the start of each quarterly obligation period. The Interim Levy Rate and ‘Total Reserve Amount’ for a given quarter are set by LCCC on a quarterly basis, before the beginning of the preceding quarter.

Read more about this scheme on the Contracts for Difference (CfD)│LCCC page.

For further information, visit the CfD supplier support page on the EMR Settlement Limited website.

All electricity suppliers are obligated under the Capacity Market (CM), administered by the Electricity Settlements Company (ESC).

The CM scheme pays Capacity Providers to ensure security of supply to help manage system stress events. It does so through annual capacity auctions and requires electricity suppliers to make monthly payments against the ‘Capacity Market Supplier Charge’ and ‘Capacity Market Settlement Costs Levy’ to the ESC through their Settlement provider, EMRS.

These costs are invoiced to electricity suppliers monthly based on their share of net demand for periods of high demand in the delivery year, multiplied by Total Annual Capacity Provider Payments.

Read more about this scheme on the Capacity Market (CM)│LCCC page.

For further information, visit the CM supplier support page on the EMR Settlement Limited website.