The UK government has now responded to the consultations on the Green Gas Support Scheme (the GGSS) and the Green Gas Levy that we reported on in our previous blog. The Future support  for low carbon heat, outlines further details on these schemes and how they will operate.

Green Gas Support Scheme

We previously reported the government’s proposal to support biomethane injection through anaerobic digestion with payments directly linked to the volumes of biomethane produced. Several elements of the scheme are based on, or similar to, the current RHI scheme.

The scheme will only support biomethane produced by anaerobic digestion, and does not apply to   other green gasses, or hydrogen. The government does, however, acknowledge, that the GGSS may be expanded in the future as other technologies become viable, for example to include  hydrogen. The interface between hydrogen support under the GGSS and the other hydrogen support models currently being considered by government would need to be addressed.

The GGSS is expected to launch in autumn 2021, although as noted below, there will be a delay in payments to account for the launch of the green gas levy scheme.

The tariffs will be based on a 3-tier system. The tariff rates for each tier are set out in the table below. The rates will be locked in once offered through the tariff guarantee process and will only change for inflation.

Biomethane production (MWh) Tariff rate
Tier 1 60,000 (up from 40,000 compared to RHI) 5.51 p/kWh
Tier 2 The next 40,000 3.53 p/kWh
Tier 3 Above 100,000 1.56 p/kWh

In addition, the government has confirmed a 15 year tariff period for the GGSS.

The government looked at increasing the minimum percentage of waste or residue feedstocks in the production of biomethane, but has decided to maintain the current threshold at 50% in accordance with the feedstock restrictions of the non-domestic RHI scheme. The government will undertake a mid-scheme review of the waste feedstock threshold and may look to increase this threshold in the future.

Guarantees of Origin will not be required for the GGSS. The scheme will therefore not be REDII compliant and UK plants will not be able to sell green gas certificates to EU buyers. However, the GGSS criteria on greenhouse gas savings, and the calculations behind this, will be compatible with REDII provisions. Accordingly, biomethane producers will be obliged to meet a greenhouse gas savings threshold of 70%. The government will also introduce provisions on the use of fossil derived fuel in biomethane to facilitate the accurate measurement of carbon savings. Under these provisions, the support payment will be reduced to reflect the percentage of energy content derived from fossil fuel.

Interaction between GGSS and the Renewable Transport Fuel Obligation

Biomethane producers will be able to claim certificates under the Renewable Transport Fuel Obligation (the RTFO) scheme or the GGSS for each consignment of biomethane in a quarter. Double claiming will be prohibited – one consignment of biomethane cannot be supported by both the RTFO and the GGSS scheme.

Green Gas Levy

The government has confirmed its proposal to levy gas suppliers initially at a flat rate per meter supply. The cost of this is anticipated to be passed onto the customers. However, the government intends to transition to a volumetric approach as soon as feasibility issues can be overcome.

The pass-on to consumers of the cost of the green gas levy has caused concerns about fuel poverty in relation to lower income households. The government has extended the Warm Home Discount scheme and extended the Energy Company Obligation as well as introduced more funding for social housing and believes that this will reduce such concerns.

The GGSS is due to launch in Autumn 2021, however the first collection of the levy will not happen until April 2022. It is now confirmed that this gap in funding will be funded by backdating the payments to the biomethane producers, with the first levy collection to occur in Q1 2022/23 and the first support payments to occur by the end of Q1 of the financial year 2022/23, after the first levy collection.

Various budget control measures have also been confirmed and these include: a maximum levy collection figure (to be published in advance of the launch of the GGSS); annual tariff guarantee budget caps; and an overall annual budget cap.

With regards to credit cover for levy payments, gas suppliers will be required to lodge credit cover in the form of cash or letters of credit with Ofgem in advance of a quarter. The credit cover lodged must be at 115% of their next quarterly levy charge.

Contacts

Reza Dadbakhsh
Reza Dadbakhsh
Partner, London
+44 20 7466 2679
Sarah Pollock
Sarah Pollock
Partner, London
+44 20 7466 2786
John Williams
John Williams
Of Counsel, London
+44 20 7466 2392
Oliver Grabowski
Oliver Grabowski
Associate, London
+44 20 7466 2545