GGSS annual tariff review 2024: call for evidence
Published 29 April 2024
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To inform the annual tariff review (ATR) 2024, we’re seeking views on the outlook of the biomethane industry and whether costs and revenues for biomethane plants have changed over the past year.
We invite responses from industry, investors, trade associations and other stakeholders. Your evidence will help to ensure that tariffs are set an appropriate level.
About the scheme
The Green Gas Support Scheme (GGSS) provides tariff support for plants producing biomethane via anaerobic digestion which is injected into the gas grid. It is funded by the Green Gas Levy which is applied to all licensed fossil fuel gas suppliers. The GGSS opened on 30 November 2021 with initial tariffs set in the GGSS Regulations 2021.
The ATR is carried out to ensure that the GGSS continues to incentivise the deployment of plants and consistently delivers value for money for billpayers. The review is the primary mechanism to amend tariffs offered to new applicants and the GGSS regulations currently allow tariffs to be increased or decreased on 1 October each year until October 2025. We have announced that we will extend the GGSS to 31 March 2028. Once regulations to extend the scheme come in effect, the tariff review will continue each year until October 2027. The outcome of the review must be published by 1 September each year, with new tariffs, if applicable, coming into effect one month later, from 1 October.
The degression thresholds are also reviewed as part of the ATR. The degression mechanism on the GGSS acts to prevent over-compensation where biomethane deployment is greater than anticipated. The mechanism reduces the tariffs available for new applicants by 10%, if set expenditure thresholds within a quarter are expected to be exceeded.
More information on the GGSS:
- Green Gas Support Scheme: annual tariff review 2023
- Green Gas Support Scheme: budget management guidance
- Future support for low carbon heat consultation: government response
Why your views matter
Tariffs that are too low risk curtailing deployment or lowering the quality of the equipment and feedstocks used, and therefore reducing the scheme benefits. Tariff rates that are too high run the risk of overcompensating producers and overburdening the billpayer.
The GGSS’s tariffs are set according to a tariff-setting model based on a reference biomethane plant, the size of which we can review as part of the ATR. A discounted cash flow model is used to calculate the tariff required for the plant to achieve a target post-tax nominal rate of return. The model takes into account factors including capital, operating and net feedstock costs, and revenues, in the absence of policy support, including those earned from selling the biomethane to the grid and from Green Gas Certificates. The ATR process involves re-running this model and updating its inputs. The ATR Call for Evidence is a key input in the updating process, both for the tariff-setting model, and in gathering wider evidence on the market environment and outlook. The decision to increase, decrease or hold tariffs also considers other factors, including forecasting uncertainties, risk perception and the broader policy context.
How to respond
What happens next
The annual tariff review will be published by 1 September 2024. The review will be available from the GGSS annual tariff reviews page.