Notice

Green Gas Support Scheme: budget management guidance

Updated 22 December 2023

Applies to England, Scotland and Wales

This page explains the mechanisms to manage the budget and expenditure on the Green Gas Support Scheme (GGSS), and the associated annual and quarterly publications. It provides information on scheme budget management for both applicants and investors.

The purpose of the GGSS is to encourage the use of anaerobic digestion biomethane plants and increase the injection of green gas into the gas grid, while providing value for money for billpayers. Green gas contributes to carbon emissions savings by reducing the emissions intensity of the UK’s gas supply, as well as reducing emissions from waste.

The key mechanisms explained below are:

• Budget Caps
• the Annual Tariff Review
• Degression

There are 4 publications that the Department for Energy Security and Net Zero (DESNZ) is required to publish regularly, and which are also explained below:

• Expenditure Forecast Statements
• the Annual Tariff Review
• Tariff Change Notices
• Green Gas Levy: rates and exemptions

DESNZ is also required to publish the scheme’s budget caps, and its estimates of inflation and quarterly production factors for new plants used to calculate them and assess estimated expenditure on plants. These are available on separate pages attached to the main GGSS Budget Management page.

Ofgem publishes current GGSS tariffs, and monthly updates on application numbers and progression.

Budget caps

Overview

To provide robust budget management for the scheme there are 2 separate budget caps which fulfil distinct functions:

• an annual Application Budget cap (AB)
• an annual Overall Scheme Expenditure Budget cap (OSEB)

The OSEB is used to set the Green Gas Levy (GGL), which funds the GGSS, and will directly correlate to collection of funds through the Levy. It is designed to provide an overall budget cap against which actual levels of scheme expenditure will be tracked and monitored.

The AB limits estimated spend by acting as a cap against which all applications to the scheme will be checked. Applications will only be approved if there is unallocated AB available to make payments based on their estimated production. Applications for additional capacity will also be checked against the AB.

A differential is set between the AB and the OSEB to build in headroom to reduce the risk of a shortfall between funds collected through the Levy, which is set in advance of each financial year, and payments made to producers.

The AB cap is hit if there is insufficient budget available to fund the expected eligible production of an application in the current or any year for which an AB has been assigned. If this occurs, it will be placed into a queue. Applications will then be processed in the order that they applied should additional budget become available either through other applications withdrawing or being rejected. Later applications may be processed should there be sufficient budget available for them, for example if their expected eligible production is lower than for applications higher up in the queue.

The GGSS’s budget caps are published on separate pages available from the GGSS Budget Management homepage:

• GGSS Budget Caps, Production Factors and Inflation Forecasts for 2024-2025
• GGSS Budget Caps, Production Factors and Inflation Forecasts for 2023-2024

Ofgem publishes monthly updates on the number and progression of applications, as well as AB allocated based on applications received, and based on applications granted.

The AB and OSEB can be increased or decreased upon review by the Secretary of State for the Department for Energy Security and Net Zero. Any change will take effect from one of 1 January, 1 April, 1 July or 1 October. Queued applications may then progress if additional budget is available.

Budgets will be reviewed annually and announced by 31 December along with the announcement of the Levy rate for the following scheme year.

Methodology

The AB is set based on estimated eligible production and therefore estimated spend, using our forecast capacity, production factors and inflation.

The OSEB sits above this to provide headroom should actual spend be higher than estimated.

Forecasting for deployment

Budget caps aim to strike the balance between controlling spend and therefore collection through the GGL, and ensuring that as far as possible projects can access the GGSS without being placed in a queue. They are set using deployment forecasts based on market intelligence to estimate the total scale of applications to the scheme in a given scheme year. This process carries inherent uncertainty because market conditions and developer timelines are subject to change.

Estimating payments to biomethane plants

The AB is set to fund a certain level of deployment on the scheme, based on assumptions about the expected spend on each plant.

Production factors are used to estimate the proportion of a plant’s total registered capacity that we expect to be used to produce eligible biomethane in any given quarter of a plant’s time on the scheme.

A forecast of the Consumer Price Index (CPI) is used to model the amount that plants’ tariffs will be uprated over the period that it is on the scheme. Ofgem uprates tariffs on 1 April, starting on 1 April 2023, using the CPI rate from the previous December. This covers inflation from the calendar year and is published by ONS each January.

When a GGSS tariff guarantee is issued to a plant, that plant is allocated an estimated budget commitment using these assumptions as per the Green Gas Support Scheme Regulations 2021 (regulation 4(17)).

DESNZ is required by the Green Gas Support Scheme regulations (regulation 4(13)) to publish production factors and inflation forecasts used to set budget caps and assess expected spend on plants. These are published with budget caps on the “GGSS Budget Caps, Production Factors and Inflation Forecasts” pages that are available on the GGSS Budget Management homepage.

Differential between AB and OSEB

The differential between the AB and OSEB is modelled based on the uncertainty around the amount of spend allocated to plants. As spend allocation is estimated, there is likely to be a variation between these estimated annual payments and the actual payments made. The modelling used to determine the AB-OSEB differential considers a range of factors that contribute to overall uncertainty regarding scheme spend. These include commissioning dates, production factors, and the potential variation between capacity at tariff guarantee application and registration.

Degression

Objective

The government needs to ensure that the GGSS offers value for money to the billpayer, sufficiently incentivises biomethane production and provides certainty for industry investment.

Degression supports this balance by automatically reducing the tariffs available for new applicants if set expenditure thresholds are met. If forecasts show that we could be paying out more on the scheme than we expected to due to higher capacity deployment, this is a sign that tariffs could be too generous.

The Green Gas Support Scheme Regulations 2021 require the department to publish an Expenditure Forecast Statement (EFS) every quarter, in which a forecast of expenditure over the year ahead is compared to the scheme Expenditure Threshold. If the Threshold is met and a degression occurs, DESNZ must also publish a Tariff Change Notice detailing the reduction.

The Green Gas Support Scheme Regulations 2021 also set out the powers for the DESNZ Secretary of State to amend tariffs and degression thresholds through the Annual Tariff Review.

Ofgem publishes current tariffs.

Effect

When a degression occurs, this reduces by 10% the tariffs available to subsequent GGSS applicants.

The GGSS degression process will act as follows:

Is the quarterly Expenditure Threshold for expenditure over the year ahead exceeded?

• if yes - 10% degression
• if no - no degression

All applications to the GGSS require a Tariff Guarantee. Therefore, once a participant has a tariff awarded and is fully registered on the scheme, they will receive this tariff throughout the GGSS payment period, regardless of any future degressions.

Process

Each quarter that the scheme is open to new applicants, the degression process goes through 4 stages set out below:

1. DESNZ forecasts GGSS expenditure over the following 12 months based on data as of 31 January, 30 April, 31 July and 31 October each year. This will forecast expenditure for the year ahead from those dates and will be based on data from GGSS applications made to Ofgem.

2. DESNZ publishes these quarterly forecasts in an EFS by 1 March, 1 June, 1 September, and 1 December respectively. For expenditure forecasts published on 1 March, 1 June and 1 December, if forecast spend exceeds the degression threshold, a degression will be triggered, and these will be accompanied by a Tariff Change Notice, advising that tariffs will be reduced by 10%. The 1 September EFS is for transparency only; it is published simultaneously with the Annual Tariff Review, which takes precedence in setting tariffs.

3. Ofgem will publish new tariff rates by the 15th day of the month following the publication of the Expenditure Forecast Statement.

4. Any new tariff will come into effect for subsequent registrations on the first day of the following month.

Currently the GGSS closes to new applicants on 30 November 2025. However, on 21 October 2023 we announced that we will extend the scheme with a new closure date of 31 March 2028. We expect this to come into effect as part of the Mid-Scheme Review regulations by end of the 2023/24 FY, subject to parliamentary availability and approval.

Table 1

Degression Milestone	Quarter 1	Quarter 2	Quarter 3	Quarter 4
1. Quarter ending date. Data provided to DESNZ by Ofgem on applications as of these dates.	31 January	30 April	31 July	31 October
2. DESNZ publish expenditure forecast statement and, if required, tariff change notice	1 March	1 June	1 September	1 December
3. Ofgem publish new tariff tables	15 March	15 June	NA	15 December
4. Any degression takes effect	1 April	1 July	NA	1 January

In forecasting expenditure, DESNZ looks ahead and forecasts the maximum potential expenditure commitment over the coming 12 months. This will be based upon applications for a TG made to Ofgem which are beyond Stage 2 of the application process, and applications which have been granted registration. The forecast will reflect the total expected value of the eligible capacity of these installations. It is not a forecast of expected spend, but rather a forecast of the maximum possible spend on those plants. The 12-month period rolls forwards every quarter, running from the end of the quarter.

As Ofgem receives more applications and they progress, over time the amount of committed spend under the scheme will increase. This is different to the forecasts used to set budget caps, which do reflect actual expected spend using production factors rather than the total value of eligible capacity. They also draw on market intelligence to include plants that have not applied to the scheme.

Further explanation of the process can be found in Expenditure Forecast Statements - see Green Gas Support Scheme (GGSS): expenditure forecast statements and tariff change notices.

Expenditure Forecast Statements and Tariff Change Notices

The GGSS Expenditure Forecast Statements, as stated above, will be published by 1 March, 1 June, 1 September and 1 December each year that the scheme is open to new applicants.

The Statement will compare the year-ahead expenditure forecast to the Expenditure Threshold. If the forecast meets or exceeds the threshold level for the quarter in the 1 March, 1 June and 1 December Expenditure Forecast Statements, then a degression will occur.

Tariff Change Notices announce new tariff levels if a degression has been triggered and will be published simultaneously with the relevant Expenditure Forecast Statement.

See Green Gas Support Scheme (GGSS): expenditure forecast statements and tariff change notices for previous Statements and Notices.

Expenditure Threshold Figures

In accordance with the GGSS regulations, DESNZ must publish expenditure threshold figures for each quarter. The threshold figures are reviewed as part of the Annual Tariff Review and new thresholds are then published by 1 September, taking effect from 1 October.

To set the Expenditure Threshold figures DESNZ takes deployment forecasts and sets the threshold level on the same basis as the expenditure forecast used in the Expenditure Forecast Assessment, based on the expected total eligible capacity of plants. The thresholds are set based on an application and deployment forecast which is above the central, expected level (see Table 1), as they are intended to represent an unexpected surge.

Table 2: GGSS Expenditure Degression Threshold (last update 1 September 2022)

Assessment Date	Expenditure threshold figures (£m)
31/01/2022	-
30/04/2022	81.24
31/07/2022	92.44
31/10/2022	103.80
31/01/2023	115.34
30/04/2023	127.05
31/07/2023	139.90
31/10/2023	152.89
31/01/2024	166.00
30/04/2024	179.43
31/07/2024	193.33
31/10/2024	207.36
31/01/2025	208.39
30/04/2025	209.42
31/07/2025	210.46
31/10/2025	211.51

The GGSS’ first 6 months did not have previous performance to compare with, therefore for this period degression was not active. The first degression process began with BEIS assessing forecast expenditure as at 30 April 2022.

There are currently no degression thresholds beyond 31 October 2025 because the closure date of the scheme’s application period is set at 30 November 2025. In October 2023 we announced we will extend the scheme with a new closure date of 31 March 2028. We will add additional thresholds when the new closure date is set in regulations.

Both degression and any changes announced in an Annual Tariff Review will only affect the initial tier 1, 2 and 3 tariffs for subsequent applicants. The mechanisms will not alter the tariffs for applicants with properly made Stage 2 Tariff Guarantee applications.

Tariffs

Tariffs for biomethane injection in place at the launch of the GGSS were defined in regulations as:

• Tier 1: Up to 60,000 MWh – 5.51 p/kWh
• Tier 2: the next 40,000 MWh – 3.53 p/kWh
• Tier 3: 100,000 MWh to 250,000 MWh – 1.56 p/kWh

These tariff levels were informed by the costs and revenues of a typical reference biomethane plant. This understanding was modelled on a combination of desk-based research, market intelligence, ongoing engagement with industry and National Non-Food Crops Centre (NNFCC) research. The detailed evidence on costs underpinning the tariff setting methodology was set out in the final stage Impact Assessment.

Tariffs are updated for inflation every year from 2023 on 1 April based on the previous calendar year’s CPI inflation figure, as published by the Office for National Statistics. Ofgem publishes current tariff rates here.

Both degression and any changes announced in an Annual Tariff Review will only affect the initial tier 1, 2 and 3 tariffs for subsequent applicants. The mechanisms will not alter the tariffs for applicants with properly made Stage 2 Tariff Guarantee applications.

Annual Tariff Review

The Annual Tariff Review (ATR) process works in conjunction with the degression mechanism. Whereas degression is an automatic and rules-based process, the ATR is more in-depth. This reflects their complementary functions, with degressions designed to respond quickly within-year to surges in deployment, while the ATR has the broader function of ensuring production continues to be incentivised at the best value for money.

Previous ATRs and, when applicable, Tariff Change Notices, can be found on the Annual Tariff Review page.

Objective

The ATR aims to ensure tariff payments are sufficient to incentivise deployment on the GGSS, whilst ensuring value for money for the billpayer. Tariff rates that are too high risk overcompensating producers and overburdening the billpayer. Rates that are too low risk decreasing deployment or lowering quality of equipment and feedstocks used, and therefore lowering contributions to carbon budgets.

The ATR announces by 1 September each year while the scheme is open to applications whether scheme tariffs will increase, decrease, or be held as they are for applicants from the following month, starting 1 October. The process reviews scheme data, market intelligence, policy costs, degression expenditure forecasts and industry responses to a government call for evidence. The powers to review tariffs were set out in the GGSS regulations.

The GGSS Expenditure Thresholds used for degression are also reviewed in the ATR and can also be updated.

Assessment

Scheme tariff levels are informed by the costs and revenues of a modelled reference biomethane plant. This model is informed by a combination of desk-based research, market intelligence, ongoing engagement with industry and National Non-Food Crops Centre (NNFCC) research. Further information is available in the final stage Impact Assessment. During the ATR assessment, analysts re-run the tariff setting process.

Information assessed during the ATR includes:

1. Detailed plant construction costs from applicants
2. Cost impact from changes to other government policies
3. Deployment incentivised through GGSS to date, indicating extent of tariff alignment
4. A call for evidence
5. Additional market intelligence inputs; including plant costs and revenues, finance costs and required rates of return.

For the ATR Call for Evidence, the department seeks to use a standardised survey, which could cover the above information and additional factors. We expect calls to adapt to best reflect market conditions and the data available to Ofgem.

Process

The ATR process takes place between May and September each year. A call for evidence is published in early May and provides a minimum of 3 weeks for responses. Quarterly and monthly data provided by Ofgem is also available to DESNZ for the review.

The ATR announcement will be made on 1 September and any change will come into effect a month later on 1 October. If an ATR announces a change in tariffs, a Tariff Change Notice will also be published.

ATRs and, when applicable, Tariff Change Notices, can be found on the Annual Tariff Review page.

Table 3

Annual Tariff Review Milestone	Timings
Call for Evidence open to industry	Early May
Beginning of quarterly GGSS expenditure forecast and degression assessment process (see Degression & Expenditure Forecast Statement section)	31 July
DESNZ analyses responses, data and market intelligence, and undertakes modelling	June - July
DESNZ publishes ATR, Expenditure Forecast Statement and, if required, a Tariff Change Notice	1 September
Ofgem publishes new tariff rates	15 September
Any tariff change comes into effect	1 October