Notice

Green Gas Support Scheme (GGSS): Annual Tariff Review 2023

Updated 1 September 2023

Applies to England, Scotland and Wales

Overview

Tier 3 tariff to increase to 3.45p/kWh, Tier 1 & 2 tariffs and degression threshold unchanged.

The Green Gas Support Scheme Regulations 2021 allow for the Secretary of State to review and change GGSS tariffs and tariff degression thresholds annually while the scheme is open to applications with an announcement by 1 September. If applicable, changes then come into force from 1 October. The Annual Tariff Review (ATR) publishes and explains the decisions.

Following the review of tariffs and thresholds, the Secretary of State has decided that GGSS Tier 1 and 2 tariffs will remain unchanged, and the Tier 3 tariff will increase from 1.72p/kWh to 3.45p/kWh on 1 October 2023. Degression thresholds will remain unchanged.

By reviewing GGSS tariffs annually, we aim to ensure that tariff payments are sufficient to incentivise deployment under the GGSS, whilst ensuring value for money for the billpayer. Tariff rates that are too high would overcompensate producers while rates that are too low could decrease deployment or lower the quality of equipment and feedstocks used, leading to lower carbon savings. Tariff rate degression can be triggered if forecasted spend exceeds the scheme’s Expenditure Threshold for a quarter. This could occur if there is an unexpected spike in applications.

The principles and timetable for the ATR are laid out further on the GGSS Budget Management guidance page.

Tariffs from 1 October 2023

GGSS tariffs on 1 October 2023 will be:

• Tier 1: Up to 60,000 MWh per year – 6.09p/kWh
• Tier 2: the next 40,000 MWh per year – 3.90p/kWh
• Tier 3: above 100,000 MWh up to 250,000 MWh per year – 3.45p/kWh

The review found that tariffs at Tiers 1 and 2 are appropriate, incentivising deployment but not over-compensating plants. We have increased the Tier 3 tariff after updating our cost assumptions for larger plants. The increased tariff level is set to provide a comparative return for plants injecting at Tier 3 compared to plants injecting at Tiers 1 and 2.

These tariffs will be applied to tariff guarantees (TGs) awarded to successful applicants whose TG applications are submitted from 1 October 2023 and before the next GGSS tariff change is in effect.

GGSS tariffs are uprated automatically for inflation every year on 1 April, using the percentage increase or decrease in the Consumer Price Index (CPI) of the previous calendar year. New, uprated tariffs will be published here by Ofgem by 1 April 2024.

On 1 September each year, the date of the publication of the ATR, we also publish the GGSS’s quarterly Expenditure Forecast Statement (EFS) for the quarter ending 31 July, which is available from the Green Gas Support Scheme (GGSS): expenditure forecast statements and tariff change notices page. EFSs measure potential future scheme spend against degression thresholds and can, for other quarters, trigger a tariff degression. This quarter, however, the ATR takes precedence for setting tariff levels and the Statement is provided for transparency only.

Degression thresholds from 1 October 2023

The GGSS degression thresholds will remain unchanged on 1 October 2023. The review found that the existing degression thresholds are at an appropriate level. They should only be reached if there are considerable unexpected spikes in applications, signalling potential over-compensation.

We publish degression thresholds, along with detailed information on the degression assessment process, on the GGSS Budget Management page. We have reproduced it below in Table 1 for clarity.

Table 1: GGSS Expenditure Degression Thresholds

Assessment Date	Expenditure threshold figures (£m)
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	211.50

Process of reviewing tariffs and degression thresholds

The annual review of GGSS tariffs and degression thresholds involves a re-running of the tariff-setting process and an evaluation of whether degression thresholds are set at an appropriate level to be triggered in case of a spike in applications.

The tariff-setting process is centred around a model for a reference biomethane anaerobic digestion (AD) plant, designed to represent the average plant we expect to apply for the GGSS. The model indicates what rate of return a set of tariff rates will provide for the reference plant given costs, revenues, and macroeconomic forecast input levels. Further details of the tariff-setting methodology can be found in the GGSS final stage Impact Assessment.

Up-to-date data on biomethane AD plants and the AD market environment is drawn from a Call for Evidence, which is published at the outset of the review. DESNZ also undertakes ongoing engagements with industry and investors, which are factored in. The process is run using up-to-date macroeconomic forecasts.

We published the Call for Evidence for the 2023 ATR on 2 May 2023, requiring responses by 5 June 2023. It asked all respondents to answer a list of 12 questions and requested developers and operators of biomethane AD plants to fill in a template with information on their planned or operating plant(s). We have provided a summary of responses in Annex A.

The tariff review provides an opportunity to alter tariffs if there are considerable changes to biomethane production and/or cost/revenue factors across the industry. Inflationary impacts on capital and operating costs are factored in through the automatic uprating mechanism conducted by Ofgem.

Annex A: GGSS Annual Tariff Review Call for Evidence

The GGSS Annual Tariff Review Call for Evidence was open from 2 May 2023 to 5 June 2023. It contained 12 questions and, for biomethane anaerobic digestion (AD) plant developers and operators, a template to include information on planned or operating plants. In total there were 3 responses, one from a trade association and 2 from biomethane AD plant developers and operators.

Overall, responses were consistent with Tier 1 and 2 tariffs being at appropriate levels, and with Tier 3 tariffs providing a lower incentivisation level:

• respondents recognised that increased gas prices have improved the attractiveness of biomethane AD plant development by increasing revenues
• responses highlighted some areas in which costs have increased for developers, particularly equipment costs, transportation and fuel cost increases
• increased borrowing costs due to higher interest rates were raised as an important factor for developers. Respondents highlighted that project attractiveness is sensitive to the discount rate and therefore impacted by interest rates
• supply chain delays for raw materials and plant equipment, as reported through the 2022 ATR Call for Evidence, were described as having improved for plant developers.
• food waste feedstock availability continues to be a concern and responses reported difficulties for developers in securing contracts
• respondents said that Renewable Transport Fuel Certificates (RTFCs) are an attractive potential revenue source if biomethane volumes above the Tier 2 threshold can be allocated to them. However, they highlighted price volatility and a lack of forecasting as challenges in factoring RTFC revenues into financial planning
• stakeholders continue to see the scheme’s degression thresholds as appropriate and pointed out that degression is currently unlikely to be triggered

DESNZ regularly engages with industry and investors for market intelligence gathering purposes, covering topics that include tariff levels; GGSS application numbers; the industry deployment outlook; developer, operator and investor sentiment; costs and other challenges for the industry; and rates of return required by investors in AD plants. This intelligence was also considered in the ATR.