Notice

Green Gas Support Scheme (GGSS): Annual Tariff Review 2024

Updated 30 August 2024

Applies to England, Scotland and Wales

Overview

Tier 1 tariff to increase to 6.69 p/kWh.

Tier 2 tariff to increase to 4.16 p/kWh.

Tier 3 tariff to increase to 3.88 p/kWh.

Degression thresholds have been updated to reflect the scheme extension.

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. The outcome of the review must be announced by 1 September and, 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 the GGSS Tier 1 tariff will increase to 6.69 p/kWh, the Tier 2 tariff will increase to 4.16 p/kWh and the Tier 3 tariff will increase to 3.88 p/kWh on 1 October 2024. Degression thresholds have been updated to reflect the scheme extension.

By reviewing GGSS tariffs annually, we aim to ensure that tariff payments continue 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 signalling potential over-compensation.

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

Tariffs from 1 October 2024

GGSS tariffs on 1 October 2024 will be:

• Tier 1: Up to 60,000 MWh per year – 6.69p/kWh
• Tier 2: the next 40,000 MWh per year – 4.16p/kWh
• Tier 3: above 100,000 MWh up to 250,000 MWh per year – 3.88p/kWh

We have increased Tier 1, Tier 2 and Tier 3 tariffs to reflect updated cost and revenue assumptions.

These tariffs will be applied to tariff guarantees (TGs) awarded to successful applicants whose TG applications are submitted from 1 October 2024 and before the next GGSS tariff change is in effect.

GGSS tariffs are uprated 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 2025.

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 a tariff degression cannot be triggered. The EFS is provided for transparency only.

Degression thresholds from 1 October 2024

The GGSS degression thresholds will change on 1 October 2024. The Green Gas Support Scheme Amendment Regulations 2024 extended the scheme closure date from 30 November 2025 to 31 March 2028 following the mid-scheme review of the GGSS. The degression thresholds have therefore been amended to reflect the new closure date and the latest deployment forecasts. The thresholds are set based on an application and deployment forecast which is above the central, expected level, as they are intended to represent an unexpected surge. The degression threshold 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	223.71
30/04/2025	240.05
31/07/2025	256.40
31/10/2025	272.74
31/01/2026	289.09
30/04/2026	305.43
31/07/2026	321.78
31/10/2026	338.13
31/01/2027	339.42
30/04/2027	340.79
31/07/2027	342.33
31/10/2027	343.91
31/01/2028	345.51

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 into the review. The process is run using up-to-date macroeconomic forecasts.

We published the Call for Evidence for the 2024 ATR on 29 April 2024, and closed it on 27 May 2024. It contained 12 questions and, for biomethane anaerobic digestion (AD) plant developers and operators, a template to include information on planned or operating plants. 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 and revenue factors across the industry. Inflationary impacts on capital and operating costs are factored in through the automatic tariff 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 29 April 2024 to 27 May 2024. 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 13 responses:

• 2 from trade associations
• 6 from biomethane AD plant developers and operators
• 5 from other categories such as investors

Summary of responses

• respondents indicated that overall, the attractiveness of developing anaerobic digestion capacity has decreased in the last year and that tariffs are set too low
• some respondents provided positive comments regarding last year’s Tier 3 tariff rate increase
• responses highlighted some areas in which costs have increased for operators, particularly increases in labour, consumables, and maintenance costs
• respondents cited problems with availability of feedstocks, as well as associated costs, including transport, remaining high whilst revenues have fallen
• some respondents indicated that improvements had been seen in the supply chain, but concerns were raised about long lead times, increasing costs, and global competition

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 market intelligence was also considered in the ATR.