The Green Gas Support Scheme - The financial detail

Part 2 - The financial detail

With the non-domestic renewable heat incentive (RHI) now closed to new entrants, but with the deadline to achieve Net Zero coming ever closer, the Government has been under pressure for some time to set out how it aims to secure the decarbonisation of heat.

The UK Government has now responded to the feedback received to last year's consultation - "Future Support for Low Carbon Heat" - which aimed to increase the proportion of green gas in the grid through the introduction of a new "Green Gas Support Scheme" (GGSS).

In this second article on the Government’s response to the consultation, Jonathan Croley, Senior Associate at Ashfords LLP, examines the financial detail of the GGSS, and how it  compares with and interacts with the two principle schemes that support the production of biomethane: the non-domestic renewable heat incentive (RHI) and the renewable transport fuel obligation (RTFO).

How do the GGSS tariff rates compare to RHI?

The tariff is paid per MWh of biomethane produced, with different tariffs paid per MWh depending on the aggregated quantity of biomethane produced.

The government has proposed a tiering system within the GGSS so that a higher tariff is paid to "Tier 1" and lower tariffs paid to Tier 2 and Tier 3:

The GGSS tariffs will be subject to degression, but once an Anaerobic Digestion (AD) plant is accredited, the tariffs will be “locked-in” for that plant for the next 15 years (a shorter period than the 20 years under the RHI).

GGSS-accredited plants will be able to add capacity, if the extension application also falls within the 4-year GGSS window.

How does the GGSS interact with the RHI scheme?

There will be no interaction between the RHI and GGSS. Plants accredited for RHI will not be able to extend the capacity of their plant through the GGSS.

It may be possible for there to be some shared infrastructure between an RHI-accredited facility and a GGSS-accredited facility, but detailed legal and technical analysis should be sought once the detailed terms of this red line between RHI and the GGSS is confirmed.

How does the GGSS interact with the RTFO scheme?

The position on the RTFO is more flexible than that for RHI.

Biomethane can be flexibly proportioned to the GGSS or the RTFO scheme, within any given quarter. This will enable AD plant owners to “ride the market” on RTFOs when it suits them to do so. The precise detail of how this will operate in practice is yet to be confirmed.

Conclusion

The financial detail and certainty provided by the Government is expected to provide significant comfort to those involved in the AD sector, both at project sponsor/developer level and investor level.

The degression of GGSS will incentivise developers and their funders to seek to capitalise early.

Importantly though, the four year window may provide developers with the confidence to invest in bringing new developments through the planning system with relative certainty that support will be available once planning has been obtained – something that has been lacking over recent years with the somewhat ad-hoc extension of the RHI scheme.  

The scope of the opportunity presented by the GGSS will be examined in the third and final article in this series.

For further information, please contact Jonathan Croley on 01392 334109 or j.croley@ashfords.co.uk

Notes:

The government's full response to the "Future Support for Low Carbon Heat" consultation can be found here.

Ashfords has recently been appointed to the Anaerobic Digestion and Bioresources Association (ADBA) Advisory Board and will be represented by Partner Brian Farrell and Senior Associate Jonathan Croley, from Ashfords LLP's Commercial and IP team (please see the article here).

We are grateful to ADBA for contributing to the analysis set out in this article.