Part 1 – The basic overview
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 proposals in last year's consultation - "Future Support for Low Carbon Heat" - aimed to increase the proportion of green gas in the grid through the introduction of a new "Green Gas Support Scheme" (GGSS).
The UK government has now responded to the feedback received to that consultation, setting out its proposals for replacement schemes to the RHI and providing more detail on the nature of the GGSS and the Green Gas Levy.
In this article (the first of three), Jonathan Croley, Senior Associate at Ashfords LLP provides an overview of the GGSS, before moving on:
- in the second article, to examine how the GGSS compares with and interacts with the RHI and RTFO; and
- in the third and final article, looking at the scale of the opportunity for investors.
What are the aims of the GGSS?
In energy and carbon terms, the heating of industry, businesses and homes is responsible for a third of the UK's greenhouse gas emissions. The GGSS is set to help reduce those emissions by replacing natural gas in the National Gas Grid with green gas through supporting the production of biomethane and biomethane injection in the grid.
In policy terms, the GGSS will encourage investment in green gas that has faltered since the wind-down and closure of the RHI scheme (first introduced in 2011 and closed to new applications in March 2021).
How will the GGSS be funded?
The GGGS will be funded through a "Green Gas Levy" on gas suppliers, which is expected to be passed onto energy customers' bills.
How will the GGSS work?
The GGSS makes payments to producers of biomethane dependent on the volumes of biomethane produced (in a manner similar to the RHI).
The payments under the GGSS will provide an enhanced and secure level of income which it is hoped will enable financial models to show an acceptable rate of return and enable third-party investment.
What are the eligibility requirements to partake in the GGSS?
The GGSS has been created specifically for the anaerobic digestion (AD) industry, and only supports the production of biomethane and its injection into the gas grid.
Consequently pyrolysis, electrolysis and other conversion technologies will not be eligible under the GGSS.
The subsidy will not be payable in respect of the production of hydrogen or other green gases.
Are there sustainability criteria linked to the GGSS?
Yes - it is expected that:
- the GGSS criteria on greenhouse gas savings and the methodology to calculate this will be compatible with REDII provisions; and
- biomethane producers will be required to meet a GHG emissions saving threshold of 70% – these criteria will be met if the biomethane has a carbon intensity of less than 24gCO2e/MJ.
What are the feedstock criteria for the GGSS?
At least 50% of all biomethane, by energy content, must be produced using waste or residue feedstock (which follows the requirements for the more recent AD plants accredited under the RHI).
Will the GGSS impose design requirements on AD plants?
All new AD plants wishing to take part in the scheme will be required to cover stores (in line with new Environment Agency regulations) and spread using low emissions spreading techniques (in-line with the Code of Good Agricultural Practice or the National Association of Agricultural Contractors (NAAC) guidelines).
The GGSS does not answer the question of how the Government will support the uptake of other technologies which can serve to decarbonise heat in the UK – especially hydrogen.
However, those familiar with the RHI will immediately recognise the similarities between the GGSS and RHI. As the “son of RHI” which targets an established sector of UK energy production, the Government may be targeting “quick wins” in terms of greening the UK gas grid.
Whether those “quick wins” will be achieved will depend on the financial detail of the GGSS, which will be the subject of the second article in this series.
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.