Ofgem consults on proposals for implementation of the Green Gas Support Scheme
The Green Gas Support Scheme (GGSS) is one of the new subsidy mechanisms being introduced to support development of bioenergy projects to replace the Renewable Heat Incentive (RHI).
The GGSS will begin in autumn 2021 and will run until autumn 2025. The scheme will be solely dedicated to the production of biomethane supported by the Green Gas Levy. This is a new fund which will raise money from energy bill-payers via a levy on licensed suppliers of gas. The scheme will encourage the production of anaerobic digestion (“AD”) biomethane plants in order to increase the proportion of green gas in the gas grid.
The GGSS aims to follow the RHI’s example of a tariff-based mechanism, whereby the tariff will be tiered to reflect the cost of producing biomethane at different scales. This aims to encourage the development of larger AD plants that can achieve better economies of scale. In order to avoid risk of overcompensation, installations that are still receiving RHI are not able to take part in the GGSS.
Ofgem published a consultation paper on 5 July 2021 titled Administration of the Green Gas Support Scheme. Key points to note are as follows.
Tariff guarantees
Tariff guarantees will be used, both to provide certainty to investors and to operate as a cap on the budget.
At stage 1 of the application, developers will provide information including the date injection is expected to start and expected maximum capacity. Developers will also need to have a signed connection agreement and planning permission (if required).
The provisional tariff guarantee will confirm the initial tariff rate should subsequent stages be completed successfully.
Following submission of the stage 1 application, Ofgem will confirm whether sufficient budget is available. If it is not, the application will be placed in a queue until either the next financial year when a further budget allocation is reached or until an application is cancelled or rejected thus freeing up allocation in the current financial year.
Stage 2 of the process will require the applicant to submit evidence of financial close. Applicants will be expected to be able to provide evidence of financial close within three weeks of the provisional tariff guarantee having been issued.
Once an applicant is issued with a tariff guarantee, the equipment used to produce biomethane must be commissioned within 183 days of the date which had been stated in the application as the expected commissioning date.
Feedstock requirements
Biomethane will only be eligible under the scheme if it is produced from solid biomass, solid waste or liquid waste. There are further restrictions, one of which is that participants must produce at least 50% of their biomethane (by energy content) using waste or residue feedstocks. Where, in any payment year, less than 50% of the total biogas yield is derived from waste or residue, payments will be reduced proportionately.
Comment
Introduction of the GGSS is a welcome development although the key test will be the size of the budget.
The requirement to demonstrate financial close within three weeks of the grant of the provisional tariff guarantee is potentially problematic. Where the tariff is lower than expected, developers will have little time between the notification of the tariff and the date that financial close has to be demonstrated to get the financial model into a form that it can be approved by funders and get sign-off.
The requirement for 50% of all biomethane to be produced from waste and residue feedstocks means that, whilst a plant operator will be able to use agricultural wastes such as manures and slurries without restriction, specially-grown energy crops, which are highly efficient resources for AD process, can only be used for up to 50% of all biomethane produced. Moreover, the requirement for such a high percentage of waste and residue feedstock is likely to lead to a greater competition to secure such feedstock and the potential for gate fees to be driven down. This in turn is going to put pressure on project economics and may cause good-quality projects to become unviable.
Based in London, Budd Legal is a niche law firm specialising in energy and infrastructure projects. Registered in the UK and experienced in international projects, we work with originators, developers and buyers of large-scale projects, including conventional and renewable energy. We also work on transactions in natural resources and oil and gas.
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