No exemptions for new green gas levy

All gas suppliers will have to pay a new government levy, which is designed to fund biomethane injection into the grid, irrespective of how small they are or whether they already offer a green fuel.

In a consultation paper, issued today (22 September), the Department for Business, Energy & Industrial Strategy (BEIS) said that all licensed fossil fuel gas suppliers will be liable for its proposed Green Gas Levy, which was first unveiled in the Budget earlier this year.

The paper says no exemptions are proposed from the levy for small suppliers given that it is anticipated they will pass all costs onto their customers.

In addition, companies which offer a proportion of green gas will still be subject to the levy and there will be no exemptions for suppliers that offset the carbon footprint.

However, a company supplying green gas exclusively would be exempt.

Cash raised from the levy is designed to fund the injection of biomethane into the gas grid, through the Green Gas Support Scheme. In its announcement, BEIS estimates that the sums raised through the levy will support the injection of biomethane sufficient to heat 230,000 homes.

The Green Gas Levy is expected to launch in autumn 2021, with the first quarterly payment from suppliers due to be collected in April 2022. After this first collection, the consultation says the levy rate will be set on an annual basis and factored into the wider energy bills price cap.

Levy costs are split across suppliers according to the number of meter points they serve, regardless of gas consumption.

In order to better tailor levy payments to levels of consumption, the government intends to move to a volumetric levy in 2024/25.

Ofgem will administer both the levy and the green gas support scheme, which are expected to run until 2040.

Any shortfalls in levy payments would be recovered by the non-defaulting suppliers under a mutualisation process akin to other industry levies.

The BEIS consultation paper estimates that the impact of the levy on gas bills would be “relatively small”, increasing to a peak of approximately £6.90 per annum for domestic customers in 2028, equating to an additional one per cent on bills.

Responding to the consultation, Energy Networks Association (ENA) chief executive David Smith, said: “Proposals for a higher and broader level of support are welcome, but they need to be more ambitious and also take into account how biomethane will fit into the wider system.”

The levy consultation paper has been issued on the same day that the ENA has published new research into the changes required to start blending large quantities of clean hydrogen with existing methane fossil gas in the gas pipeline network.

The report, carried out for the ENA by consultancy Frontier Economics, says a mechanism must be developed for gas networks to use to keep the blend of hydrogen in the grid within agreed limits.

In particular, any gas injected must not cause the grid in the vicinity to breach the hydrogen blend limit, which is currently around 20 per cent for household cookers and gas boilers.

The system operator or relevant gas distribution network could play a “backstop” safety role in, monitoring the hydrogen blend across its network, and curtailing producers where necessary for safety reasons.

The report also says injection of hydrogen and biomethane may result in a larger number of distribution entry connections onto the gas grid from producers.

The study, which was supported by Cadent, calls for the government to set a target date for the connection of the first hydrogen production plant to the gas grid to help get projects off the ground.

And it recommends changing regulations to ensure that people’s energy bills are calculated accurately when using different types of gas and making hydrogen blending a funding priority for the Ofgem Strategic Innovation Fund.

Angie Needle, strategy director at Cadent, said: “The Committee on Climate Change has said that for hydrogen to be a viable green energy option for the future, hydrogen projects will need to get off the ground in the 2020s.  If that’s going to happen, government support with regulatory change and a clear statement on direction will really be needed right now to enable all the preparatory work for this shift to start.”