New Gas Levy for Gas DecarbonisationThe Department for Business, Energy and Industrial Strategy (BEIS) detailed the design of the Green Gas Levy to support the Green Gas Support Scheme (GGSS) in a new consultation published on 22 September.

The green gas levy will fund support for biomethane injection into the gas grid. Proposals for the GGSS were set out in an April 2020 consultation Future support for low carbon heat.

The government has opted for a flat rate approach to the levy, initially. This means that all commercial gas customers, whether they are households, SMEs or large factories, will pay the same amount extra per year for the levy.

The government has calculated that the impact on annual gas bills will “peak at around £6.90”. Government analysis suggests all gas users would expect to see their bills increase by around £1.40 at the start of the levy in 2021, increasing to roughly £6.90 at the peak of the levy in 2028. This is about 1% of the expected average household gas bill in 2028. For a SME, this equates to an increase from the levy of less than 0.5% of its total annual gas bill, with this percentage falling further for larger consumers.

This flat rate will be the case until 2024, when the government hopes to change the system to a volumetric one – this means the size of the levy will then depend on the amount of gas a customer consumes.

Government analysis has estimated that this would result in a SME seeing its bill increase by around £50 per annum by 2028. A larger business consumer would pay an increase of around £500 per annum, compared to paying no levy.

The government is still consulting on this approach, so it is not yet certain as to whether it will go ahead with this change to a volumetric system. So, depending on this, by 2028, a SME could see its bill increasing by £6.90 under the flat rate approach, or by £50 under the volumetric approach. Suppliers will be required to make quarterly levy payments to Ofgem by certain due dates. A forecast of the first levy rate will need to be factored into any potential October 2021 Price Cap level announcements, BEIS said.

What the Green Gas Levy Means for Your Business Energy Costs

The Green Gas Support Scheme levy is one of several policy costs layered onto commercial gas bills as the UK transitions away from fossil fuel heating. For businesses on long-term gas contracts, the levy represents a cost that procurement teams need to factor into forward price modelling — particularly as the volumetric or flat-rate structure will affect businesses differently depending on their consumption profile.

High-volume gas users — manufacturing sites, logistics hubs and large commercial premises — will be more affected under a volumetric levy structure, while smaller commercial consumers may face a relatively heavier burden under a flat rate. Understanding which applies to your contracts is an important part of managing your total energy cost position as green levies increase over time.

Catalyst Digital Energy helps UK businesses plan energy procurement strategies that account for emerging policy costs including the green gas levy. If you want to understand how these changes could affect your gas bill, speak to one of our energy consultants today.