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.
New Gas Decarbonisation Scheme
The 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.