Ofgem decided on 4 February 2022 to amend the default tariff cap so that gas suppliers can recover the costs of the Green Gas Levy (GGL), which funds the Green Gas Support Scheme (GGSS). The allowance applies from cap period eight, which starts on 1 April 2022, and covers costs incurred from cap period seven onwards1.
The regulator consulted in October 2021 on proposals to amend the cap for gas customers to provide an additional allowance for the levy1. It has now decided to amend Annex 4 of Standard Licence Condition 28AD, the policy cost allowance methodology, to include a GGL allowance1. Ofgem said the allowance for cap period eight will be approximately £2.69 per gas meter, and that customers' bills would rise by the same amount assuming suppliers pass the costs on1. The allowance will be updated in each subsequent cap update using levy rates published by the Department for Business, Energy and Industrial Strategy (BEIS)1.
The levy places an obligation on licensed fossil fuel gas suppliers in Great Britain to pay a quarterly charge based on the number of gas meter points they supply1. BEIS published the rates for the first and second scheme years on 29 November 2021: 0.484p per meter per day for the first scheme year and 0.576p per meter per day for the second1. The first scheme year runs for 122 days and the second for 365 days1. A supplier is exempt from the levy in a scheme year if Ofgem determines that at least 95% of the gas it supplied that year was certified biomethane1.
Ofgem said the costs for cap periods seven and eight are not material, but that they are expected to become material as the scheme grows1. It decided to allocate the allowance on a per gas meter basis, which places it in the standing charge through the cap at nil consumption1. The GGSS and GGL launched on 30 November 2021, when the Green Gas Support Scheme Regulations 2021 came into force1. BEIS expects the scheme to contribute 3.7 MtCO2e of carbon savings over Carbon Budgets 4 and 5, and 8.2 MtCO2e over its lifetime1.
"We have decided to amend the cap methodology to introduce a GGL allowance from cap period eight onwards."
The cap was introduced on 1 January 2019 and currently protects around 22 million households on standard variable and default tariffs1. Ofgem has also noted that gas customers could see annual bills rise by approximately £4.70 at the peak of the levy in 2028, assuming a transition to a volumetric levy in future1.
| Item | Figure |
|---|---|
| GGL allowance, cap period eight | Approximately £2.69 per gas meter |
| Levy rate, first scheme year | 0.484p per meter per day |
| Levy rate, second scheme year | 0.576p per meter per day |
| Days in first scheme year | 122 |
| Days in second scheme year | 365 |
Why it matters for households
The allowance sits inside the energy price cap, which limits what suppliers can charge domestic customers on default tariffs. Because Ofgem has chosen to allocate the levy per gas meter, the cost lands in the standing charge rather than in the unit rate, so it is paid by gas customers regardless of how much gas they use1. The £2.69 figure is an allowance within the cap methodology, not a separate charge added to bills, and it only reaches a household bill if the supplier passes the cost through1.
The levy is a policy cost that funds biomethane injection into the gas grid, so it is a cost of the gas network itself rather than of any particular supplier. For a household, it is a fixed annual amount attached to having a gas meter, which means it does not fall if gas use falls. Ofgem has said the costs are not material in the early cap periods but are expected to become material as the scheme grows, and that the allowance will be recalculated at each cap update using BEIS levy rates1. The regulator has also flagged a possible future move to a volumetric levy, under which the cost would follow gas consumption rather than meter numbers1.
What happens next
The allowance takes effect from cap period eight, starting 1 April 20221. Ofgem has said the allowance for cap periods eight and nine will include the costs incurred under the levy in cap period seven, so suppliers recover the first and second scheme years' costs across those two cap periods1. The allowance will be updated in each subsequent cap update using the levy rates BEIS publishes for the relevant scheme year1. Ofgem has said it will consider any future cases where systematic costs might become material ahead of time on a case-by-case basis1. A potential transition to a volumetric levy by BEIS is noted as a next step, but no date for it has been reported1.