Ofgem has decided to amend the default tariff cap methodology to include an allowance for the costs of the Green Gas Levy (GGL) from cap period eight onwards, which started on 1 April 20221. The decision, published on 4 February 2022, follows an October 2021 consultation on proposals to amend the cap for gas customers to provide an additional allowance for the levy, which funds the Green Gas Support Scheme (GGSS)1.
The regulator said the cap period eight GGL allowance would be approximately £2.69 per gas meter, and that customers' bills would increase by the same amount assuming suppliers pass on these costs1. The allowance will be updated in each subsequent cap update using levy rates published by the Department for Business, Energy and Industrial Strategy (BEIS) for the relevant scheme year1. Ofgem also decided that the allowance for cap periods eight and nine would include costs incurred under the GGL in cap period seven, October 2021 to March 2022, for both credit and prepayment gas customers1.
The levy places an obligation on licensed fossil fuel gas suppliers in Great Britain to pay a quarterly levy based on the number of gas meter points they supply1. BEIS published the levy 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. There are 122 days in the first scheme year and 365 days in the second1. A licensed gas supplier is exempt from the levy in a scheme year if Ofgem determines that at least 95% of the gas it supplied in that year was certified biomethane1.
The Green Gas Support Scheme Regulations 2021 came into force on 30 November 2021, and the GGSS and GGL launched the same day1. The scheme supports the deployment of biomethane production plants that inject biomethane produced by anaerobic digestion into the gas grid1. BEIS expects it 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."
Ofgem introduced the default tariff cap on 1 January 2019, and said it currently protects around 22 million households on standard variable and default tariffs1. The allowance is allocated on a per gas meter basis, which Ofgem said allows recovery of associated costs through the standing charge at nil consumption1.
| Item | Figure |
|---|---|
| Cap period eight GGL allowance | Approximately £2.69 per gas meter1 |
| GGL levy rate, first scheme year | 0.484p per meter per day1 |
| GGL levy rate, second scheme year | 0.576p per meter per day1 |
| Days in first scheme year | 1221 |
| Days in second scheme year | 3651 |
Why it matters for households
The allowance sits inside the price cap, so it reaches households through the standing charge rather than the unit rate for gas. Ofgem's own figure puts the cap period eight effect at about £2.69 per gas meter, a small sum against the wider cap, but one that is added to bills rather than absorbed by suppliers, on the assumption that the levy cost is passed through. Because the allowance is set per meter, a household pays it whether or not it uses much gas, which is the point of allocating it at nil consumption. The levy is charged to suppliers by meter point, so the number of metered gas connections in a home, not its consumption, drives the cost.
The scheme behind the levy is intended to increase the share of biomethane in the gas grid, which Ofgem describes as contributing to decarbonisation and reducing reliance on natural gas. For a household, that is a change to the composition of the gas delivered rather than to the equipment in the home. The allowance is recalculated at each cap update using BEIS levy rates, so the amount can change as the scheme grows.
What happens next
Ofgem said the allowance will be updated in each subsequent cap update using the levy rates published by BEIS for the relevant scheme year1. It also noted a potential transition to a volumetric levy by BEIS, under which gas customers could see annual bills rise by approximately £4.70 at the peak of the levy in 20281. No date for that transition has been reported. The history of cap levels and announcement dates records when each cap period takes effect.