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Ofgem release NDRHI document for comment

Thursday, 18 February 2021

On 8 February 2021, the UK Office of Gas and Electricity Markets (Ofgem) released a draft of the guidance for their Non-Domestic Renewable Heat Incentive (NDRHI) scheme closure for comment.

The NDRHI is the mechanism for which biomethane producers can be compensated for injecting their output into the national gas grid, in addition to support for larger renewable heat producers as the scheme name suggests. The scheme is closed to new entrants on 31 March 2021, although current participants will continue to receive support.

The document (here) is in no way final, rather it is intended to give stakeholders an opportunity to comment and shape future NDRHI direction. The comments period will end on 5 March 2021, with any amendments coming into force on 31 March 2021.

Intended changes of note to biomethane producers include:

  • The ability to add additional biomethane capacity to an existing RHI accredited plant will end on 31 March 2021.
  • From 1 April 2021, BM producers can apportion part of their quarterly production to receiving the NDRHI with the remaining production allocated to the Renewable Transport Fuel Obligation (RTFO, support program for green fuels administered by the UK Department for Transport). Currently producers may only select to receive benefits from one of the support schemes for a given quarter.
  • The scheme will allow for biomethane producers using anaerobic digestion technologies to use limited amounts of fossil fuel to supplement their production. The energy content from fossil-fuels cannot exceed 10% however, and support payments will be pro-rated based upon the renewables share.

The ability to claim RTFO and RHI payments in the same quarter offers biomethane producers greater flexibility, although whether producers will opt to receive part payments of each in practice remains to be seen. While it is difficult to analyse for every scenario, the following is noted:

  • The RTFO scheme is potentially more lucrative to biomethane producers who use waste as a feedstock, where output volumes are eligible for twice the regular amount of certificates due to waste-based fuels being considered advanced biofuels. The RHI does not offer any similar advantage to waste-based BM over crop-based.
  • Larger BM producers may gravitate towards the RTFO scheme, as the RHI has a tiered system which reduces the support payment rate for larger volume producers (for recently accredited producers, the support rate changes from 4.92 p/kWh to 2.90 p/kWh after the first 40,000 MWh, then again after 80,000 MWh to 2.24 p/kWh). 

Under these proposed changes, it may be optimal for larger producers to claim the RHI payments for a small portion of their production volume which would receive favourable rates, then RTFO benefits for the remainder. 

Replacement program for RHI - GGSS (Green Gas Support Scheme)

The NDRHI has widely been considered a success in promoting biomethane technology at reasonable expenditure to the government; a replacement program to continue the momentum should be a priority.

The UK Department of Business, Energy and Industrial Strategy (BEIS) proposed a replacement scheme, the GGSS, to the RHI to continue to encourage the development of the biogas industry in the nation. 

While the scheme is not final, the draft proposals were published last year, and open for comments from April 2020 to July 2020. The scheme is expected to commence in Autumn of 2021, with the first support payments being made April 2022.

Unlike the NDRHI, the GGSS is intended to handle biomethane injections rather than heating in general. Other important distinctions include:

  • Limit of Tier 1 (lower volume producers) is extended to 60 000 MWh.
  • GGSS will be funded by a Green Gas Levy added to customer energy bills, rather than directly by the government.

Further details can be found in the BEIS consultation document Future support for low carbon heat.

Greenfact is monitoring the European biomethane certificate markets, gathering data on pricing and information on specific regions such as the UK and associated Green Gas Certification Scheme. Get in contact with us if you wish to find out more.