The Cost of Green Gas

When we think about renewable energy, we tend to think about wind turbines and solar panels, but what about gas? With UK infrastructure and businesses set up to run on gas as much as they are electricity, there has to be a long-term, sustainable, green source of gas available. 

Green gas (or biogas/biomethane gas) is produced through the anaerobic digestion of organic materials from various sources, like landfills, animal manure, food scraps, and wastewater sludge. The process of anaerobic digestion removes the carbon dioxide, leaving behind the green gas, which is then injected into the gas network. By removing the CO2, it helps decarbonise the network and, in turn, lowers our overall emissions. 

But there’s a catch, because this green gas is injected into the network, it is mixed in with the natural gas and so there is no way of knowing for sure if the gas being consumed is green, brown, or any other colour. This is where RGGO’s come in. RGGO stands for Renewable Gas Generation of Origin, and much like its electric relation, REGO’s, it is a certification scheme that ensures that each unit of clean, green gas, can only be sold once.

How is the UK government supporting greener gas?

The UK government introduced the Green Gas Levy in 2021, which effectively added a very small daily standing charge to each and every gas meter. The money from the GGL fund goes to the Green Gas Support Scheme (GGSS). Through the GGSS, biomethane plants are given tariff support to increase their production and increase the amount of green gas being put into the Gas Network. With the GGSS supporting the plants, it is thought that they will produce enough green gas to heat approximately 200,000 homes by 2028, which is when the scheme has been extended to.

The Green Gas Levy is paid by licensed fossil fuel suppliers. And like all levies and government schemes, this charge is passed onto business energy consumers as part of their gas invoice. The charges for the GGL are calculated per meter, per day, regardless of how much gas is consumed. Since the launch of the GGL in 2021, the cost of the levy has changed each year as shown in the below chart. The current rate for 2024/25 is 36.5p per year, per meter. With an estimated 24 million gas metres across the UK, the GGL raises around £9 million per year.  

The GGL is expected to save around 21.6MtCO2e throughout the scheme’s lifetime, which will help with the net zero target set by the government. 

Where do RGGOs fit in?

A Renewable Gas Guarantee of Origin (RGGO) is issued by the GGCS (Green Gas Certification Scheme) and notes each kWh of biomethane that is registered with the scheme and injected into the Gas Network. It contains information about where, when and how it was produced. 

With an RGGO, the physical flow of green gas is not tracked, although it does have to link up consumers and producers on the same network. There is no way to confirm that a business has consumed the green gas they’ve paid for, but the RGGO is proof that they have purchased green gas from a supplier.

There are different types of RGGOs issued depending on the biomass input that is used to generate the biomethane. These are categorised as:

• Wastes
• Residues
• Products (Energy Crop)
• Mixed/Non-UK Label 

In 2022, we saw the highest number of new RGGOs issued with over 4,000 GWh of certificates issued. 2023 saw this number drop to around 2,400 GWh, and in addition to this,  a large number of certificates were also retired between 2022 and 2023, leading to an overall drop in the supply of RGGO certified green gas.

As far as the cost of RGGO’s goes, when the scheme first started the cost of RGGOs was under £5, as RGGOs grew in popularity, the cost rose to over £10 at the middle of 2023, peaking at £24.80 in October 2023. In the first quarter of 2024, they have dropped again to just over £11.90. As demand to reduce emissions (at least on paper) continues to increase, the cost of RGGO certification will continue to increase.

There are a few reasons as to why we’ve seen this volatility in the market. As with any supply and demand market, the prices are determined by the availability of and demand for RGGO’s. As we have seen, the retirement of existing RGGO’s and a slowdown in the number of new certificates being issued shows a tightening of supply/availability. 

Prices may also be driven by the seasonal availability of green gas, as well as the future availability of it. There may be times when production is lower, but demand is high which will put upwards pressure on price. As the biomass is produced through crop waste, manure and food waste, there will be times of the year where more green gas is produced due to the amount of material available and therefore creating downward pressure on prices. 

Green gas vs Carbon offsetting 

When businesses are looking into their sustainability goals and looking at how they can reduce their carbon footprint as well as contribute to net zero targets; they may look at how green gas compares to carbon offsetting. 

Whilst carbon offsetting may be viewed by many as a more flexible, and sometimes cost effective option, allowing businesses to invest in projects that claim to reduce or eliminate greenhouse gas emissions as a way of compensating for their emissions. There are questions about the effectiveness of carbon offsetting as it is difficult to have proof that any carbon emissions have been reduced due to the investment.

If a business decides to use green gas, they will be able to see the evidence of the gas produced through their RGGO. However, it is still not perfect, as there is no proof that you’ve used the green gas that is on the RGGO, and there is the possibility of low availability and higher costs at certain points in time.

Summary 

As the target for net zero emissions starts to come into focus, businesses should be aware of where their scope 1 and scope 2 emissions happen and what they can do about them. As the grid emissions factor for electricity reduces, emissions from gas become the next obvious place to look. 

Green gas could fit well into many businesses sustainability and decarbonisation strategy, however, there are many questions around the short, medium, and long term suitability of green gas as a long term direct replacement for natural gas as the primary gas fuel source.

The key to success is understanding the options available and working out how they fit commercially as part of an overall, integrated decarbonisation strategy.