Concept’s guide to ESOS Phase 3

The ESOS Phase 3 deadline passed on 6 August 2024. For support with late compliance, get in touch. We’ll establish whether you are in scope and help you to minimise the risk of penalties.

If you’ve submitted your ESOS Phase 3 notification, then it’s time to start work on your Action Plan. Jump to the Action Plan section of our guide for more information.

What is the Energy Savings Opportunity Scheme?

ESOS makes energy audits mandatory for large organisations. It requires participants to carry out an assessment of their energy use, across their buildings, transport and industrial operations, and identify opportunities for energy efficiency, such as insulation, lighting upgrades and sub metering.

Organisations that qualify for ESOS must carry out ESOS assessments every 4 years. 

What does it mean in practice?

An auditor will need to review your organisation’s energy data (using 12 months of data) and survey your sites (using energy consumption profiling), to understand where energy is used – and wasted. Based on this information, the auditor will draw up a detailed list of recommendations on how your organisation could save energy. You’ll also need to produce an Action Plan for implementing these, as well as yearly Progress Reports.

Who does it affect?

ESOS affects “large UK undertakings” and their corporate groups. This means businesses, not-for-profit bodies and other non-public-sector organisations that:

• employ 250 or more people
• have an annual turnover in excess of £44 million and an annual balance sheet total in excess of £38 million

The scheme largely excludes the public sector – that is, public bodies which must adhere to the UK Public Contracts Regulations 2006 (England, Wales and Scotland).

What if my organisation is part of a group?

If a corporate group contains at least one undertaking in the UK which meets the qualification conditions, its entire UK operation must take part in ESOS.

What is the next deadline for ESOS compliance?

• The deadline for ESOS Phase 3 compliance was extended to 6th August 2024, in response to delays in launching the online compliance portal and Phase 3 guidance. Now that the extended deadline has passed, the EA has started contacting organisations regarding non-compliance. 
• The deadline for Phase 3 Action Plans has been extended to 5 March 2025.
• The deadline for ESOS Phase 4 is 5 December 2027.

What’s new in Phase 3?

There are new requirements for Phase 3, aimed at strengthening the scheme and driving greater action on energy efficiency. Following a lengthy legislative process, these changes came into force on 29 November 2023.

In Phase 3 you need to:

• cover at least 95% of your total energy consumption (this is known as the ‘de minimis’ rule and was previously at least 90%)
• give more detail on the calculation of your energy consumption – including energy intensity ratios (more on that below)
• explain how the site visits that are carried out for energy audits are representative of energy use (if not all sites are to be audited).
• share ESOS report details with all members of the corporate group
• include more specific information on energy saving opportunities, including costs, benefits and a programme for implementing them
• submit an Action Plan following the Phase 3 compliance deadline
• submit a yearly Progress Update against the actions you have committed to

Participants with ISO 50001 certification must now produce an ESOS report

In Phase 1 and 2 of ESOS, organisations complying with an ISO 50001 energy management system did not need to carry out further steps other than board level director confirmation, and submission of a compliance notification.

Phase 3 places more obligations on firms using this route. They must calculate their total energy consumption and energy intensity ratios, calculate energy savings since the previous ESOS compliance date, complete an ESOS report and share information about ESOS compliance with other group undertakings,

They will also need to complete an Action Plan and subsequent Progress Updates.

What should I include in my ESOS Action Plan?

Once you’ve submitted your ESOS compliance notification, it’s time to start your Action Plan, which is due on 5 March 2025. It must explain how you will implement the energy saving opportunities. It should include details of:

• what you intend to do to reduce energy consumption
• when you intend to do it
• whether it was recommended through your ESOS assessment
• what energy savings you expect to achieve over the four-year period covered by the action plan
• how you estimated these savings

You could also suggest intervention points for measures that can’t be implemented now. This could be, for example, when renewing a transport/equipment lease or when replacing existing equipment.

The action plan must be signed off by a board level director (or equivalent) and submitted via the compliance notification system by the action plan deadline of 5 March 2025.

Annual Progress Updates

Following submission of the Action Plan, you must submit an annual Progress Update against your Action Plan commitments in the two subsequent years.

The deadline for submitting annual Progress Updates is 12 months after the Action Plan deadline, and then 12 months after the submission deadline for the first Progress Update. For Phase 3, the deadlines are 5 December 2025, and 5 December 2026.

Public disclosure in Phase 3

The changes in Phase 3 place a big emphasis on public disclosure of information. Aside from personal or commercially sensitive details, the Environment Agency will publish most of the information provided in your compliance notification, including your total/significant energy consumption, an estimate of the potential energy consumption reduction that could be achieved, and the energy savings achieved during the previous compliance period.

Your Action Plan and Progress Reports will also be made public.

What is an energy intensity ratio?

This is also a new requirement for Phase 3. An energy intensity ratio defines your energy consumption within the context of an appropriate metric. For example, you must set out your energy use in terms of kWh per m2 for buildings, kWh per unit output for industry, and kWh per miles travelled for transport.

Key dates for ESOS Phase 3

What types of transport energy use are included?

Transport energy usage to be included under ESOS is that where the participant has been supplied with the fuel direct. So, it excludes, for example, company travel by rail or air, but company cars would be included where the employee claims the cost of fuel from the employer organisation.

Can anyone in my organisation oversee the ESOS assessment?

No. The ESOS process needs to be overseen by a Lead Assessor who is a member of an approved professional body register. An in-house employee will either need to apply to one of these approved bodies, or you’ll need to work with an external consultant, such as Concept.

Does ESOS require every site within the organisation to be surveyed?

Not necessarily. If your organisation has multiple, similar sites, a few sample sites can be surveyed and findings extrapolated.

What if I supply energy to another organisation?

The supply rules indicate that participants are responsible for all energy they consume, but not, for instance, energy that is purchased for supply to a separate third party, such as a tenant occupying part of a site, provided it is measured/metered. Landlords are responsible for the energy in common parts of multi-occupant buildings, however.

Are there penalties if I fail to comply?

Yes. The EA has strengthened its enforcement approach and says it will impose penalties for each separate breach of the ESOS regulations:

• Failure to notify: an initial penalty up to £5,000, plus a daily penalty of up to £500 for each working day the organisation remains in breach. This penalty will apply regardless of whether (or not) the organisation has undertaken an energy audit.
• Failure to maintain records: an initial penalty of up to £5,000, plus a “sum representing the cost to the compliance body of confirming that the responsible undertaking has compliance complied with the scheme”. The organisation must also take steps to remedy the breach.
• Failure to undertake an energy audit: an initial penalty of up to £50,000, plus a daily penalty of up to £500 for each working day the organisation remains in breach. The organisation must also take steps to remedy the breach. Note that there is a more lenient approach for new entrants, however: a lower initial penalty of up to £5,000.
• Failure to comply with an enforcement/penalty notice: an initial penalty of up to £5,000; plus up to £500 for each working day the organisation remains in breach.
• False or misleading statement: up to £50,000.

Will non-compliance be made public?

Yes. If you don’t comply, it is likely that the name of your organisation, the amount you were fined and the reason for the penalty will be published on the Environment Agency website.

Will I be fined if I don’t implement the energy-saving recommendations?

The EA says there will be no enforcement action or penalties relating to the non-submission of an Action Plan or Progress Update. However – it will be published that the organisation has failed to submit – so there is a reputational risk involved with doing nothing (as well as a missed opportunity to implement the cost-saving measures identified).

What changes are coming in Phase 4?

The Phase 4 compliance deadline is 5 December 2027. We don’t yet have the full government guidance, but we do know it will introduce a ‘net zero element’ to ESOS audits. Reports will need to include an assessment of actions needed to meet future net zero commitments. The government is currently working with BSI on the production of a new net zero audit PAS standard to facilitate this. As well as this, we’ll see the following updates:

• Changing the ESOS balance sheet and turnover thresholds to align with SECR. Organisations would be in scope of ESOS if they meet at least one of the SECR qualification criteria: at least 250 employees, a balance sheet of at least £18 million, or turnover of at least £36 million.
• Mandating action on audit recommendations. Firms will need to provide an explanation if targets and goals have not been met.
• ESOS reporting will be required to follow an existing auditing standard such as ISO 50002 or EN 16247.
• Display Energy Certificates (DECs)and GDAs will be removed as compliance routes for ESOS.

Support with ESOS compliance

Concept’s consultants include accredited ESOS Lead Assessors, and we’re supporting organisations with late ESOS Phase 3 compliance, as well as robust Action Plans ahead of the 5th March 2025 deadline. We have also started to get organisations prepared for Phase 4

We’ve had a 100% success rate since the scheme launched in 2014.

If you would like support with ESOS, or advice on your obligations, please get in touch.

Further Information

• Government guide to ESOS
• Contact Concept Energy for further advice on ESOS.