Concept’s Guide to the Energy Savings Opportunity Scheme (ESOS – Phase 3)
ESOS Phase 3 Deadline – 5 June 2024
Learn more about the Energy Savings Opportunity Scheme and how to comply, including upcoming changes in Phase 3 and Phase 4.
What is the Energy Savings Opportunity Scheme?
The Energy Savings Opportunity Scheme (ESOS) makes energy audits mandatory for big companies. It requires participants to carry out an assessment of their energy use, across their buildings, transport and industrial operations.
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), in order to understand where energy is used – and wasted. Based on this information, the auditor will draw up a list of recommendations on how your organisation could save energy.
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
What about the public sector?
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?
A smaller undertaking will also qualify if it is part of a larger group which contains at least one “large undertaking” that qualifies.
Where a corporate group participates in ESOS, unless otherwise agreed, the highest UK parent will act as the ‘responsible undertaking’ and be responsible for ensuring the group as a whole complies with the requirements of ESOS.
How often do energy assessments have to be carried out under ESOS?
Organisations that qualify for ESOS must carry out ESOS assessments every 4 years. We are now in the third of these 4-year cycles (known as Phase 3).
What is the next deadline for ESOS compliance?
The deadline for ESOS Phase 3 was recently extended to 5th June 2024, giving participants more time to comply with the scheme’s new requirements, as well as giving assessors more time to carry out assessments.
What’s new in Phase 3?
The government recently consulted on proposals to strengthen ESOS, to align it with the UK’s net zero goals and drive greater action on energy efficiency.
Changes will take place in Phase 3, and Phase 4, and while the underpinning legislation is still subject to Parliamentary scrutiny, we can expect to see them set in stone before the end of 2023.
In Phase 3 you will now need to:
- Include a summary template of compliance information in the ESOS report
- Include additional data in the compliance notification – (the Environment Agency has set out a list which you can find here).
- Cover at least 95% of your total energy consumption (more on that below).
- Include energy intensity ratios in ESOS reports (more on that below).
- Share ESOS reports with subsidiaries.
- Provide more information on next steps for implementing recommendations.
- Set a target or action plan following the Phase 3 compliance deadline, and report against this for Phase 4.
- Provide additional data for compliance monitoring and enforcement.
What is an energy intensity ratio?
This is 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.
What are the changes to the “de minimis” rule?
In previous phases, participants were able to exclude up to 10% of their total energy consumption through “de minimis” rules, however, new rules being brought in for Phase 3 require organisations to cover at least 95% of their total energy consumption. This is to ensure that the ESOS report covers more of an organisation’s estate, now that the scheme is well established.
What type of recommendations will be made under ESOS?
Recommendations will be specific to your organisation, and there will be an emphasis on what is most cost-effective and practical. However, common recommendations may include insulation, building controls improvements, lighting upgrades and sub metering installation and monitoring.
What information should we provide on next steps/implementation?
Organisations aren’t yet required to implement any of the energy saving opportunities identified. However, the government wants to make ESOS more effective by getting organisations to flesh out how implementation might work. In Phase 3, ESOS reports should:
- Provide an indicative programme of options – outlining combined costs, benefits and payback period for the package.
- 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.
- Signpost where buildings covered by the report are also covered by the Minimum Energy Efficiency Standards (MEES) for non-domestic buildings and whether this is relevant to the recommendations in the report (for example where there may be a requirement on landlords to carry out work that would affect a recommendation.
- Provide information on government schemes which could support businesses to implement energy savings opportunities recommended in the report.
What changes are coming in Phase 4?
Phase 4 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.
What if I’m already subject to other energy legislation?
You’ll still have to carry out an energy assessment under ESOS. However, you may be able to reuse some of the data collected as part of compliance under other schemes, such as Streamlined Energy and Carbon Reporting. Many organisations in scope of ESOS will also have SECR obligations; the systems in place to collect and audit energy use will be helpful to both schemes.
What if I’m already covered by ISO 50001?
If your organisation is fully covered by ISO 50001, you don’t need to carry out an ESOS assessment – just submit a notification to the regulator. If you are considering this route to ESOS compliance, we can help.
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.
Will my energy use be made public?
No. The intention of ESOS is not to publicise or ‘name and shame’ participants.
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 the 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?
No. Only the assessment is mandatory, not implementing the recommendations. However, putting in place these energy-efficiency measures represents an important way to recoup the cost of the audit.
Support with ESOS compliance
Concept’s consultants are accredited ESOS Lead Assessors, and we’re working hard to help organisations achieve compliance ahead of the deadline.
If you would like advice on your obligations or any aspect of the ESOS process, please get in touch.