Last reviewed 8 August 2019
Caroline Hand sums up what qualifying organisations need to do by December.
Nobody wants to think about Christmas in July, but there is a good reason for larger businesses to look ahead to December. It marks the deadline for the second phase of the Energy Saving Opportunity Scheme (ESOS), under which businesses must commission an energy efficiency audit and submit it to the regulator.
Around 2400 businesses were pursued by the Environment Agency for failing to meet the 2015 deadline for the first phase of ESOS, and the Agency has threatened to enforce the law more strictly this time around. More positively, organisations which implemented their audit recommendations have achieved major energy savings worth an estimated £1.6 billion.
What you must do by 5 December 2019
Check to see whether your business qualifies for ESOS. ESOS only applies to larger businesses, ie those with at least 250 employees, a turnover of €50 million and a balance sheet of €43 million. However, smaller businesses which are part of a larger group or legal entity may be covered. Check the Government guidance, as this aspect of the legislation is quite complex.
If your business has grown since 2015 you may be subject to ESOS for the first time, provided that you have met the criteria (of employee numbers, etc) for two successive accounting periods. Conversely, if your business has shrunk, you may still have to comply if the workforce size or turnover has not fallen below the threshold for a full two accounting years.
Arrange for an energy efficiency audit. Businesses are advised to do this as soon as possible. In 2015, many companies left it until the last minute and then struggled to find an appropriate assessor. This sudden spike of demand also led to companies paying more than they expected for the consultants’ services.
There is an alternative route to compliance through accreditation to ISO 50001 (the international standard for energy management systems). Only a small percentage of companies chose this option in 2014/15, but these were the businesses which derived the greatest benefit from the scheme. If you have chosen this route, early action is even more vital as it often takes well over a year for companies to implement a best practice energy management system and achieve certification.
Report compliance to the regulator once the audit is complete: this would be the Environment Agency in England, the Scottish Environment Protection Agency (SEPA) in Scotland, the Northern Ireland Environment Agency (NIEA) in Northern Ireland and Natural Resources Wales in, unsurprisingly, Wales.
There is no legal obligation to act on the recommendations of the audit, but there are likely to be significant financial and sustainability benefits if you implement them (see case studies below).
Has the scheme changed?
In essence, the scheme is exactly the same as when it was first launched in 2014. There have been no changes to the EU Energy Efficiency Directive (2012/27/EU) or to the Energy Savings Opportunity Scheme Regulations 2014, which give effect to the scheme in the UK.
However, the Environment Agency has made it known that it will be much less lenient in enforcing ESOS this time, as most of the qualifying businesses are now familiar with the requirements.
ESOS compliance requires a 12-month period of total energy consumption data which includes the qualification date of 31 December 2018. This year, the regulators will expect a higher level of detail and accuracy in the information supplied by businesses to the assessor.
A consultant advises that the data should include:
all types of fuel, including oxyacetylene and liquefied petroleum gas
full details of the transport fleet, including employees’ own cars for which they claim mileage (the “grey fleet”)
all energy bills, not just a summary spreadsheet
for manufacturing industries, a calculation of energy usage per unit of production (“x kWh per widget produced”).
How does ESOS fit in with SECR?
Streamlined Energy and Carbon Reporting (SECR) came into force in April 2019, replacing the Carbon Reduction Commitment (CRC) energy efficiency scheme. SECR requires companies to disclose their energy usage, emissions and energy efficiency action in annual reports. It applies to a wider range of businesses than ESOS, covering all quoted companies, large unquoted companies and large limited liability partnerships.
Businesses subject to ESOS will find that the systems in place to collect their ESOS data will help them to meet their SECR requirements.
Lessons from ESOS phase 1
More than 300 enforcement notices were sent out to businesses which qualified for ESOS but failed to comply. Businesses which did not act on the notices have been fined.
Household names have been among those prosecuted: for example, eBay and Gumtree were each ordered to pay a £12,150 fine. A care home chain was fined £22,500 and a software firm £45,000. The maximum penalty is £50,000, plus £500 for each working day until the breach is remedied, up to a maximum of 80 days.
The Government estimated that ESOS phase 1 brought a total benefit to the economy of £1.6 billion, most of this accruing to the businesses themselves. A Government report published in 2017 indicated that 79% of businesses that complied with ESOS reported “some form of energy efficiency improvement” between the start of 2005 and mid-2016. However, ESOS had not brought much additional benefit to those who were already subject to other energy efficiency policies, such as the CRC. This report also flagged up the problem of getting the recommendations accepted at board level.
Businesses will only benefit from ESOS if they act on the audit recommendations. Based on its experience with ESOS, the Carbon Trust has estimated that cost-effective measures identified in the audits could usually cut energy costs in buildings, transport fleets and industrial processes by about 20%, on a typical spend of £1.8 million.
Zimmer Biomet manufactures joint implants and other surgical equipment. Their ESOS audit identified potential short-term savings of £190,000 per year and a further £115,000/year that could be realised through longer term investments. They worked with their energy consultant to achieve £100,000/year of savings through:
investment in new lighting
operational changes such as only operating equipment when required
greater energy awareness among staff.
Pharmaceutical firm Roche saw ESOS as an opportunity to reduce energy use at its offices in Welwyn Garden City, where some of the systems (such as air conditioning) were due for replacement. The detailed ESOS survey identified a potential saving of £74,000/year (16%) for a capital investment of £44,500, providing a fast payback in seven months. The majority of the savings were achieved through operational changes, such as ensuring that lighting controls were matched to the core occupying hours of the building. Controls to achieve these savings were already in place. Further projects to be undertaken include the control of ventilation against carbon dioxide levels to match occupation, automatic lighting switching to take advantage of good natural light and maximising the use of natural ventilation to reduce fan motive power.