With the closing date for the consultation process for ESOS Phase 3 now expired, here’s a reminder about the scheme and who is eligible.
What is ESOS?
ESOS stands for the Energy Savings Opportunity Scheme and was introduced by the UK government’s Department of Energy and Climate Change (DECC) on 17 July 2014 to help promote business energy efficiency.
It is a mandatory energy assessment scheme for organisations in the UK that meet the qualification criteria and is administered in the UK by the Environment Agency.
Eligible companies must undergo an assessment of energy use and energy efficiency opportunities and submit an energy report to the Environment Agency every four years.
Who is eligible?
You must take part in ESOS if your organisation, or any UK undertakings in your group, qualifies as a large undertaking on the qualification date.
The ESOS definition of a ‘large undertaking’ is:
You have over 250 members of staff, or
A turnover of over £44.1m, or
An annual balance sheet of over 43 million Euros (£37.9m), or
You are an overseas organisation with over 250 employees in the UK, or
Your company is part of a larger organisation, which falls into any of the above.
What are the benefits?
The scheme is estimated to lead to £1.6 billion net benefits to the UK (ESOS Impact Assessment DECC0142, 24 November 2014), with the majority of these being directly felt by businesses as a result of energy savings.
There are also many other business benefits to improving energy efficiency, such as improved working conditions for staff, improved customer experience, more efficient processes, reduced maintenance costs, and improved business image.
Energy efficiency is also a key measure for the UK in meeting interim carbon budget targets. BEIS’s head of business and industrial energy efficiency, tax and reporting, Gary Shanahan, noted that ESOS has helped UK businesses collectively save 3TWh of energy each year, on average, since Phase 1 commenced in 2014.
What was the aim of the recent consultation?
The Department for Business, Energy and Industrial Strategy (BEIS) ran a consultation process to seek views on government proposals to update and improve the Energy Savings Opportunities Scheme (ESOS).
Depending on the outcome, come net-zero targeting might be incorporated into the scheme, and the scheme might also apply to medium-sized businesses.
What are the penalties for failing to comply?
Fines for non-compliance can be up to £90,000. The Environment Agency has handed out hundreds of enforcement notices in the first two phases with the names of the companies falling foul of the deadline named on a list. So as well as a financial cost, there is reputational damage to consider as well.
When is the ESOS 3 deadline?
The 5 December 2023 deadline may seem distant but gathering energy consumption data can be time-consuming, especially for companies spread over a number of sites or those who have undergone a number of significant changes between phases.
If entering ESOS as a first-time company, it is also wise to start the process early.
The Department for Business, Energy and Industrial Strategy (BEIS) is currently running a consultation process to seek views on government proposals to update and improve the Energy Savings Opportunities Scheme (ESOS).
BEIS hopes to strengthen and increase the uptake of energy efficiency measures in a variety of ways, whilst also incorporating some net-zero targeting within ESOS, and has asked for feedback from eligible companies.
The quality of training of assessors and access to ESOS expertise
The net-zero challenge
The transparency of the reporting process
Extending the scheme to a wider range of businesses
Increasing uptake by making action mandatory
Subject to feedback, the government would like to introduce legislation addressing the first four points as soon as possible. ESOS is currently in Phase 3, and UK businesses have until December 2023 to comply.
The proposals to extend the scheme to more businesses and possibly make action mandatory will be considered for implementation, again subject to the findings of the consultation, for ESOS Phase 4 (compliance year 2027).
For qualifying companies, the deadline for phase 2 of ESOS passed on December 5, 2019.
Some companies have missed this cut-off point after finding the complexities of the compliance process more challenging than anticipated.
Faced with being hit with fines potentially running into tens of thousands of pounds, it is important for those companies to act now.
If you don’t have the time, money or dedicated resource to do this, our highly experienced team can take care of the paperwork on your behalf and help you mitigate those costs.
Here’s a reminder of which companies need to comply:
Those that employ at least 250 people; OR
has an annual turnover in excess of €50 million and a balance sheet in excess of €43 million.
ESOS assessments are carried out every four years and there are five separate UK regulators: Environment Agency, National Resources Wales, Northern Ireland Environment Agency, Scottish Environment Protection Agency and Secretary of State for Business.
2019 promises to be an interesting year for energy managers, with continuing technological progress and some important policy changes. Here are the top trends to watch, according to a recent article written by the Energy Managers’ Association, published below.
1. Streamlined Energy & Carbon Reporting (SECR)
The final guidance for SECR will be published in January with the scheme coming into effect in April. Although the final guidance is still to be tweaked, it is really only setting out the obligations placed on organisations.
If you are a large company listed as such by meeting two of the following three criteria; 250 employees, £36 million turnover and an £18 million balance sheet you will need to comply. The public sector is not covered unless they own entities that undertake commercial activities and there is no need to file a report if you use less than 40,000 kWh during the reporting period.
So here are the main actions your company will legally need to undertake:
Collect and publish greenhouse gas emissions, energy consumption which includes transport fuel, and energy efficiency actions taken.
Present the data on emissions to be signed off by auditors.
Compile an energy efficiency narrative for the Director’s Report, this will need to state all principal energy efficiency actions undertaken during the reporting period.
Present to the Board for sign off, for an LLP this needs to be presented by a named member.
Included in the company report or lodged as a separate report with Companies House.
As per usual, the SECR reporting requirements are based on taxation. This will come in the form of increased Climate Change Levy (CCL) rates beginning in April of 2019. The rates have been set out, and are charged based on the amount of electricity, gas, and fuels consumed within your organisation. The rates are charged by the energy providers and are shown on your bill.
2. Energy Savings Opportunity Scheme (ESOS) Phase Two
We are now in Phase 2 of the ESOS compliance scheme so let’s recap some facts. The ESOS Regulations 2014 is a reiteration of the Article 8 of the EU Energy Efficiency Directive and mandate that large organisations in the UK undertake comprehensive assessments of energy use and energy efficiency opportunities at least once every four years.
In broad terms, ESOS applies to any large undertaking that carries out a trade or a business (a Company), and any corporate group where at least one member of the UK group meets the ESOS criteria.
A large undertaking is one that:
employs at least 250 people;
or employs less than 250 people but has an annual turnover in excess of 50 million euros (£38,937,777), and an annual balance sheet total in excess of 43 million euros (£33,486,489).
Most public sector bodies do not fall under ESOS, however, organisations that receive some public funding, such as universities, may have to comply.
If you are unsure if you qualify for ESOS, refer to full ESOS guidance, which includes additional information on how to assess if your organisation qualifies.
In order to comply with ESOS, the large UK organisations are required to take 5 important steps before the compliance deadline of 5 December 2019:
Appoint an ESOS Lead assessor
Calculate your total energy consumption to determine which 90% (minimum) of the energy consumption requires an energy audit
Carry out a comprehensive energy audit to identify cost-effective energy efficiency opportunities
Review and senior management sign off of the energy assessment findings
Report your ESOS compliance and keep records
ESOS is part of British law so even a hard Brexit will not change the requirement to report.
3. Electric Vehicles
Electric Vehicle (EV) tech is improving and for those who own one the driving is great.
Against the backdrop of improving technology and accelerating climate change, the UK Government has published its Road to Zero Strategy, which foresees that a third of the UK’s fleet on the road in 2030 will be electric. The government has also vowed to end sales of internal combustion vehicles in the UK by 2040.
This is an optimistic prediction considering 2030 is only 11 years away. Furthermore, there is a problem with zero emissions at the tailpipe, as the energy must be provided by the grid and the resulting load will not be inconsiderable.
A privately owned EV can roughly double the electricity use of the average UK home. As a result, one-third of the current UK fleet, or 10 million vehicles equates to the power needed for approximately up to 10 million new homes.
National Grid forecasts that EVs will create an additional 18GW of demand by 2050, which is one-third higher than today’s peak demand.
The scale of generation needed is not in the pipeline and it is an open question whether they could be built in time. All our present wind assets together have 20GW of capacity, enough to power 14 million homes, with 30GW forecasted by 2030.
Don’t get me wrong there will be a huge increase in the number of electric vehicles on the road, but the charging infrastructure needed and local power constraints which will kick in with mass ownership will be a real headache.
These increases in EV charging demand will have to be managed by better consumer engagement, smart-charging technology, and other innovative vehicle-to-grid solutions at scale.
4. The Energy uncertainty of Brexit
With European energy interconnections forecasted to account for one-fifth of UK consumption by 2025, the implications of Brexit on energy prices will be important.
Given that energy suppliers purchase energy months or years ahead, the uncertainty will give rise to significant risk premiums on energy prices. The increasing risk will lead to higher consumer prices, a major problem for long-term business planning and energy procurement.
Additionally, regulatory uncertainty extends to the European Union’s carbon pricing, leaving the UK’s companies unclear on whether the same rules will apply post-Brexit.
Despite a foggy future, maintaining the energy status quo serves to benefit incumbent suppliers and consumers on both sides of the English Channel. Any major disruption will be a negative for all market participants, and therefore issues relating to trade friction and disruptions are the highest risks.
Whilst it is unlikely that the lights will go out without strong agreements in place, it is going to be a less efficient market in the event of a disruptive Brexit. In any uncertain scenario resulting from Brexit, the UK’s security of power supply has to become a top priority, rather than being considered a minor problem.
5. Battery Storage
This is one area that could become really exciting in 2019 because your site could benefit from hosting batteries. Work is being undertaken to allow DNOs to source contracts for battery services in the area of Demand Side Response.
Simply put, the DNO could work out the cost of upgrading, reinforcing or building in resilience and instead of building new substations, they could meet their requirements by contracting out demand reduction services through contracts with independent aggregators.
The aggregators would install batteries at large sites that use power at peak. Energy stored off-peak would be used to reduce power. The demand reduction would not require the site to reduce energy use but use the stored power thereby reducing demand from the grid. Such contracts could help sites through load shifting turn peak time use into a profit centre.
If this sounds a little confusing it is because it will be a slightly complicated process but for energy managers the result will be someone else paying for the batteries, installing them, managing them and rewarding you for the privilege.
If you would like to discuss any of the issues touched upon in this article, please get in touch on 01225-867722 with one of our highly trained and experienced energy consultants.
The Energy Savings Opportunity Scheme, known as ESOS, requires large enterprises in the UK to undertake energy audits across their sites incorporating a minimum of 90% of the total energy usage of the business
Organisations that meet the following criteria must comply: 250 employees or more; OR an annual turnover exceeding €50 million, AND an annual balance sheet total exceeding €43 million.
Phase 2 audits will need to be completed by 5th December 2019 but the data preparation period begins on 1 January 2018 meaning it is time to act.
The audits must be certified by an accredited ESOS assessor and include recommendations on how to improve energy efficiency across the organisation.
You can phase the costs of compliance and reap the rewards through energy savings by calling one of our engineering team today, on 01225 867722.
Prices are set to increase closer to the deadline, so save money by starting your Phase 2 audit now!