ESOS explained

Companies need to prepare now for two Energy Savings Opportunity Scheme deadlines this year. Matt Chadbourn, Synergie Environ says by focusing on their energy auditing strategies to avoid costly and time-consuming revisions later

The first deadline for phase three of the Energy Savings Opportunity Scheme (ESOS) may have been extended from December last year to June 2024 but this time should be used wisely to meet significant new demands for businesses, including a much greater level of reporting detail.

ESOS requirements apply to companies with a headcount of 250+ people (including contractors, regardless of hours) and/or a turnover above £44 million plus an annual balance sheet above £38million. If this applies to your business, there are two 2024 deadlines to focus on.

ESOS DEADLINES

By 5th June, qualifying organisations must notify the Environment Agency that they have complied with ESOS phase three, and provide supporting evidence. ESOS requires organisations to identify and quantify energy-saving measures but not necessarily to have a plan to enact them at this stage. Businesses have until 5th December to submit their action and implementation plan.

The audits from ESOS phase two demonstrate that businesses are struggling to respond effectively to the requirements. Only a third of the submissions were fully compliant.

What does this mean? At best, companies would have to revise their submissions, with unhelpful and significant cost and time implications. At worst they would be liable for non-compliance penalties. These can include a fine of up to £50,000 – and up to £40,000 more at £500 per working day until compliance is achieved.

Another point to consider is that in phase two, organisations were able to exclude 10 per cent of their energy consumption from significant energy consumption (SEC). This has been reduced to five per cent which means that marginal energy users previously excluded may now have to be catalogued.

To stand the best chance of success, organisations should engage lead assessors with energy auditing expertise in their sector.

The audit will benefit organisations by helping them to create a plan that will translate into energy cost savings (increasing profitability and potentially creating an opportunity to invest), greenhouse gas (GHG) emissions reduction with a corresponding progress towards net zero targets, and a competitive advantage with carbon conscious clients/consumers.

PHASE THREE CHANGE

Another phase three change affects those with an externally verified ISO 50001 energy management system. These groups of businesses should provide an energy savings measurement recorded since the last ESOS phase. For some, this might mean more detailed book-keeping and a more thorough investigation by lead assessors.

Phase three also asks companies to quantify their energy intensity metrics for ongoing monitoring and provide more justification for their sampling strategies.

There has been much discussion about this new addition. The metrics are for buildings, transport and industrial processes, and whatever metric is selected for phase three should be reported against in future phases. Comparison to benchmarks and between sites can also offer useful guidance to organisations on how their buildings are performing.

If an organisation has a number of sites, a sample of sites may be audited and the findings extrapolated. However, ESOS phase three requires an explanation of how the sites are considered to be representative. Organisations should think carefully about the relative size, age, function and energy consumption of each site, to ensure that sampling them is valid.

With the December action plan deadline, significantly more detail is mandatory, including prioritised and time-bound plans to enact solutions. Annual reporting against these will be a feature of phase four.

As a new phase three requirement, organisations must have an action plan by 5th December, so it is in their interest to lay the groundwork with the ESOS report, and not simply give a scattergun of options for directors to pick through. Costs and benefits, along with an implementation programme are required and assessors should prioritise options, highlight timeframes next steps and risks.

GRANT FUNDING

Crucially, they should be able to identify applicable grant funding and legislation – the Minimum Energy Efficiency Standard (MEES) in England and Wales, and upcoming legislation in Scotland that will likely require mixed tenure buildings to achieve EPC rating of “C” and a zero-emissions heating supply by 2045 – to give organisations the tools they need.

Finally, while CO2 foot-printing and calculating GHG savings are not required by ESOS, there is a clear value to organisations in incorporating these. Not only will many ESOS-qualifying organisations qualify for Streamlined Energy and Carbon Reporting Regulation (SECR) reporting, but an action plan including GHGs will allow them to take control of their net zero ambitions.

ESOS requirements may seem complex and onerous, but there are clear benefits beyond compliance as companies to dig into the detail of their operations and reporting.