How to make the most of the Energy Savings Opportunity Scheme (ESOS)

By Melanie Harper

The Energy Savings Opportunity Scheme (ESOS) affects large companies including many online retailers. Discover more about ESOS and how you can turn mandatory compliance into a real cost saving opportunity for your organisation.

What is ESOS?

The Energy Savings Opportunity Scheme (ESOS) is the UK’s interpretation of Article 8 of the EU Energy Efficiency Directive and is administered by the Environment Agency. The UK-wide scheme has been developed to realise the significant opportunities for energy and cost savings for UK businesses, and compliance is mandatory for all obligated large undertakings and their corporate groups.

The scheme runs in Phases of 4 years. Obligated companies were required to notify the Environment Agency of compliance with the first Phase in 2015, with the qualification date for Phase 2 being 31 December 2018.

The Aim

  • To help the EU to reduce its carbon emissions by 20% by 2020
  • £21.6 billion net benefit to the economy (large opportunity for businesses to save money).

Who is obligated?

A UK organisation is obligated to comply with ESOS if on the qualification date for a given ESOS

Phase* it either:

• Employs 250 or more people, or

• Has an annual turnover in excess of €50 million (£44,847,071 phase 2*), and an annual balance sheet total in excess of €43 million (£38,568,481 phase 2*), or

• Is an overseas company with a UK registered establishment which has 250 or more UK employees (paying income tax in the UK)

*The figures quoted are based on the exchange rate from euros to sterling as stated by the Bank of England on 31 December 2018 (the qualification date for ESOS Phase 2).

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Key Dates

The qualification date for Phase 2 was 31 December 2018; if you meet the criteria aforementioned on this date, your organisation will be obligated for the next Phase. The responsibility for ESOS notification lies with the highest UK parent company: if one organisation in your corporate group exceeds the

ESOS thresholds, the whole group will be required to comply. If you were obligated for Phase 1

(qualification date was 31 December 2014) and are yet to comply, the sooner you take action the better.

Phase 1 – The Outcome

Is ESOS working? Results of an evaluation survey conducted by the Environment Agency in 2016 showed the following statistics:

• 79% of ESOS compliant organisations implemented energy improvements in the 18 months prior to mid-2016

• 33% of these organisations said that ESOS had considerably influenced their decision to introduce at least one of these improvements

• Overall, this equates to 26% of complying organisations attributing the installation of at least one energy saving measure at least in part to ESOS.

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Routes to compliance

If you are obligated for ESOS then it’s a great opportunity to make an investment and reap the rewards in energy savings. The vast majority of companies which complied during Phase 1 did so following the Energy Audit Route, which was carried out to identify energy saving measures and opportunities to increase efficiency. However, there are some alternative routes to compliance, as follows:

• Businesses with an independently certified ISO 50001 energy management system covering all of their significant energy consumption (90% of total energy use) need only notify the Environment Agency that

they have met the standard and as such have complied.

• Businesses with a Valid Display Energy Certificate (DEC) with a corresponding recommendation report or a Valid Green Deal Assessment (GDA) can use this as part of an ESOS report to cover the energy used within a company’s buildings. As a DEC is based on operating data from a building it does not cover transport or production processes. Organisations which consume energy through these will need to consider an alternative assessment method.

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Phase 2 – Start planning now

If you were obligated in Phase 1 or think your organisation will be obligated in Phase 2, it is important that you start now in terms of preparation, to identify efficiency savings earlier and make the process of compliance much easier further down the line.

Top tips to get ahead:

• Consider ISO 50001

• Implement recommendations from Phase 1

• Implement processes for collecting data

• Audit areas of significant energy consumption

• Start collecting Total Energy Consumption data

Benefits of being compliant

Apart from the obvious, implementation of any energy saving opportunities identified in the audit could lead to significant energy efficiency savings and, therefore, financial benefits.

Completed ESOS compliancy reports have informed our clients of significant energy saving opportunities, totalling 33 gWh of potential energy saved, equal to approximately £3 million per annum for all ESOS projects completed to date.

Penalties for non-compliance

Failure to comply with ESOS could result in fines up to £50,000 and / or an additional fine of £500 per day until compliance is complete for a maximum of 80 days. Non-complying companies will also be publicly named by the Environment Agency. The Environment Agency are actively pursuing non-compliant organisations and can issue a fine in excess of £80,000 for non-compliance.

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ESOS FAQs – we answer some of the common questions regarding ESOS

Q: Is Transport included in ESOS?

A: Yes. Any transport including fleet, company cars, and even boats (if you have them!) will need to be included in your Total Energy Consumption. If these make up less than 10% of your energy use, they may be considered de-minimus and will not need to be included in ESOS audits. However, this will be established following collection of your data.

Q: What happens if my group structure changes?

A: If one organisation in the corporate group exceeds the ESOS thresholds on the qualification date, the whole group will be obligated to comply. Any acquisitions made before 31 December 2018 would need to be included in the Phase 2 submission. Any acquisitions made after 31 December 2018 but before 5 December 2019 will need to be carefully considered depending on whether the acquired undertaking was from a group which did / did not qualify for ESOS compliance.

Q: What is a Lead Assessor?

A: A Lead Assessor is an experienced energy management professional. Lead Assessors must be members of an approved register. Lead Assessors will oversee your ESOS assessment and conduct onsite audits. They will also sign off your overall ESOS assessment.

Q: What is the difference between Total Energy Consumption and Significant Energy Consumption?

A: Total Energy Consumption (TEC) – This is what it says on the tin: the total energy consumption of your organisation and must include energy use in buildings, processes and transport.

A: Significant Energy Consumption (SEC) – This is 90% of total energy consumption. 10% of your total energy consumption can be excluded and does not need to be included in the energy efficiency audit – this is referred to as your “de-minimis energy consumption”. This means you can exclude, for example, one site, or sites, an asset, or a certain fuel type but only where these constitute 10% or less of your total energy consumption.

Beyond compliance, ESOS can offer cost-significant savings to companies. If your business is obligated, take advantage and turn mandatory compliance into a real cost-saving opportunity for your organisation.

Melanie Harper, Marketing Manager, Comply Direct

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