Are you ready for ESOS?

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The Energy Savings Opportunity Scheme (ESOS) has just come into force. All large businesses have to comply with it. But what does it involve? Read on for the answers to some key questions.

What is ESOS?
ESOS stands for the Energy Savings Opportunity Scheme. It requires larger companies and organisations to carry out mandatory energy saving assessments every four years.

Where does it originate from?
Europe (as you probably guessed). It stems from article 8(4) of the Energy Efficiency Directive 2012 which has been enacted into UK law by the Energy Savings Opportunity Scheme Regulations 2014.

What’s the point of it?
It is to help the EU meet its target of a 20 per cent. reduction in energy consumption by 2020.

Does it affect my business?
It affects “large undertakings”, which are organisations that have over 250 employees or an annual turnover of over €50m and an annual balance sheet exceeding €43m as at 31 December 2014.

Any body classed as a “contracting authority” under the 2006 Public Procurement Regulations is exempt. However, not-for-profit organisations that are engaged in trade or business are caught, which will include some charities.

Businesses that are not large undertakings by themselves but are part of a larger group may be caught if another company in the group is classed as a large undertaking. In that case, the whole group has to comply as a single participant.

What does it involve?
Participants in the scheme have to measure their total energy consumption over a 12-month period. This includes energy consumed by buildings, industrial processes and transport.

Having measured their total energy consumption, then they have to identify “areas of significant energy consumption”. These must amount to at least 90 per cent. of the total and will be the areas that are audited. Up to 10 per cent. can therefore be excluded from the audit by allocating it to a “de minimis”. This is to allow the audit to concentrate on the most significant areas of energy consumption and not spend too much time and money auditing areas that might prove more difficult. The DECC guidance gives some helpful examples of what might be allocated to the 10 per cent. “de minimis”.

They must carry out an audit of the areas of significant energy consumption. This involves appointing a lead assessor from an approved professional body register to either carry out the audit or to oversee or review it. The Environment Agency is currently approving professional bodies and expects to publish a list on its website in the next few months.

Once the audit has been carried out, the participant must notify the Environment Agency before the compliance date. The Environment Agency is setting up an online notification system. The notification does not involve sending over the full results of the audit.

Finally, there is an obligation to keep written records of each ESOS assessment, in an ESOS evidence pack.

How does it overlap with other energy compliance schemes?
Many companies already report on their energy usage through schemes such as ISO 50001, Display Energy Certificates on buildings, or Green Deal Assessments of buildings. The good news is that the reports already done under these can be used as part of the ESOS audit; there is no need to re-audit this data, as long as it falls within the four-year compliance period. ESOS has apparently been designed to align with other reporting schemes such as the Carbon Reduction Commitment (CRC), EU Emissions Trading System (EU ETS) and the Carbon Trust Standard, so much of the information gathered for those schemes can be used for the ESOS audit also.

What are the deadlines?
ESOS requires an audit to be undertaken every four years (Phases). The qualification date (i.e. the date on which a business is assessed as being a “large undertaking” or not) for Phase 1 is 31 December 2014. The compliance period for Phase 1 is 6 December 2011 to 5 December 2015. This means that an audit must be carried out of energy use over a 12-month period that falls within the compliance period. Audits can be staggered so that buildings are audited one year, industrial processes the next, and transport the next, for example. It does not matter as long as the business can show that a 12-month audit of each has been carried out at least once during each four-year compliance period.

The relevant deadlines for the first three phases are:

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Who enforces it?
The Environment Agency is the overall UK scheme administrator and also enforces the scheme in England. In Wales it is enforced by Natural Resources Wales, in Northern Ireland the Northern Ireland Environment Agency, in Scotland the Scottish Environment Protection Agency, and DECC Offshore Oil & Gas Environment and Decommissioning for offshore (UK) businesses.
The Environment Agency is publishing its own compliance guidance, expected in Autumn, which will replace the current DECC guidance.

What if my business doesn’t comply?
There are various penalties for non-compliance, ranging from “naming and shaming” on the regulators’ websites, to financial penalties of up to £50,000 for not carrying out an ESOS energy assessment. There is also the power to charge £500 a day for late notification or not complying with obligations by a set date. So although there are no criminal sanctions, the civil penalties could mean a business is out of pocket if it does not comply.

Do I have to implement the recommendations set out in my energy audit?
There is no legal obligation under ESOS on businesses to implement the energy saving measures that might be recommended in their energy audits but the Government is obviously strongly recommending that they do, and the DECC Guidance suggests ways to get board level engagement and points to further advice and support available.

What records must be kept?
The ESOS Regulations require participants to keep an “ESOS evidence pack” of the data used to make the energy assessment. This must be kept for at least two compliance periods following the compliance period to which it relates.

Will it be worth it?
It depends on how you approach it. If you view it as yet another box-ticking exercise and just go through the motions of having an energy audit but then do not act on the recommendations, then you will view it as a waste of time and money (the Government estimates the average cost per audit to be £6,600).
On the other hand, if you take it literally, as an opportunity to identify and make energy savings, then it has the potential (again according to the Government) to save each business around £35,400 in reduced energy bills from one audit.

Where can I go for further advice?
The website is the best source of official information.

Walker Morris’ Energy, Infrastructure & Government team can advise you on the best ways of implementing energy saving measures in your organisation, including through the use of Energy Performance Contracts. For more information contact your usual Walker Morris contact.