The Energy Savings Opportunity Scheme (ESOS) is a mandatory energy assessment and savings program for large businesses in the UK. Established as part of an energy efficiency strategy to help reduce energy consumption and carbon emissions, ESOS requires organisations to conduct energy audits every four years. This article explains ESOS, who needs to comply, and what steps to take to comply.
Key Takeaways
1. The Energy Savings Opportunity Scheme (ESOS) mandates large UK-based organisations to conduct energy assessments every four years to identify and implement energy-saving measures, contributing to national energy efficiency goals and reduced carbon emissions.
2. Compliance with ESOS requires organisations to audit at least 95% of their energy consumption through energy management systems, maintain documentation for measures taken, and appoint a qualified Lead Assessor to oversee the process, ensuring accuracy and accountability.
3. Non-compliance with ESOS can result in significant penalties, including fines up to £90,000, emphasising the importance of adhering to the requirements and maintaining accurate records to avoid financial and reputational damage.
What is the Energy Savings Opportunity Scheme (ESOS)?
The Energy Savings Opportunity Scheme (ESOS) is an energy assessment and savings scheme established by ESOS Regulations. In 2014, ESOS was designed to address barriers to energy efficiency uptake identified in the 2012 UK Energy Efficiency Strategy. The scheme is mandatory for large UK-based businesses, compelling them to conduct comprehensive energy audits every four years.
The purpose of ESOS is multifaceted. It aims to incentivise large organisations to implement energy-saving measures, significantly reducing their energy costs and carbon emissions. This initiative is part of the UK's broader strategy to achieve net zero emissions by 2050. Identifying and implementing energy-saving opportunities and efficiency improvements allows businesses to lower operational costs and enhance national energy security.
The potential energy savings achieved from ESOS are substantial. Annually, the scheme is estimated to save 1.65 TWh from buildings, 1.51 TWh from industrial processes, and 0.52 TWh from fuel efficiency. These savings benefit individual businesses and contribute to the UK's overall energy efficiency goals. The scheme's structured approach ensures that energy-saving measures are feasible and cost-effective, providing a clear pathway for businesses to enhance their energy efficiency.
Since its inception in 2014, ESOS has consistently required organisations to conduct energy assessments every four years to identify and implement energy-saving measures. This cyclical approach keeps businesses engaged with their energy usage and encourages ongoing improvements in energy efficiency.
Grasping the fundamentals of ESOS is essential for organisations aiming to comply and benefit from the scheme. The following sections outline the requirements and processes for effective ESOS compliance.
Who Needs to Comply with ESOS?
The ESOS scheme is mandatory for large organisations in the UK that meet specific qualification criteria, primarily focusing on energy audits.
These qualification criteria include having 250 or more employees or meeting certain financial thresholds, such as an annual turnover exceeding £44 million, an annual balance sheet total of over £38 million, and specific energy consumption profiles. Large undertakings and groups containing large undertakings in the UK are required to comply with ESOS.
Corporate groups can aggregate their energy usage to meet ESOS obligations collectively or participate separately. This allows for a more tailored approach to compliance, depending on the organisation's structure and operational needs.
However, it is important to note that overseas entities are not required to participate in ESOS. Nevertheless, UK employees of overseas companies may count towards eligibility, and overseas activities are considered when determining qualification.
Public sector organisations are generally exempt from the ESOS scheme. However, higher education institutions that self-declare as private sector entities are subject to ESOS compliance. This distinction ensures that only those organisations with significant energy consumption are mandated to participate, thus maximising the scheme's impact.
Organisations must regularly review their employee numbers and financial statements to ensure compliance. The employee threshold for ESOS compliance is calculated based on the average number of employees employed monthly during the year.
Additionally, an organisation that falls below the ESOS qualification threshold will remain qualified until it has done so for two consecutive periods. This ensures stability and continuity in compliance efforts, allowing businesses to plan and implement energy-saving measures effectively.
Qualification and Participation
Large Undertakings
A large undertaking is defined as a UK company that meets either one or both of the following conditions: it employs 250 or more people, or it has an annual turnover in excess of £44 million and an annual balance sheet total in excess of £38 million. This definition applies to the qualification date for the third compliance period, 31 December 2022.
Corporate Groupings for Qualification and Participation
If a corporate group contains at least one UK undertaking meeting the qualification conditions, its entire UK operation must take part in ESOS. A corporate group is defined in the Companies Act 2006. The highest UK parent of a group is the undertaking that has no parent or only has parents that are overseas undertakings.
Joint Ventures, Franchises, Trusts, and Private Equity Firms
Joint ventures are considered as a parent undertaking to another undertaking if any of the following apply:
- It has control over the undertaking.
- It can appoint or remove most of the undertaking's directors.
- It has the power to remove the majority of the undertaking's directors.
Franchisors are not grouped with their franchisees (unless they are also a parent undertaking of the franchisee undertaking). Assets held in trust must be included in ESOS if the organisation party to the agreement for the energy supply to the assets qualifies for ESOS.
Compliance Periods and Deadlines
ESOS Compliance Dates
The ESOS scheme runs in four-year cycles, with each cycle referred to as a compliance period. The current compliance period is three years long, and the previous compliance periods were 2019-2022 and 2012-2015. The deadline for submitting a compliance notification for the current (third) compliance period is 5 June 2024.
Key Requirements of ESOS Compliance
To comply with ESOS, organisations must undertake key activities designed to assess and improve their energy efficiency. These requirements are essential to ensure that businesses not only meet regulatory standards but also identify significant opportunities for energy savings through energy efficiency measures.
Qualifying organisations must conduct ESOS assessments every four years. These assessments involve a thorough review of their energy consumption and efficiency, leading to the identification of potential energy-saving measures.
The ESOS audit must include the following:
- A detailed analysis description.
- Consumption profiles.
- Findings from site visits.
- Summaries of energy efficiency improvements.
- Cost-effective energy-saving opportunities.
Organisations must account for at least 95% of their total energy consumption through compliance routes. This ensures that most of the organisation's energy usage is scrutinised, allowing for comprehensive identification of energy-saving opportunities. If the sample sites are representative of the entire organisation, only a few sample sites need to be surveyed, making the process more manageable.
Organisations must maintain evidence that energy-saving measures address significant energy consumption areas to support ESOS compliance. This involves keeping detailed records of calculations, methodologies, and justifications for implemented measures. Based on the energy-saving opportunities identified in assessments, the Action Plan should include anticipated energy reductions, estimated costs, and potential return on investment.
Conducting Energy Audits
The ESOS energy audit aims to assess energy consumption and efficiency and provide tailored recommendations for energy-saving measures. These audits are crucial for identifying areas where energy use can be optimised, ultimately leading to cost savings and improved energy security.
Energy audits should review energy consumption profiles in key areas such as buildings, industrial processes, and transportation. The audit must be based on verifiable energy consumption data covering a 12-month period, ensuring that the findings are accurate and reliable. The auditor will provide a detailed list of recommendations for energy savings, including a suggested programme for implementing these opportunities.
Energy audits require visits to only representative sites if multiple sites are similar, making the process efficient without exhaustive site visits. Records of the calculation method for any estimates used during the audit must be kept. This ensures transparency and accountability in the auditing process.
Calculating Total Energy Consumption
Calculating total energy consumption, which includes accounting for all energy supplies from buildings, activities, transport, and self-generated energy, is crucial for ESOS compliance. The reference period for this calculation is 12 consecutive months, providing a comprehensive overview of the organisation's energy usage.
Common units for calculating total energy consumption in ESOS include energy units such as kWh or energy spent in pound sterling. When verifiable data is unavailable, companies should use estimation methods and maintain details of the assumptions and methodology used. This ensures that all relevant energy consumption is accounted for, even without complete data.
The evidence pack must include records of the calculation method and reasons for estimation, providing a clear rationale for compliance. Metrics for measuring energy consumption vary by sector, such as kWh per m² for buildings and kWh per unit output for industry. This sector-specific approach ensures that energy consumption metrics are measured accurately and relevantly.
Identifying Areas of Significant Energy Consumption
Essential for ESOS compliance is developing an energy efficiency strategy to identify areas of significant energy consumption, which are the assets and activities that account for most of the organisation's energy use. Once identified, these areas can be targeted for energy-saving measures, maximising the scheme's impact.
If energy consumption does not fall under the main purpose, reasonable measurements should be made to compare it against the level of service or output. This involves calculating the energy intensity ratios and maintaining records of any estimates used. If an energy intensity ratio for 'other' energy uses is provided, details of the quantifiable output used to calculate the ratio and the reason for its relevance must be recorded.
To ensure compliance, at least 95% of total energy consumption must be accounted for. If significant energy consumption areas are not identified, an audit of total energy consumption must be conducted or covered under another compliance route. This comprehensive approach ensures that all major energy uses are scrutinised and optimised for efficiency.
Appointing a Lead Assessor
The Lead Assessor oversees the ESOS assessment process, ensuring compliance with scheme requirements and effective energy management systems. To be appointed ESOS Lead Assessor, individuals must pass an approved training course and be listed on an official register. This ensures they possess the expertise and qualifications to conduct thorough and accurate energy assessments.
Organisations may appoint internal staff or an external expert as their ESOS Lead Assessor. A board-level director must check and sign off on the overall ESOS assessment if an external assessor is hired. This adds an additional layer of accountability and ensures the assessment is conducted to the highest standards.
Alternative Routes to ESOS Compliance
While traditional ESOS energy audits are the most common route to compliance, alternative methods are available for organisations seeking flexibility and energy efficiency improvements. These methods include ISO 50001 certification, Display Energy Certificates (DECs), and Green Deal Assessments (GDAs).
ISO 50001 certification is an international standard for energy management systems. It covers all energy supplies if it meets the required percentage of energy consumption. Organisations with ISO 50001 certification must produce an ESOS report, calculate total energy consumption and intensity ratios, and share compliance information. This route provides a structured and internationally recognised framework for managing energy efficiency.
Display Energy Certificates (DECs) are used to show energy usage in public buildings in the UK. To comply with DECs, at least 95% of total energy consumption must be covered, and a valid DEC with an accompanying advisory report is required. This method is particularly useful for organisations with significant public-facing operations.
Green Deal Assessments (GDAs) evaluate energy efficiency in buildings and must cover over 95% of total energy consumption for ESOS compliance.
In addition to GDAs, an ESOS report needs to be completed and reviewed by a Lead Assessor for effective compliance. These alternative routes offer flexibility and can be tailored to the organisation's specific needs.
Notification of Compliance and Sign-Off
Compliance notification is a crucial step in the ESOS process. Once the ESOS assessment is complete, the responsible undertaking must notify the Environment Agency of their compliance. A Director and the Lead Assessor must sign off on this notification. The notification must include details of the ESOS assessment, including the energy consumption data, energy savings opportunities, and the actions taken to implement these opportunities.
The sign-off process is an essential part of the ESOS compliance process. The Director and Lead Assessor must ensure the ESOS assessment is accurate and complete before signing off the notification. This ensures that the organisation complies with the ESOS regulations and can avoid potential penalties. Organisations demonstrate their commitment to energy efficiency and accountability by involving senior management in the sign-off process.
ESOS Action Plan and Annual Progress Updates
The ESOS action plan is a critical component of the ESOS process. It outlines the organisation's actions to implement the energy savings opportunities identified in the ESOS assessment. The action plan must be signed off by a Director within the organisation and submitted to the Environment Agency.
The ESOS process also requires annual progress updates. These updates must be submitted to the Environment Agency within 12 months of the action plan deadline and include details of the progress made in implementing the energy savings opportunities. They must also include details of any changes to the action plan and any new energy savings opportunities that have been identified.
The ESOS action plan and annual progress updates are essential for ensuring that organisations are taking action to reduce their energy consumption and greenhouse gas emissions. By implementing the energy savings opportunities identified in the ESOS assessment, organisations can reduce energy costs and improve environmental sustainability. These updates provide a structured approach to track progress and make necessary adjustments to achieve energy efficiency goals.
Penalties for Non-Compliance
Non-compliance with ESOS can result in significant penalties, including fines of up to £50,000 for submitting false or misleading energy consumption data in the ESOS assessment. Initial penalties for failing to maintain records are set at up to £5,000, supplemented by costs incurred by the compliance body for verifying compliance. These penalties highlight the importance of maintaining accurate and thorough records throughout the ESOS process.
If an organisation neglects to conduct an energy audit, it could incur a penalty starting at £50,000, plus daily fines for continued non-compliance. Organisations failing to notify compliance may face an initial fine of up to £5,000 and a daily charge of up to £500 for ongoing violations. The Environment Agency is responsible for enforcing compliance with ESOS regulations and can issue fines of up to £50,000 for non-compliance.
The maximum fine for failing to comply with ESOS can reach up to £90,000. Additionally, a list of organisations that do not comply will be publicly available on the government website. This public disclosure serves as a deterrent and encourages businesses to prioritise compliance. The Environment Agency will publicly disclose that the organisation has taken no commitment or action.
Non-compliance with ESOS will result in the organisation's name and penalty being published. The Environment Agency is enhancing enforcement measures for ESOS, implementing distinct penalties for each regulatory breach. These stringent penalties underscore the importance of adhering to ESOS requirements and maintaining comprehensive records to avoid severe financial and reputational consequences.
Reporting and Documentation
Reporting and documentation are crucial for ESOS compliance. Before submission, a board-level director must sign off on the ESOS action plan. This ensures that the highest levels of management are aware of and committed to the energy-saving measures identified. One or more board-level directors or equivalent management individuals must sign off on the ESOS compliance notification.
The compliance notification must be submitted to the Environment Agency by the compliance date. This notification should include detailed information about the organisation's energy consumption, significant energy consumption, metrics, and the assessment route used. When using estimates for energy consumption, a record of the methodology and reason for using the estimates must be included in the evidence pack.
Two years after the deadline, annual progress updates post-action plan submission are required. These updates ensure that organisations remain committed to the energy-saving measures identified in their ESOS assessments. The ESOS action plan can be amended even after the deadline. Any revised information will be published later but must be verified first.
Public Disclosure and Transparency
Public disclosure and transparency are essential components of the ESOS process. The Environment Agency publishes the notification of compliance data on its website, which includes details of the organisation's energy consumption, energy savings opportunities, and actions taken to implement these opportunities.
The public disclosure of ESOS data is essential for promoting organisational transparency and accountability. It allows stakeholders to access information about an organisation's energy consumption and savings opportunities, which can help drive behaviour change and improve environmental sustainability.
In addition to the public disclosure of ESOS data, organisations must make their ESOS action plans and annual progress updates publicly available. This ensures stakeholders can access information about an organisation's progress in implementing energy savings opportunities and hold them accountable for their actions.
Overall, the ESOS process promotes organisational transparency and accountability while driving behaviour change and improving environmental sustainability. By requiring organisations to publicly disclose their ESOS data and action plans, the Environment
Agency can promote a culture of transparency and accountability, which can help to drive positive change and improve environmental outcomes.
Benefits of ESOS Compliance
ESOS compliance can result in substantial energy and cost savings for organisations. By embracing ESOS, businesses can implement measures to reduce energy usage over time, leading to significant cost savings on energy bills. These savings improve the company's bottom line and contribute to its overall sustainability goals.
ESOS compliance enhances energy efficiency measures, helping organisations reduce operational costs. Businesses can streamline their operations and reduce waste by identifying and implementing energy-saving opportunities. This strategic approach to energy management fosters a more efficient and resilient organisation.
An ESOS Lead Assessor offers valuable guidance in interpreting energy data and implementing efficiency measures. The insights gained from ESOS audits can be used to create effective business cases for energy-saving initiatives. This can lead to further savings and improvements in operational performance.
ESOS compliance enhances a company's environmental reputation, meeting the growing expectations of customers and stakeholders. Committing to energy efficiency and sustainability improves brand reputation and attracts environmentally conscious consumers. This competitive advantage can help organisations stand out in the market and foster long-term success.
Preparing for Future Phases of ESOS
Phase 4 of ESOS will introduce a requirement for a net zero element in audits as part of an energy efficiency strategy. This new standard for net zero assessments will be launched at COP30 in November 2025. Organisations must assess actions to meet future net zero commitments as part of their ESOS compliance. This aligns with the UK's commitment to achieve net zero emissions by 2050.
Submit the ESOS action plan for the third compliance period by 5 December 2024, ensuring all necessary materials are prepared beforehand. The first reporting deadline for ESOS Phase 4 is also 5 December 2024. The compliance deadline for Phase 4 of the ESOS scheme is 5 December 2027, with the action plan period ending on the same date. These deadlines emphasise the need for organisations to prepare well in advance to ensure timely compliance.
The introduction of net-zero assessments in Phase 4 requires organisations to consider their net-zero targets in their energy audits and action plans. The government is collaborating with the British Standards Institute to develop an international standard for net-zero audits. This standard will provide a clear framework for businesses to assess and achieve their net-zero goals.
Stay informed about upcoming requirements and deadlines to prepare for future phases of ESOS. Organisations can proactively plan and implement energy-saving measures to ensure continuous compliance and contribute to the UK's broader sustainability objectives.
Benefits of ESOS Compliance Beyond Penalty Avoidance
Beyond avoiding penalties, ESOS compliance offers numerous benefits, including energy efficiency improvements, that can enhance a business's overall performance and sustainability. One of the primary advantages is cost savings and efficiency improvements. Organisations can reduce energy costs and improve operational efficiency by implementing energy-saving measures identified during ESOS assessments.
ESOS compliance positively impacts the environment and supports corporate social responsibility (CSR) initiatives. Businesses can demonstrate their commitment to sustainability and social responsibility by reducing their carbon footprint and improving environmental practices. This can enhance their reputation among customers, stakeholders, and the broader community.
Enhanced reputation and market competitiveness are key benefits of ESOS compliance. Consumers are increasingly preferring companies that prioritise sustainability, with 28% of customers stopping purchases from brands due to sustainability concerns. By complying with ESOS, businesses can improve their brand reputation and gain a competitive edge in the market.
Overall, ESOS compliance fosters a culture of energy efficiency and sustainability within organisations. It encourages businesses to continually seek energy-saving opportunities, leading to long-term improvements in performance, environmental impact, and market position.
Steps to Take for Compliance
Achieving ESOS compliance involves key steps: firstly, conducting an initial review to assess the current status, identify potential gaps, and understand energy consumption profiles. This review helps organisations understand their energy usage and determine the areas that require attention.
The next critical step is selecting a qualified Lead Assessor with the necessary expertise for thorough and accurate energy assessments. Guidance on finding and selecting qualified assessors can be found through approved professional body registers.
The final step in the compliance process is executing the audit and reporting, including practical tips for efficient assessments and thorough data collection and analysis. Effectively documenting findings and recommendations is crucial for reporting and demonstrating compliance.
By following these steps, organisations can achieve ESOS compliance and unlock the benefits of improved energy efficiency and cost savings. Staying informed about upcoming requirements and deadlines is essential for maintaining compliance in future ESOS phases.
Meet our ESOS Consultants
Our experienced in-house ESOS consultants are here to help you fully understand the ESOS scheme and its implications for your business. Each consultant brings diverse skills, expertise, and industry experience to ensure you get the most out of the ESOS energy scheme.
Summary
In summary, the Energy Savings Opportunity Scheme (ESOS) is a critical initiative for large UK-based businesses to improve energy efficiency and reduce carbon emissions. Compliance with ESOS involves conducting energy audits, calculating total energy consumption, and identifying areas of significant energy use. Appointing a qualified Lead Assessor and maintaining accurate records are essential for successful compliance.
The benefits of ESOS compliance extend beyond penalty avoidance, offering significant cost savings, efficiency improvements, and enhanced reputation. By preparing for future phases of ESOS, organisations can continue to contribute to the UK's net zero goals and maintain their competitive edge in the market.
As we conclude, it is clear that ESOS compliance is not just a regulatory requirement but a strategic opportunity for businesses to enhance their energy management practices. Embracing ESOS can lead to long-term benefits that support sustainability, operational efficiency, and overall business success. Let's take action today and make energy efficiency a cornerstone of our business strategy.
As a business, you are responsible for reporting your energy usage through ESOS. Focus Green has expertise in assisting customers with every element of assessment. Our dedicated team of ESOS assessors are on hand to carry out your energy audits and will even create a helpful strategy to ensure recommendations are implemented.
If you want further support from Focus Green on navigating ESOS Phase 4, click here to arrange a 30-minute consultation.
