ESOS Phase 2 FAQs: The road to successful compliance

office buildings with lit up windows at night

British businesses are now well into the second compliance period for the UK’s Energy Savings Opportunity Scheme (ESOS), with the deadline of 5 December 2019 fast approaching.

It is important that companies take action now to ensure they understand the ESOS process and take all necessary steps to comply. Failure to submit information by the compliance date can result in civil penalties, including publishing public information on non-compliant organisations and fines of up to £50,000.

The Carbon Trust supported hundreds of UK businesses with ESOS compliance in Phase 1 and this is continuing into Phase 2. When providing this support we found there are a lot of questions that come up time and again, so we have provided answers to some of the most common questions we receive.

Does my organisation have to comply with ESOS?

The criteria for inclusion under the ESOS regulations is not entirely straightforward, but essentially it applies to any large undertaking that carries out a trade or a business (most commonly a limited company), as well as 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
  • has an annual turnover in excess of €50 million and a balance sheet in excess of €43 million.

Most public sector bodies are excluded, but other organisations that receive some public funding, such as universities, may qualify.

Are there any changes from ESOS Phase 1?

The requirements for Phase 2 of ESOS have remained exactly the same as for phase one. There is also no requirement to have implemented any of the energy saving recommendations from phase one. However, businesses not taking action are failing to realise the business benefits that energy efficiency brings.

The Environment Agency expects there to be a significant improvement in timely compliance, as companies will have improved their recording of energy consumption data and are more familiar with the compliance process. There was a lenient approach taken to late submission and the imposition of civil penalties in Phase 1, which may not be the case this time.

Why do we have to do it again?

The EU Energy Efficiency Directive, which the ESOS Regulations have implemented within the UK, requires that energy saving audits are carried out at least once every four years. This is to make sure organisations are aware of their current opportunities, as their operations and technologies may change over time.

It is important to review progress to understand the results of projects that have been implemented, as well as seeing whether any changes to business structure may have affected consumption. The process also serves to remind decision-makers of the opportunities that remain unimplemented.

There have also been significant technology improvements over the past four years, and renewable energy and electric vehicles continue to get cheaper. This may present opportunities to save energy and cut cost that may not have been feasible in 2015.

What’s the benefit to my business?

The benefits are directly proportional to the ambition of qualifying companies. Identified opportunities for energy savings can’t be achieved if no action is taken.

However, virtually every organisation we worked with on ESOS in Phase 1 identified a series of cost-effective opportunities for saving energy and money, where there was a strong business case for action. This includes several measures that could be implemented with little to no additional investment.

How long does the process take?

We typically advise companies that the compliance process will take around 10-12 weeks, although this will vary depending on data availability and the complexity of the organisation.

There is a finite number of lead assessors and experience from Phase 1 shows that demand for qualified lead assessors will only grow as the deadline approaches. This may lead to unforeseen delays, increasing costs if companies wait until the last minute. And those costs could be even more serious if businesses fail to fully comply by the deadline.

What can I do to speed up the compliance process?

The best thing to do is appoint an experienced lead assessor as soon as possible and get the process underway. Your lead assessor will work with you to agree timeframes and put in place a project plan for timely compliance.

Data collection is typically the most demanding aspect of ESOS. You can help move things along by beginning to pull together energy data for your chosen 12-month reference period, which must cover the qualifying date of 31 December 2018. You can also think about which sites you might want to audit that best represent energy use across your business as a whole.

What data do I need to collect?

To calculate your total energy consumption you will need 12 months of energy consumption data from across your entire operations. The start date is flexible, as long as the chosen 12 month period includes the date 31 December 2018.

This energy consumption data includes all fuels and electricity consumed directly by your operations, as well as transport data from company cars, as well as expensed business mileage from personal car use and owned commercial vehicles.

Many companies already have good systems in place to capture energy consumption in buildings, but may need to engage different teams across the business for transport data and expenditure.

Do I need to provide data for every site?

Although only a sample of sites need to be audited, ESOS requires that data must cover your organisations’ total energy consumption for the chosen reference period across all sites. This also allows for any opportunities identified at the audited sites to be scaled up as appropriate across an entire business. This activity can take time for multi-site organisations, so getting started now is vital.

What about transport data?

All transport that your business directly operates must be included in ESOS disclosures. This includes commercial vehicles such as vans and HGVs, company cars, and employees using their own vehicle for business mileage. Transport data can be reported in expenditure, mileage, or fuel consumption.

Business travel in trains, taxis or planes that are not directly operated by your company do not need to be included.

How many audits do we need?

Your lead assessor will work with you to choose a suitable audit strategy, but the total number of audits required will vary for every company. ESOS requires that you audit a sample of sites that fully represent the different operations carried out by your company.

Put another way, the lead assessor must have confidence that all sites that have not been audited are similar to at least one of the sites that received an audit.

Then there is the impact of your transport fleet. If this makes up more than 10% of your total energy consumption, this will need to be audited as well.

When do we have to conduct the audits?

All businesses needing to comply with ESOS Phase 2 should be contracting with their provider right away and scheduling in their audits as soon as feasible. The compliance date is not far away now so action is required now to ensure compliance with the regulations by the deadline.

How do we choose a lead assessor?

Lead assessors must be recognised by a government-approved body as being capable of serving in this capacity. The government has published a register of lead assessors here.

It is worth noting that lead assessors do not necessarily need to be external to your organisation – if you have a qualified member of staff internally they may act as your lead assessor.

It’s also important to consider whether your lead assessor is familiar with your sector, as existing expertise will allow them to really understand your business and identify appropriate energy saving opportunities. The Carbon Trust has a number of approved lead assessors available, with a range of different areas of expertise.

Why should I work with the Carbon Trust to achieve ESOS compliance?

The Carbon Trust has nearly two decades of experience working alongside organisations of all sizes and sectors across the UK, helping them to take action on energy efficiency and save money. We supported hundreds of companies in the first phase of ESOS, uncovering the business value in going through the compliance process.

With our in-house team of lead assessors we have a wealth of energy efficiency expertise, and can ensure you achieve compliance while also identifying realistic and impactful opportunities to save energy and reduce costs.

What if we don’t have the budget for energy investment or audits?

Audits are mandated by law for qualifying companies and fines for non-compliance may be significantly higher than the cost of an audit.

The Carbon Trust can work with you to find the most cost-efficient approach that will ensure your compliance. In Phase 1 of ESOS we found that on average our customers could reduce their energy expenditure by 22% through following our cost-effective recommendations. It is therefore useful to consider audits as an investment in your business, rather than a cost without a return.

What has changed in the energy efficiency market since Phase 1 in 2015?

The cost of energy in the UK has continued to rise over the past four years. This increases the value of energy efficiency projects and may make the payback on certain projects more attractive than they were during Phase 1.

Technology has also continued to improve at a rapid rate. LED lighting can be very cost effective and the quality of light is ever improving. Similarly, the cost of solar panels and electric vehicles has fallen, making their implementation much more applicable for businesses across the UK. In some places there is also a shift away from gas, with many new buildings using only electricity for power and heat.

What are the quick wins and what is more difficult to implement?

In many organisations energy is still not treated as a manageable operational cost, but a fixed overhead. Merely the act of beginning to measure and monitor energy consumption can have immediate effects, identifying ways to save energy with little to no additional cost.

In terms of technology, LED lighting continues to be the most attractive investment for most businesses, and it has been shown to have an instant and noticeable impact on energy bills when displacing older lighting technologies.

Then when looking at fleets and transport energy use, better staff engagement on driving behaviour and improved fuel consumption monitoring can also lead to substantial reductions in overall spend.

The hardest areas to change tend to be those that involve significant capital outlay, such as replacing existing vehicles and machinery, as this can disrupt day-to-day operations for a period of time. Long term behaviour change can also be difficult to implement within an organisation, especially when it relates to energy use rather than core business.

How does ESOS relate to the new Streamlined Energy Carbon Reporting (SECR) requirements?

From April 2019 large companies in the UK will need to comply with Streamlined Energy Carbon Reporting (SECR) requirements, which replace the CRC Energy Efficiency Scheme. Although there is not a total overlap, many companies that qualify for ESOS will find they also need to comply with SECR.

Both obligations exist independently of one another. However, amongst other things SECR requires companies to include a narrative on energy efficiency measures in their annual reporting. This means that going through the ESOS process can be complementary to SECR, as a way to calculate energy use and emissions, as well identifying energy efficiency opportunities to be incorporated in a wider narrative.

How can we engage our senior team with ESOS?

We have found that ESOS has been a very successful way for teams responsible for energy efficiency to engage their executive leadership, as all submissions require sign off from a company director.

The Carbon Trust’s compliance reports lay out all energy saving opportunities clearly, with practical recommendations in plain language set out in order of priority and cost. This can be very effective in directing action and getting sign off for projects and new equipment.

What is the exact deadline for Phase 2?

The compliance date is 5 December 2019. Any companies that have not completed their ESOS assessment and notified the Environment Agency of compliance by this date risk facing enforcement action and additional costs.

What is the Environment Agency’s stance on non-compliance?

As with Phase 1 of ESOS, non-compliant companies can face fines anywhere between £5,000 -£50,000, plus £500 a day thereafter. Over 400 companies received enforcement notices for Phase 1.

It is worth noting that a degree of leniency was in place for Phase 1, as this was the first time companies had gone through the process. It is not unreasonable to think that the Environment Agency will be stricter for the second phase.

ESOS is linked to the EU Energy Efficiency Directive, do we still need to comply after Brexit?

The Environment Agency has confirmed that compliance with ESOS Phase 2 will still be required by UK law, no matter the outcome from Brexit negotiations.

If you have any further questions or are interested in the Carbon Trust support with ESOS Phase 2 compliance, you can email us by clicking the link below, or call our expert team on 020 7170 7000.

Get in touch