Government consultation could lead to ESOS reforms

The government has launched a consultation, seeking views on proposed changes to the scope and scale of the Energy Savings Opportunity Scheme (ESOS). The measures aim to improve the uptake of energy efficiency measures and increase the benefits for participating businesses.

Most of the proposed changes to the regulations are being considered for ESOS Phase 3 (which runs from 2019 – 2023) and are subject to the outcome of this review, which launched in July and is open until 28th September 2021.

ESOS consultation at a glance

The consultation proceeds the 2020 Post-Implementation Review of the scheme, and welcomes views on the following areas:

    • improving the quality of audits through increased standardisation of reporting requirements
    • the inclusion of net zero element to audits
    • requiring public disclosure of high-level recommendations
    • increasing sampling rates for multisite organisations
    • aligning the qualification criteria with SECR

They are also seeking views and evidence on two additional options to improve the scheme, potentially in the longer term from ESOS Phase 4:

    • widening the qualification criteria to include medium sized enterprises
    • mandating action on energy-saving recommendations

What does this mean for you?

Strengthening the requirements for ESOS audits

An assessment of Phase 2 ESOS reports by The Department for Business, Energy and Industrial Strategy (BEIS) identified a lack of consistency and varying quality in analysis and site sampling methods, report quality and types of recommendations made. The findings suggest the lack of consistency could, in part, be due to the fact that ESOS is viewed by many as a ‘tick box’ compliance activity as opposed to an energy saving opportunity which has a direct impact on the time and cost investment in the auditing process.

The importance of energy efficiency in light of net zero targets, means the ‘light touch’ nature of ESOS requirements and the flexibility afforded to organisations to commission tailored audits is no longer appropriate. Stronger audit requirements and standardisation of reporting are included in the proposal, not only in the hope that it will shift this perception, but also in an effort to reduce discrepancies and ambiguity in reporting.

Current recommendations include a change to the de minimis exemption to up to 5% of total energy, a minimum threshold for both the number of sites sampled and the percentage of total energy consumption sampled, the inclusion of half hourly metering data where possible as well as the possibility that future audits will have to follow existing auditing standards such as ISO 50002 or EN 16247.

Addressing the Net Zero challenge

In addition to making changes to the audit and reporting requirements, the consultation is also considering how ESOS could be better designed to align with net zero targets.

Proposed changes to ESOS would encourage participants to consider how net zero will affect their organisation, as well as ensuring that ESOS recommendations are aligned to net zero goals. Currently, ESOS audits are often focused on short term cost savings from energy efficiency which may be at odds with longer term net zero targets, such as investment in zero carbon technology and clean heat. For example, replacing a fossil fuel boiler with a more efficient model could lock an organisation into a high emissions pathway if low carbon alternatives are not considered. Current recommendations for additions to the audit include an assessment of actions needed to meet future net zero commitments, including impacts on the electricity system as well as direct carbon/greenhouse gas emissions.

Public disclosure of ESOS data

Another significant change would be the requirement for participants to publish high-level information from their ESOS report and set out an action plan which they are required to report against. Findings from the evaluation suggest that organisations are more likely to take action on energy efficiency if they are able to benchmark their performance against relevant organisations. It is thought that adding a degree of business-business competition will act as an additional incentive for businesses due to the pressure to demonstrate progress and positive results.

There have also been requests for the update of ESOS recommendations to be made mandatory – another significant proposal currently being considered as part of the consultation process.

On a related note, if your organisation bids for UK Government contracts with a value of £5 million or more and therefore is subject to Procurement Policy Note (PPN) 06/21, you are required to have a Carbon Reduction Plan (CRP) in place which details your carbon footprint and demonstrates your commitment to achieving Net Zero emissions by 2050. PPN 06/21 requires you to publish your CRP on your website and keep it regularly updated. If your organisation falls under both the ESOS and PPN 06/21, you must ensure your plans are fully aligned to maintain credibility.

Extending the scheme to medium size enterprises

The ESOS scheme currently applies to large businesses of 250 or more UK employees or those with an annual turnover in excess of £44 million. However, businesses of this size only account for 44% of business energy use. Excluding SMEs from the scheme excludes a large proportion of total UK business energy use. Bringing smaller organisations into the ESOS scheme would not only benefit these businesses through reduced energy bills, but the UK as a whole as we continue to work towards net zero.

Do you qualify for ESOS Phase 3?

Qualifying organisations are advised to start the process of auditing as soon as possible, ahead of the 5 December 2023 deadline.

As one of the leading UK consultants, we have a wealth of experience in delivering a well-rounded and fully compliant service. We were among the first UK-based consultants to offer ESOS compliant Lead Assessors and have helped many businesses and organisations to manage their audits and fulfil the necessary requirements for ESOS Phase 1 & 2. 

Current qualification thresholds

The scheme is mandatory for all organisations in the UK who meet the following criteria.

  • 250 or more UK employees OR
  • An annual turnover in excess of £44 million and an annual balance sheet total in excess of £38 million

Corporate groups qualify if at least one UK group member meets the criteria above.

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