Energy Savings Opportunity Scheme (ESOS)

The Energy Savings Opportunity Scheme (ESOS) is an energy assessment and energy saving scheme which applies to large undertakings and groups containing such large undertakings in the UK.

The purpose of ESOS is to require larger companies and non-public sector organisations in the UK to carry out mandatory energy savings assessments.

The obligation to comply with ESOS may not always be apparent to some organisations that fall within its scope. This aims to provide some initial information on the scheme.

The Energy Savings Opportunity Scheme Regulations 2014 (ESOS Regulations) introduced the scheme which implements Article 8 of the EU Energy Efficiency Directive (2012/27/EU). The ESOS regulations were retained by the UK after Brexit (ESOS (Amendment) (EU Exit) Regulations 2018) which meant that ESOS continued to operate after the transition period ended on 31 December 2020.

The scheme is administered by the Environment Agency for the UK as a whole whilst oversight for scheme compliance is regional with the EA covering England, Natural Resources Wales for Wales, The Secretary of State for Business, Energy and Industrial Strategy, in respect of offshore undertakings, The Northern Ireland Environment Agency, for Northern Ireland, The Scottish Environment Protection Agency (SEPA), for Scotland.

Who does the Energy Savings Opportunity Scheme it apply to?

ESOS applies to any large undertaking in the UK which is defined as any undertaking that meets one or both of the following conditions:

• It employs 250 or more people. For a UK registered undertaking, all employees contracted to the undertaking either in the UK or abroad, irrespective of the number of hours for which they are employed are included. For ESOS purposes, the definition of an employee for a non-UK registered undertaking with a UK registered establishment is someone directly contracted to the undertaking who is subject to income tax in the UK.
• It has an annual turnover in excess of £44 million and an annual balance sheet total in excess of £38 million. (These thresholds may change for phase 4 of ESOS – see below)

An undertaking can, for example, be limited companies, public companies, trusts, partnerships including LLP’s, unincorporated associations, not for profit bodies, universities and care homes that do not qualify as public bodies. Public bodies may be excluded from ESOS as well as overseas organisations.

It is important to be aware that if one entity of a corporate group meets the requirements for ESOS then the whole corporate group will be within scope of the legislation. A member of the group must be nominated as the responsible undertaking under the scheme tasked with managing compliance with the scheme requirements.

What is required?

ESOS participants are required to carry out an ESOS assessment which includes measuring energy consumption over a 12-month reference period, carrying out energy audits and identifying cost-effective recommendations to improve energy efficiency.

Energy audits must be undertaken by a lead assessors, which are energy management and energy auditing professionals who are listed on an approved register. They also review any other ESOS compliance matters and confirm the ESOS assessment meets ESOS requirements.

Timing of ESOS obligations

ESOS runs in cycles of 4-year compliance periods. The recent Phase 3 had a qualification date of 31 December 2022 requiring relevant undertakings to decide if they qualify and a compliance date of 5 December 2023, although this date was subsequently moved back to 5 June 2024.

Phase 4 runs with a qualification date of 31 December 2026 and a compliance date of 5 December 2027. The 4-year compliance phase runs between 6 December 2023 and 5 December 2027. It requires participants to calculate their total energy consumption over a 12-month reference period that includes the qualification date and must end before the compliance date. An energy audit must be carried out of the areas of significant energy consumption, based on 12 months of energy data.

Additional ESOS requirements

The Energy Savings Opportunity Scheme (Amendment) (“Regulations”) which came into force on 29 November 2023 introduced some additional requirements for information to be submitted to the Environment Agency.

Phase 3

The Regulations required in phase 3 that ESOS reports include more information than had previously been the case.

In brief this included:

• Information on the participants corporate group, information on assessors and contributors to the ESOS report, more information on energy consumption and more consideration of energy savings opportunities.
• Confirming in ESOS reports the overall energy intensity ratios in KWh for each organisational purpose and also in any notification of compliance sent to the Environment Agency.
• Any audit covers at least 95% of the participants Total Energy Consumption (as compared to 90% under phase 2) after the Regulations reduced the Significant Energy Consumption de minimis exemption from 10% to 5%.
• ESOS reports set out steps for implementing any recommendations made in the reports.
• Participants are required to produce an action plan after the phase 3 compliance deadline which includes details of energy savings measures implemented during the compliance period. In addition, participants must report against the plan on an annual basis with an update on measures implemented and not implemented.
• Participants which are the responsible undertaking within a group are required to share the information in the ESOS report with any subsidiary undertakings and confirm they had done so.

Additional changes for phase 4 are planned.

Phase 4

Following the UK Government’s Energy Saving Opportunity Scheme consultation some changes were implemented to enhance compliance and increase carbon and cost savings.

The intention is that phase 4 will focus on participants considering their energy efficiency and their plan to achieve net zero.

Other changes that are considered to be in the pipeline for phase 4 include:

• Reducing the turnover threshold for large undertakings qualifying for ESOS to £36 million with the balance sheet threshold being £18 million.
• Require participants to explain why any recommended measures within the ESOS report have not been undertaken.
• Ensure that an existing auditing standard is used for ESOS reporting.
• Display Energy Certificates and Green Deal Assessments no longer being accepted in phase 4.

At the time of writing, it was not clear which changes being considered will be implemented.

ESOS Compliance

The relevant compliance bodies can serve an enforcement notice on a responsible undertaking that is in breach of the ESOS Regulations 2014. There are also various civil penalties available to them including for such matters as: failing to provide the EA with information about compliance, failing to maintain records, failing to carry out an energy audit, failing to comply with an enforcement notice and making a false or misleading statement in the information provided to the EA or compliance body.

Compliance bodies can impose a financial penalty (for example up to £50,000 for a failure to undertake an energy audit) and publish a penalty notice setting out the breach on its website.

How can Punter Southall Law help?

Organisations that may fall within scope of ESOS should ensure that they are up to date on their compliance obligations and avoid any regulatory action against them for any failure to comply with the ESOS Regulations.

Contact our team to find out how we can help you navigate the complexities of ESOS, implement energy-saving measures and meet your obligations efficiently.

Visit Governance & Compliance to learn more about our services, or Contact Us to arrange a consultation.

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