ESOS (ENERGY SAVINGS OPPORTUNITY SCHEME)


NICOLETA VOICU
5 January '24

4 minute read

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ESOS is a mandatory energy assessment scheme for large organisations in the UK that meet the qualification criteria. Organisations must carry out audits of their energy use to identify cost-effective energy savings measures.

ESOS has been released in stages. The deadline for phase 2 has passed on 5 December 2019. ESOS is now in phase 3 – and the deadline for compliance is 5 December 2023. Although the Environment Agency is looking at extending the deadline.

Current compliance thresholds are number of employees over 250 OR an annual turnover exceeding £50m.

In addition to the known requirements for Phases 3 and 4, there are a few other changes being considered for future phases, including extending the scope of the scheme to include medium-sized businesses.

Originally the final ESOS compliance date was set to be in December 2023. However, the government updated its guidance and ESOS has been extended to include a Phase 4 at a minimum.

This extension not only shows that the government is committed to making businesses more energy efficient – but it also means that while a company may not currently meet ESOS criteria, they may by 2026. Therefore, all growing businesses must be aware of this new phase.

So what? ESOS Phase 4 (with a compliance date of 31 December 2026) major additions to the Phase 3 are changing threshold to align with SECR and requirement to publish a net zero assessment and emission reduction trajectories. Implementing a net zero strategy takes time and resources and for companies that did not meet the threshold in Phase 3 but meeting it for Phase 4, this will be a completely unfamiliar territory.

For Phase 4 expectation is that threshold will be aligned to SECR. This means businesses would be in scope of ESOS if they meet at least one of the following criteria: they have a) at least 250 employees b) a balance sheet of at least £18 million c) turnover of at least £36 million.

ESOS PHASE 3 CHANGES (CURRENT PHASES)

  • A standardised template for including compliance information in the ESOS report.
  • The de minimus is now 5% of total energy consumption (previously it was 10%). The de minimus is the amount of your total energy consumption that can be excluded from your reporting.
  • The addition of an energy intensity metric in ESOS reports. Reports will need to include an overall energy intensity metric within the overview section of the report in terms of kWh/m2 for buildings, kWh/unit output for industry and kWh/miles travelled for transport. Intensity metrics are already required under SECR, so this brings the two schemes more in line with each other.
  • A requirement for ESOS reports to provide more information on next steps for implementing recommendations.
  • A requirement for participants to set a target or action plan following the Phase 3 compliance deadline. Participants will need to report progress annually via the energy efficiency section narrative in SECR reports, or via the ESOS web portal. Meeting the target or completing an action plan will not be mandatory for the Phase 3 compliance deadline, but from Phase 4 onwards a requirement will be introduced that if the goal has not been met, the participant must explain why.
  • Collection of additional data for compliance monitoring and enforcement. This will cover data including corporate structure, details of energy consumption and emissions, and energy intensity metrics.

ESOS PHASE 4 CHANGES

  • Net zero assessments. This would include an assessment of actions needed to meet future net zero commitments. It would identify potential risks to the business of moving to net zero and well as possible emission reduction trajectories and ensure that investment in energy efficiency now does not prejudice those net zero trajectories. The government is currently working with BSI on the production of a new net zero audit PAS standard to facilitate this. ESOS participants can introduce this voluntarily in Phase 3, but it won’t be mandatory until Phase 4.
  • Changing the ESOS balance sheet and turnover thresholds to align with SECR. This means businesses would be in scope of ESOS if they meet at least one of the following criteria: they have a) at least 250 employees b) a balance sheet of at least £18 million c) turnover of at least £36 million.
  • Mandating action on audit recommendations. From Phase 4 onwards a requirement will be introduced that if the goal has not been met, the participant must explain why.
  • A requirement that ESOS reports use an existing auditing standardsuch as ISO 50002 or EN 16247.