The Energy Saving Opportunity Scheme (ESOS) applies to all medium / large UK businesses and obliges them to conduct periodic energy efficiency audits.

The qualifying criteria are involved, but in essence any business with more than 250 employees orwith turnover in excess of £39M p.a. and a balance sheet of more than £33.5M is caught. It is estimated that some 10,000 businesses are within scope.

The audit must be carried out at least every four years, be approved by a qualified 'Lead Assessor', be signed off by a board director and be notified to the Environment Agency (which is maintaining a register for this purpose).

Although ESOS is described as a "Scheme" there is no obligation to actually implement any energy saving measures identified and no dedicated financial assistance or incentives are offered. However, Michelmores is aware that at least one bank has sought to plug this gap by offering finance and creating a 'panel' of energy performance contractors who will undertake the relevant works on a percentage fee linked to the savings achieved.

The deadline for notifying the EA of the first round of audits is rapidly looming, being 5 December 2015. In light of limited awareness among the business community, and a lack of availability among Lead Assessors at this time, the EA has recently issued guidance indicating that it will not normally take enforcement action in relation to late notifications provided notification is made by 29 January 2016. A further grace period has been announced for businesses which are seeking to gain the relevant energy efficiency best practice certification, ISO 50001, until 30 June 2016. ISO 50001 status exempts the holder from ESOS.

The penalties for failing to notify in time include a fixed civil fine of up to £5,000 plus a daily penalty of £500 for up to 80 days, so the total fine could amount to £45,000. Failure to carry out an audit carries a fixed penalty of up to £50,000, with a daily penalty of £500 for up to 80 days. There are also 'naming and shaming' provisions.

Consultation

The Government has recently consulted on a review of the overall package of business energy tax, reporting and incentives (including ESOS). The aim is to simplify the various overlapping measures currently in place, to reduce the administrative compliance burden on business and to increase productivity.

The consultation, Reforming the Business Energy Efficiency Tax Landscape, ran until 9 November 2015. The key proposals are as follows:

  • Reporting – Replacement of the CRC Energy Efficiency Scheme (CRC) and the Green House Gas listed-company reporting requirement with enhanced reporting within ESOS.
  • Tax – Replacement of the CRC and Climate Change Levy (CCL) with an enhanced version of CCL.
  • Incentives – No clear proposal is made; the Government expresses itself open to suggestions provided they are tax-neutral.

It is tempting to see the consultation (and the parallel consultation on the Feed in Tariff) as part of a re-orientation of Government strategy away from subsidising renewable generation and toward promoting cost-effective energy efficiency measures. Such an approach certainly chimes with the Chancellor's objective of reining in spending and promoting productivity.

The Department of Energy & Climate Change indicate that they are still considering responses to their consultation, so we may need to await the 2016 Budget for further details. In the meantime, businesses must not ignore their ESOS obligations.

Further information:

Environment Agency ESOS Guidance 

Energy Saving Opportunity Scheme Regulations 2014 (SI 2014/1643)

Consultation, Reforming the Business Energy Efficiency Tax Landscape, HM Treasury / DECC