The Energy Savings Opportunity Scheme (“ESOS”), which came into force in the UK on 17 July 2014, seeks to encourage businesses to identify energy efficiency savings and to adopt good energy management practices. It implements Article 8(4) of the EU Energy Efficiency Directive 2012/27/EU.
Who does ESOS apply to?
ESOS is compulsory for all Large Undertakings, which are defined as being UK bodies corporate or partnerships, or unincorporated associations carrying on a trade or business, with or without a view to profit, which either:
- employ at least 250 people; or
- have an annual turnover over €50 million and an annual balance sheet total over €43 million,on the Qualification Date in the relevant Compliance Period (see below).
Public bodies are excluded from ESOS. Additionally, where a corporate group contains a Large Undertaking, the group must comply with ESOS as a single participant. As with the CRC Energy Efficiency Scheme, disaggregation is possible, meaning that subsidiaries may participate in ESOS separately from the other members of the group. However, disaggregation does not exempt subsidiaries in a group that contains a Large Undertaking from participating in ESOS, even if they are not Large Undertakings themselves. Conversely, aggregation between undertakings within a group that had been participating separately is also possible, thereby allowing them to participate in ESOS collectively. The government expects about 9,400 participants in the first phase of the scheme.
From when does ESOS run?
ESOS runs in Compliance Periods: the first Compliance Period is from 17 July 2014 to 5 December 2015, but, thereafter, each Compliance Period will last for 4 years (the next Compliance Period running, for example, from 6 December 2015 to 5 December 2019). Within each Compliance Period, there is a Qualification Date, which is the date on which an undertaking must decide whether it is a Large Undertaking or not (by reference to the criteria set out above). The first Qualification Date is on 31 December 2014, and subsequent Qualification Dates will be every four years thereafter. Also, each Compliance Period has a Compliance Date, which is the date by which ESOS assessments must be completed and compliance notified to the Environment Agency (see below). The first Compliance Date is 5 December 2015, and subsequent Qualification Dates will be every four years thereafter.
What does ESOS require participants to do?
Participants are required to measure their total energy consumption (including in their buildings, transport and industrial processes) over a 12 month period within the relevant Compliance Period (known as the Reference Period). The Reference Period must cover the Qualification Date and also come to an end before the Compliance Date.
Participants must audit at least 90% of their energy consumption during a 12 month period within that Compliance Period. However, the 12 month period which is subject to the audit does not have to be the same 12 months as the Reference Period. The audit must be carried out, overseen or reviewed by a lead assessor.
The audit must, so far as reasonably practicable, analyse the participant’s energy consumption and energy efficiency, and also contain recommendations as to how the participant can improve its energy efficiency, plus an estimate of the costs and benefits of any energy saving opportunity.
Participants must notify the Environment Agency that they have complied with these obligations and they are required to retain evidence of compliance for a period of eight years from the end of the relevant Compliance Period in question. However, participants are not actually required to disclose the results of their measurements or audits, or to implement the recommendations (although this is, of course, encouraged by the Environment Agency).
What are the implications of ESOS for businesses?
ESOS represents another layer of regulation on organisations on top of existing regimes designed to reduce carbon consumption, such as the CRC Energy Efficiency Scheme and Climate Change Agreements (although there is scope for the reporting used in the CRC Energy Efficiency Scheme to be applied in measuring energy consumption under ESOS). Whilst the Environment Agency has suggested that it will approach enforcement of ESOS with a ‘light touch’, there is provision for enforcement notices and civil penalties to be issued in cases of non-compliance. Guidance for participants has been published by DECC.