The European Union is targeting a 20 percent energy efficiency improvement by 2020, and the 2012 Energy Efficiency Directive contains a variety of measures to assist Member States in achieving more efficient energy use at all stages of the energy chain, from production to final consumption.
Article 8 of the Directive requires large undertakings to audit the energy efficiency of their properties and present the findings to their directors. There is no obligation to implement the findings; where an audit reveals cost-effective ways of saving energy, the prospect of reduced operating costs should be sufficient incentive alone. Undertakings should therefore not see Article 8 as a "green" hoop to jump through but as an opportunity to achieve financial savings.
The implementation of Article 8 varies across the EU, but in most Member States compulsory audits had to be completed by Winter 2015/16, with filings due in December 2015 or January 2016 to confirm compliance. Some Member States, such as Spain, have been late in implementing, though. We advised clients on their obligations in a variety of Member States, and some consistent themes emerged. Another round of audits is expected in 2019, if not sooner (they might become annual in the UK), so undertakings operating in Europe should bear these points in mind. If other jurisdictions implement similar legislation, these experiences could prove invaluable.
- Start work in plenty of time. There will be a rush as the deadline approaches, so engage with your preferred assessor while they have capacity to assist you properly and can achieve your timetable and budget.
- It helps (a lot!) if you can clearly explain your business structures. Some Member States only require filings by domestic undertakings; others require filings by all undertakings holding assets in their jurisdiction. Knowing whether an entity is part of your or someone else's corporate group for compliance purposes, or has to comply in its own right, is essential. This can require careful legal analysis; having the right information to hand makes the analysis quicker and easier, especially if you operate across several jurisdictions or employ complex structures. In many Member States, the compliance filings must identify exactly which subsidiary undertakings they include, so you need to be able to confirm this.
- Sometimes a parent undertaking and its subsidiaries (particularly separate businesses held as investments) will more appropriately comply separately. Some Member States allow disaggregation of subsidiaries for this reason. Conversations about disaggregation are better held at an early stage, so that everyone knows in good time who is doing what.
- Know when and how your properties were acquired, and who holds the title to them. Some Member States do not require audits of properties acquired after certain dates, which can vary depending on whether the asset was acquired or an interest in a holding vehicle. Some cases will need careful analysis.
- Your property managers must collect and provide to your assessor the data needed for the audits and benchmarking, such as energy consumption and billing information and any previous energy efficiency audits or assessments. Management agreements may need updating to ensure that they do this. When you acquire new properties, especially indirectly, consider obtaining historic information from the seller as some audits must include periods before your acquisition.
- Finally, it is worth stressing that compliance is not simply a "tick the box" exercise, nor is it one for which you have to comply property by property. The process of carrying out audits and reporting compliance needs to be undertaken across your corporate group in each Member State, and if a group fails to comply at all, or does not comply properly, there can be separate penalties in each Member State in which the failure occurs. In the UK, for instance, the Environment Agency has the power to levy fines for certain failures (which can combine a fixed penalty of up to £50,000 for each failure with additional daily fines for late compliance) and also to publish on its website details of undertakings that have not complied, what they failed to do, and how much they were fined for not doing it, which could lead to reputational damage.
Whilst compliance with Article 8 can be a complex process, let's not lose sight of its main policy objective and the potential upside. If done properly, audits should identify energy savings that, when implemented, will save money as well as improve energy efficiency.