The government's Energy Savings Opportunity Scheme (ESOS) makes it mandatory for 'large undertakings' in the UK to carry out an energy audit every four years and notify the Environment Agency that they have done so.

The title might lead businesses to think that participation in ESOS is voluntary, but actually the Energy Savings Opportunity Scheme Regulations 2014 make compliance mandatory.

Qualifying undertakings that don't comply risk hefty penalties - a maximum fine of £50,000 and up to £500 in addition for each working day of non-compliance. The enforcement authorities can also publicise penalties they have imposed, which can cause reputational damage.

The ESOS Regulations apply to large undertakings, judged on status on 31 December 2014. An undertaking includes not just companies, but also other corporate structures such as limited partnerships. There are special rules that apply to trust structures. A 'large' undertaking is any UK undertaking that either:

  • employs 250 or more people, or
  • has an annual turnover in excess of #50 million (£38,937,777) and an annual balance sheet total in excess of 43 million (EURO) (£33,486,489).

ESOS also applies to an overseas undertaking with a UK registered establishment which has 250 or more UK employees (paying income tax in the UK).

An undertaking's energy consumption does not affect whether it qualifies for ESOS. An undertaking with low energy consumption that meets the financial and employee numbers criteria for being a large undertaking will still qualify.

You should also consider whether your business is part of a larger 'group', which can include being owned by an investment vehicle such as a private equity fund, as well as being part of a traditional corporate group. If so, then the default position is that the 'highest UK parent' in the group is responsible for compliance, but it can elect to make individual undertakings in the group responsible for their own compliance.

As ESOS originates from the EU Energy Efficiency Directive, businesses that operate in other EU Member States will need to consider how their UK operations may affect their qualification for equivalent schemes in those Member States, which may have interpreted the qualification criteria differently.

An undertaking that qualifies for ESOS must:

  1. calculate its total energy consumption;
  2. identify its areas of significant energy consumption;
  3. appoint a lead assessor;
  4. notify the Environment Agency (or other applicable regulator, if outside England); and
  5. keep records.

Although the deadline for compliance with the first phase was extended to 28 January 2016, many businesses still missed this and may still be unaware that they are caught by ESOS. The enforcement authorities are both targeting businesses that they think should have complied and auditing businesses that did notify their compliance by the deadline. However, the enforcement authorities may not always have a proper understanding of organisational structures, so you may need to explain your structure if you have concluded that your business is not caught by ESOS but are then challenged by an enforcement authority.

When new compliance schemes like ESOS come into force, there is often a period of time when businesses don't comply with their requirements because of a lack of knowledge or understanding. If you have just become aware of ESOS and think it might apply to your business, you should act now.