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The Energy Savings Opportunity Scheme (ESOS) Phase 3. What changes are likely and how does this affect your organisation?

The Energy Savings Opportunity Scheme (ESOS) was originally devised to improve business energy efficiency, providing large organisations at the board level with high quality information to enable them to reduce energy consumption and costs. Now seen as contributing to the UK’s net zero commitment, BEIS undertook a consultation in 2021 with a view to making improvements. ESOS Lead Assessor Nigel Collins examines what changes we might expect to see in Phase 3.

WHO QUALIFIES AND WHAT IS CURRENTLY REQUIRED?
If you are a large undertaking on the Qualification Date, which for ESOS Phase 3 is 31st December 2022, you must comply unless you are a public body (as defined by the Public Contracts Regulations).  A large undertaking is any UK undertaking that meets either of the following conditions:

  • It employs 250 or more people
  • It has an annual turnover in excess of £44 million and a balance sheet total in excess of £38 million

(Note that organisations that have recently shrunk or grown or are very close to the qualification threshold may need to look back over several accounting periods as the status of an organisation is determined by whether they have maintained their size for at least two consecutive accounting periods). There are a number of routes to compliance and if you have ISO 50001 certification covering ALL of your energy consumption, (for the whole corporate group in the UK), this counts as your ESOS assessment. You do not need to appoint a Lead Assessor but you should still make a  notification to the Environment Agency by the Compliance Deadline of 5th December 2023. If you consume less than 40,000 kWh, you must still carry out an ESOS assessment but you do not need to appoint a Lead Assessor.

If you do qualify to undertake an ESOS assessment and appoint a Lead Assessor, the following is currently required: 

• Calculate your total energy consumption
• Identify areas of significant energy consumption (considered as 90% of total)
• ESOS Qualified Lead Assessor to undertake/review ESOS energy audits
• Carry out energy audits, including energy profiling, identifying opportunities for improvement and if practicable, use life cycle cost analysis
• Board level director to review findings of assessment
• Report compliance to the Environment Agency (online)
• Retain an evidence pack as a record

SHORTCOMINGS FOUND IN COMPLIANCE AUDITS
The Environment Agency (which regulates ESOS compliance) recently reported that in the Phase 2 evidence packs audited, they found only 32% to be compliant without corrective action. Areas in which corrective action was required included organisation structure (which can be complex), total and significant energy consumption, energy savings opportunities and sampling approach. I  have personally seen some poor quality reporting, including one which made no reference to any sampling approach taken to carrying out energy audits of what was a multiple site organisation, only the Head Office was visited.

WHAT CHANGES CAN WE EXPECT IN PHASE 3?
The consultation proposed a number of changes to improve the quality of reporting, some of which could result in an increased cost to compliance. For example, to require that all sites be audited within a set period to avoid some sites never being audited. For a large charity, I audited 600 shops, this could impose an unnecessary financial burden. On the other hand, mandating improved analysis of energy data should weed out some of the low-quality reporting often seen.

Other proposed changes include:

• Setting stronger standards, including introducing a template reporting structure, mandating sampling methods, mandating inclusion of half hourly data in energy profiling and focussing on  energy management practices including behavioural change
• Increasing the significant energy consumption to 95% as the 10% de-minimis has been used to exclude transport
• Removal of DECs (Display Energy Certificates) and Green Deal Assessments as a partial route to compliance
• Changing the Qualification Date or staggering phases for different sectors in order to spread the workload for Lead Assessors
• Tighter controls around who can carry out energy audits, their qualification and CPD
• Inclusion of carbon reporting to align with other reporting designed to help the UK meet its Net Zero targets

BEIS needs to act with expediency for any changes to be introduced in time for Phase 3. There is some understandable reluctance to start energy audits until the new guidance has been issued in case they have to be re-done.

WHAT SHOULD A GOOD QUALITY ESOS REPORT INCLUDE?
Clearly, the reporting and assessment have to be compliant and BEIS is attempting to raise the bar. My experience has been that many organisations viewed ESOS as a box ticking exercise but have then been surprised at the insight they have gained into the operation of their organisation. This insight comes from meaningful profiling of energy consumption and engaging with the stakeholders and those at ground level of the organisation in order to identify specific energy savings opportunities; not just the generic opportunities found in low cost ‘cut and paste’ reports. With many of our clients embarking on the journey to becoming verified carbon neutral and with the current energy crisis pushing prices through the roof, the need to reduce energy consumption is now a board-level conversation. A good quality ESOS report should pay for itself, as energy costs are reduced and fewer offsets are then required for the organisation to become carbon neutral.

esos phase 3

BY: NIGEL COLLINS & ALAN FORD