FAQS: ESOS Phase 3– How Do I Comply?

The ESOS scheme derives from an EU directive back in 2012 and is a mandatory assessment scheme for organisations within the UK. The aim of the scheme is to ensure that directors and senior management are aware of all energy usage and costs (including gas, electric, oil and transport fuel) and how to reduce them accordingly.

ESOS applies to companies who employ 250 people or more, with an annual turnover of £44 million and an annual balance sheet of £38 million. For a large organisation with sub companies, the parent company is responsible for complying with ESOS. If one company within the group qualifies for ESOS, all the companies within the group must be included in the ESOS submission.

If your organisation meets the above criteria and is fully covered by ISO 50001 accreditation via a certified body, you do not need to carry out an energy assessment. All that is required is to notify the Environment Agency that you are compliant with ESOS. If you do not have an ISO 50001 energy management system or it only covers part of your energy use, you need to carry out an ESOS assessment.

The key date for qualification with ESOS Phase 3 is 31 December 2022, with the scheme requiring energy assessments to take place every four years. In order to comply, organisations must gather 12 months of information on their energy use. Agreements and recommendations are made based on the data acquired, which must be reported on by the compliance deadline of 5 December 2023.

The Environment Agency has been supporting companies with their submission requirements, but they have also issued penalties for non-compliance of up to £50,000. This can increase based on the number of days after the compliance deadline where organisations have yet to submit the required information

To comply with ESOS, organisations must gather 12 months of data based on all their energy use (including building energy, transport and manufacturing). All significant energy usage by the company must be reported on as part of ESOS, including building energy, transport and manufacturing. In terms of energy usage in transport, the scheme will only be looking at the costs that the company is responsible for, which would include company cars and commercial vehicles (including grey fleet).

Organisations without an ISO 50001 accreditation must appoint lead assessors who will support them with compliance in ESOS. The significant areas of energy consumption will then be ascertained, with the criteria to audit 90% of all energy use as a minimum. The lead assessor will then decide which buildings/areas need to be audited, with the remaining 10% placed in de minimis.

Once all site visits are undertaken and all energy reporting is gathered, an audit report of these areas is produced. This is followed by a super report covering all areas, before findings are presented to board members prior to submission. It will be an opportunity for them to discuss how they will reduce their energy use going forward and to look at how they can save money by being more cost-effective in terms of energy use.

ESOS (Energy Savings Opportunity Scheme) comes around every four years. The first deadline was 5 December 2015. The final deadline (which is for Phase 3) is 5 December 2023.  If you qualify for ESOS you must ensure notifications with the environment agency by this date at the latest.

The qualification date for Phase three is 31 December 2022 and the compliance deadline is 5 December 2023, as set out in the 2014 ESOS regulations.

Qualifying organisations are any UK large undertaking that either:

• Employs 250 or more people, or
• Has an annual turnover in excess of £44 million and an annual balance sheet total in excess of £38 million
• As well as any organisations that are part of a corporate group containing an undertaking that meets these criteria. Where a corporate group participates in ESOS, unless otherwise agreed, the highest UK parent will act as a ‘responsible undertaking’ and be responsible for ensuring the group as a whole complies.

If you qualify for ESOS and your organisation is fully covered by ISO 50001, you do not need to carry out an ESOS assessment. You just need to notify the environment agency that you’re compliant with ESOS.

If your organisation is not fully covered by ISO 50001, you need to carry out an ESOS assessment.

It is also possible to use energy directly covered by Display Energy Certificates (DECs), though this is not an avenue we would normally recommend as this will not be permitted for Phase four and you would then be starting from scratch with detailed energy site audits which could potentially cost more as you won't necessarily have a foundation to start from.

After phase 2, the environment agency issued:

• 2751 compliance notices
• 2133 enforcement notices
• 123 civil penalties amounting to over £1.9 million

Businesses that meet the qualification thresholds must calculate their total energy consumption across 12 consecutive months for the buildings, industrial processes and transport they are responsible for.

The total energy consumption must include 31 December 2022. The current ESOS regulations require the significant energy consumption to be at least 90% of the total energy consumption, although BEIS indicated in the government response to the consultation on ESOS that they are intending to increase this to at least 95% of TEC.

These are all proposals at present as they still have to be ratified by parliament:

• The de minimis threshold is purported to be reduced from 10% to 5%.
• Each ESOS audit must now include an intensity metric
• Requirement to share ESOS reports with subsidiaries
• Requirement for public disclosure of high-level recommendations by participants
• Requirement for participants to set a target or action plan following the phase three deadline, on which they will be required to report against for phase four
• Collection of additional data for compliance monitoring and enforcement - although we do not yet know what extra data they are expecting.

We know the Qualification date is 31 December 2026 and the notification deadline is 5 December 2027.

In phases 2 and 3 it was not necessary to implement any of the recommendations identified, but it will be required for the recommendations to be implemented in phase four. (Details to be confirmed).

ESOS is extending to medium-sized businesses (although full details is not known for what the turnover/number of staff is for this).

BEIS is working on a new PAS standard for net zero audits, which is intended to be introduced in 2023 so that businesses can include net zero on a voluntary basis as part of their ESOS audit. Net Zero is a mandatory part of ESOS.

This is where you show how you plan to cut your carbon emissions; highlighting what action you are going to take to achieve this, whether it be by upgrading your buildings, equipment, industrial process or transport. The best way of doing this is to move away from fossil fuels to electricity which is generated by renewable energy.

• Organisational structure
• Foreign entities: where an organisation is owned by a foreign company and if one of their subsidiaries in the UK falls under ESOS then all their subsidiaries in the UK also need to be included

We will initially send out a scoping questionnaire to get more details about your company, followed by a scoping meeting with you where we can discuss exactly what we will need to include in your ESOS audit, such as having to do enough site surveys to fulfil adequate sampling requirement.