Key changes to Energy Savings Opportunity Scheme

What is the Energy Savings Opportunity Scheme

The Energy Savings Opportunity Scheme (ESOS), established in 2014, aims to encourage energy efficiency and reductions in energy consumption by mandating energy assessments and reporting for large UK organisations.   ESOS operates in four year cycles and we are currently in Phase 3.

The Energy Savings Opportunity Scheme (Amendment) Regulations 2023 (“Amendment Regulations”), which came into force on 29 November 2023, give rise to new requirements and considerations for businesses for Phase 3.  By building on the existing framework established by ESOS, the Amendment Regulations aim to promote a more standardised approach to the reporting and publication of energy-related information. Significant changes have been introduced and this post offers businesses a useful guide to navigating the evolving ESOS compliance requirements by exploring the key changes introduced by the new regulations.

Key Changes to Phase 3

Extended Phase 3 Compliance Date 

The date that ESOS participants are required to submit their compliance notification for phase 3 was extended from 5 December 2023 to 5 June 2024. 

“De Minimis” Threshold 

A reduction of the de minimis exemption so that participants’ significant energy consumption covers at least 95% of their total energy consumption (as compared to 90% in Phase 2).

Collection of Additional Data for Compliance

Collection of additional data for compliance. The additional requirements include providing: 

• Additional information on the corporate group, including Standard Industrial Classification code(s) and information on the group's corporate structure.
• Additional information about assessors and contributors to the report (e.g. personnel who drafted parts of the report or gathered data).
• Further energy consumption information (including the energy intensity metric discussed below). 
• A more in-depth exploration of energy savings opportunities.

ESOS Report

Although many organisations completed an ESOS report in the previous phases, the Amendment Regulations have established a legal requirement for responsible undertakings to produce an ESOS report. In addition to various other requirements, an ESOS Report must now include the following key information:

• The participant’s total energy consumption.
• The participant’s significant energy consumption, expressed in kWh, and the percentage it comprises of the total energy consumption.
• Energy intensity ratios must be calculated for applicable organisational purposes (the proportions that relate to an organisational purpose of transport, industrial processes, buildings or other), promoting targeted energy efficiency measures.
• An estimate of energy savings achieved since the preceding compliance date.
• Estimates for energy consumption in relation to each organisational purpose and each energy savings category.

It is worth noting that the requirement to produce an ESOS report also applies to participants relying wholly or partly on an alternative compliance route. 

Requirement to share ESOS reports with group undertakings.

Where an ESOS participant is part of a corporate group, the undertaking responsible for ESOS compliance of the group is required to share information in the ESOS report with subsidiaries. 

Energy Intensity Ratio

The Amendment Regulations introduce a requirement to include an energy intensity ratio in the ESOS reports in terms of kWh/m² for buildings, kWh/unit output for industry and kWh/miles travelled for transport.

Energy Savings Estimate

The obligation to identify energy saving opportunities is extended to require responsible undertakings to conduct further analysis to identify considerations for implementation of energy saving opportunities and to recommend a programme for implementation. This should include: 

• Combining a selection of options recommended in the ESOS report and producing an indicative programme of opportunities outlining the combined costs, benefits, and payback period for the package. 
• Recommending a programme for implementation for any opportunity identified, including for example when replacing existing equipment or renewing an equipment lease. 
• Detailing government schemes that could help the business implement energy savings opportunities recommended in the report.  

Action Plan and Annual Progress Updates

ESOS participants must set a target or action plan following the Phase 3 compliance deadline, which must be submitted by 5 December 2024. Participants will then be required to report against the action plan annually to provide an update on any measure that has or has not been implemented. The obligation also applies to participants relying wholly or partly on an alternative compliance route. Note that the change to the compliance date for the third phase does not affect the deadline by which action plans and progress updates must be submitted, or the dates covered by action plans. 

Publication Requirements

In an attempt to promote further transparency, scheme administrators are now required to publish additional types of information held on the Notification System. 

Evidence Packs and Record Keeping

The information required to be included in the evidence pack has been extended, ensuring a more comprehensive overview. In addition, in specified circumstances, the period that the evidence pack must be held for is extended.

Additional Changes to Phase 4 

Inclusion of a net-zero element to ESOS Audits

Moving forward, the Government has announced plans to introduce a mandatory “net zero element” into Phase 4 ESOS Reports. The Government developed a PAS standard last year to cover this net zero requirement but confirmed that this aspect of reporting will only be voluntary for ESOS Phase 3. 

Impact on Businesses

Through the Amendment Regulations, the government aims to fortify standards for reporting, enhance audit quality, and encourage implementation of climate commitments further whilst also reinforcing accountability through increased public disclosure of ESOS data. If your organisation qualifies for ESOS, it is important that you consider the new requirements, particularly as non-compliance may result in financial penalties from the Environment Agency. 

In particular, the amendments will require businesses subject to ESOS to respond to the following:

• Increased Reporting Standards: Enhanced standards have raised the bar for transparency and disclosure that businesses must meet when providing details of their energy consumption and efficiency measures. Organisations must take care to meet the new compliance points introduced by the Amendment Regulations, including the submission of an action plan and subsequent annual reports.
• Focused Energy Saving Measures: The amendments encourage organisations to adopt more targeted measures, for example through the introduction of intensity ratios. 
• Required Information Sharing: Policies and procedures must be established to enable the sharing of information and collaboration between group undertakings.

The changes implemented by the Amendment Regulations clearly present various challenges to organisations subject to ESOS. However, the extension of the compliance date provides businesses with additional time to act and align their practices accordingly. Meanwhile, moving forward, the amendments provide a valuable opportunity for businesses to reassess and enhance their ongoing energy practices. 

If you require further advice on the changes to ESOS and how to comply with the scheme, please contact Michael Barlow and Annalise Slocock.

Written by Annalise Slocock.

The deadline for submitting a compliance notification for the current (third) compliance period is 5 June 2024.

https://www.gov.uk/government/publications/comply-with-the-energy-savings-opportunity-scheme-esos/complying-with-the-energy-savings-opportunity-scheme-esos