UK: ESOS Regulations: Are You Ready To Report?

The Energy Savings Opportunity Scheme Regulations 2014 ("ESOS") came into force across the UK last July. The purpose of ESOS is to require large businesses to identify energy efficiency savings by carrying out energy audits; ESOS is intended to deliver part of the UK's 2020 target to reduce energy consumption by 20%. The reality is that ESOS imposes yet another obligation on businesses to calculate their energy usage and report to the regulators that is different to existing reporting obligations such as CRC and the deadline to report is 5 December 2015 which is not long for businesses only starting their compliance now.

Who is caught by ESOS?

ESOS applies to all "large undertakings" that are either UK registered undertakings or overseas registered undertakings with a UK registered establishment. To qualify as "large undertakings", they must either (a) employ at least 250 people (whether in the UK or overseas) or (b) have an annual turnover above €50m and a balance sheet above €43m. The rules on corporate groups are complex, but essentially if a corporate group contains at least one qualifying large undertaking with a registered place of business in the UK, then the entire UK operation must participate in ESOS, regardless of whether the other members of the group are too small to meet the qualification criteria.

What energy consumption needs to be measured?

Participating businesses must measure at least 90% of their energy consumption, by reference to either energy units or expenditure. The audit must cover energy consumption within buildings, by industrial processes and by transport. The inclusion of transport is what makes ESOS wider than other comparable reporting schemes; it requires a "reasonable estimation" to be made of all energy usage by any road vehicles, ships, trains and aircraft. The fuel use that must be included in the audit comes from journeys are those made within or to/from the UK. Accordingly, UK established shipping and other transport businesses that are large undertakings will have a significant compliance burden under ESOS.

If a business has ISO 50001 accreditation covering all energy consumption, this data can be used for the purposes of ESOS compliance. If a business does not have ISO 50001, or it covers only part of their energy consumption, then an ESOS audit must be carried out by a "lead assessor", who must be registered to carry out ESOS audits by a professional body. The audit must include costed energy saving recommendations to be reviewed by the Board, although there is no actual obligation on those in the Scheme to implement them.

Why is it an issue now?

The first compliance deadline of 5 December 2015 is now looming. By this date, businesses are expected to have determined whether they are caught by ESOS, appointed one of the directors to act as the responsible officer, carried out an energy audit over a 12 month reference period and identified potential energy efficiency savings, and notified the Environment Agency that they complied. Failure to comply can result in civil penalties, including a fine of up to £90,000.

In fact, very few businesses have so far notified their compliance to the Environment Agency. The concern is that many businesses are simply not aware of ESOS, or believe they are exempt because they already participate in other mandatory schemes requiring measurement of energy consumption/carbon emissions, such as CRC and EU ETS.

Another misconception is that ESOS compliance can be secured by using the same energy consumption data that businesses are already gathering for these other schemes. Whilst this may true for certain businesses with ISO 50001 accreditation, ESOS goes wider than most other schemes (most notably in relation to transport energy usage) and may require additional data to be gathered.

Businesses should therefore act now to determine whether they will be in a position to comply with the 5 December deadline. As an accredited energy auditor has to be involved in the process carrying out the required audit at the last minute could prove challenging and, if compliance is not achieved, costly [One positive outcome of this compliance could be finding cost effective energy savings for the business making the process worthwhile].

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.