Consider acting now to potentially avoid ESOS 3 fines

ESOS 3: a snapshot

The scheme requires large UK organisations to carry out comprehensive energy audits and report back to the Environment Agency.¹ (© Crown copyright. OGL^)

One element of the scheme has been designed to increase the industry’s awareness of energy consumption in the hope that it makes it easier for businesses to take action to lower their energy bills and reduce the rate of carbon emissions across the UK. (© Crown copyright. OGL^) ESOS goes beyond a focus on energy use in buildings. It encompasses all forms of energy consumption, which can include. industrial processes and transport.² (© Crown copyright. OGL^)

Understanding compliance measures

In the first two ESOS compliance periods, ESOS participants could exclude up to 10% of their energy supplies and report on 90%.³ In the third compliance period this has been changed to up to 5% exclusion and at least 95% of total energy consumption must be included.³ (© Crown copyright. OGL^)

The government advises: “This means you can exclude up to 5% of your total energy consumption from any audit or alternative compliance measures. This ‘up to 5%’ is your ‘de minimis energy consumption’. ” ⁴ (© Crown copyright. OGL^)

The deadline for ESOS Phase 3 compliance took place at the beginning of June 2024 and following a further consultation period, the Phase 4 compliance deadline will be in 2027.⁵ (© Crown copyright. OGL^) Another significant change to ESOS under the revised Phase 3 is a requirement for an action plan⁶, after completion of the assessor’s report, and it is likely that progress could be reviewed annually to maintain progress during the 4-year interval between ESOS compliance periods. (© Crown copyright. OGL^)

SaveMoneyCutCarbon advises that with an ESOS audit, there would generally be two potential outcomes – either, the company is advised that no further measures are necessary, or perhaps a full report with a range of costed sustainability measures.

Who is eligible?

ESOS applies to large organisations including not-for-profit bodies and other non-public-sector organisations for which one or more of the following criteria apply:

• Employ 250 or more people
• Has an annual turnover in excess of €50M and a balance sheet total in excess of €43M
• It is part of a group of UK organisations which includes at least one eligible organisation⁷ (© Crown copyright. OGL^)

The government has confirmed an increase in the penalty for non-compliance. Failure to undertake an energy audit could result in an initial penalty of up to £50k and an additional £500 per day until the company complies with legislation. For entrants in their first year, this initial penalty will be £5k.(8) (© Crown copyright. OGL^) Government data for 2023 indicates that over 100 companies were issued with a penalty for breach of ESOS regulations.⁹ © Crown copyright. OGL^)

Key reasons to consider an audit for ESOS now

What businesses might need to do

All organisations that fall under the qualification requirements are required to complete an ESOS assessment. This requires participants to:

• measure total energy consumption
• identify areas of significant energy consumption (if relevant)
• calculate your energy intensity ratios
• consider available routes to compliance
• ensure areas of significant energy consumption (or total energy consumption if you have not identified areas of significant energy consumption) are covered by a route to compliance
• appoint a lead assessor (unless you have zero energy, use less than 40,000 kWh of energy or have ISO 50001 energy management system which covers 100% of your total energy consumption – see section 7.2)
• carry out energy audits for any areas of significant energy consumption not covered by an alternative compliance route
• complete the ESOS report
• share the ESOS report, and any relevant documentation relating to alternative compliance routes, with group undertakings
• get one or more board level directors to review the findings of the assessment
• submit an ESOS compliance notification through the online notification system
• keep a record in your evidence pack of the ESOS compliance notification, a copy of your ESOS report and any other records of the assessment.¹⁰ (© Crown copyright. OGL^)

This article has been written by SaveMoneyCutCarbon and is correct at 29 August 2024. This content does not constitute advice and is for general guidance only. Always undertake your own research before taking any action.

In this series…