The Energy Efficiency Directive (Directive 2012/27/EU of the European Parliament and of the Council on energy efficiency) which came into force on 14 November 2012, contains a number of measures intended to increase energy efficiency. One aspect, the requirement to introduce a programme of regular energy audits for large enterprises (non-SME) by 5 December 2015 (and every 4 years thereafter) has been implemented in the UK by the Energy Savings Opportunity Scheme (“ESOS”) via the Energy Savings Opportunity Scheme Regulations 2014 (the “ESOS Regulations”). If not already doing so those impacted should start taking strategic steps now to attain the compliance deadline of 5 December 2015.
An enterprise is caught by the ESOS Regulations if, on the relevant qualification date (31 December 2014 for the initial phase of ESOS), it is:-
1. An undertaking which has 250 or more employees ; or
2. An undertaking which has fewer than 250 employees, but has an annual turnover exceeding €50m and a balance sheet exceeding €43m  ; or
3. Part of a corporate group which includes an undertaking which meets the criteria at (1) or (2) above.
An undertaking is defined as “(a) a body corporate or partnership, or (b) an unincorporated
association carrying on a trade or business, with or without a view to profit”. In the UK this includes:
limited companies; public companies; trusts; partnerships; unincorporated associations; and
not-for-profit bodies (where engaged in a trade or business). Organisations that are required to comply with the Public Contracts Regulations 2006 or the Public Contracts Regulations (Scotland) 2012 are exempt. ESOS is being applied only to UK registered undertakings.
Main Requirements of ESOS
Unless there is a certified ISO 50001 Energy Management System which covers all energy consumption (including transport) as at the qualification date, in which case only points 3-5 below apply, the ESOS Regulations require that undertakings in scope should:-
1. conduct an ESOS assessment of energy consumption in the UK;
2. ensure that areas of significant energy use (at least 90% of total energy consumption) are covered by an ESOS energy audit or by an alternative route including Display Energy Certificates, Green Deal Assessments or a certified ISO 50001 Energy Management System;
3. prepare an evidence pack and retain records for at least 2 compliance periods;
4. appoint one or more responsible officers in relation to the ESOS assessment; and
5. notify the Environment Agency of compliance.
ESOS runs in phases as set out below.
Four-year compliance phase
31st December 2014
6th December 2011 – 5th December 2015
5th December 2015
31st December 2018
6th December 2015 – 5th December 2019
5th December 2019
31st December 2022
6th December 2019 – 5th December 2023
5th December 2023
The ESOS Assessment
Those participants required to carry out an ESOS assessment must:-
1. Measure their total energy consumption  across buildings, transport and industrial activities for a 12 month reference period (certain criteria apply);
2. Consider and account for their areas of significant consumption (i.e. covering at least 90% of their total energy consumption). This must be subject to an ESOS compliant energy audit, or a Display Energy Certificate, a Green Deal Assessment or a certified ISO 50001 Energy Management System or a combination of them; and
3. Report compliance to the Environment Agency (as the scheme administrator) by 5 December 2015.
Prior to notifying the Environment Agency, the ESOS Assessment must have been reviewed by a Board-level Director or equivalent senior officer and approved by a Lead Assessor (who must belong to a register of energy professionals approved by the Environment Agency).
Energy consumed (but not as part of a transport service – see below) for the purposes of transport is defined as energy used by a road going vehicle, a vessel, an aircraft or a train and includes that consumed by an aircraft or vessel where the journey starts or ends in the UK . The energy use of company cars and company fleet vehicles where the energy is consumed in relation to the business of the participant and the use of private vehicles where car use is claimed on business expenses is within ESOS. However, general commuting to and from work and travel on company business purchased through contractual arrangements for transport services, such as train or airplane tickets, is not within ESOS.
Measuring total energy consumption across buildings, transport and industrial activities
The calculation of total energy consumption must be based on the energy consumption of assets held and activities carried on by the participant on the qualification date and be based on the participant’s energy consumption during the reference period (being a period of 12 consecutive months which begins (a) no more than 12 months before the qualification date  and (b) ends on or before the compliance date). For example, for Phase 1, energy consumption can be based on any 12 months consecutive data for the period 31 December 2013 to 5 December 2015.
Conducting an ESOS Energy Audit
So far as reasonably practicable, an energy audit must be based on verifiable data evidencing
the participant’s energy consumption in relation to its areas of significant energy consumption, measured in energy measurement units, over a 12 month period. The 12 month period must be a period of 12 consecutive months which in relation to the initial compliance period begins (i) no earlier than 6th December 2010, and (ii) no more than 24 months before the commencement of the energy audit. In relation to a subsequent compliance period, begins (i) no more than 12 months before the start of the compliance period, and (ii) no more than 24 months before the commencement of the energy audit, and ends on or before the compliance date for that compliance period. The audit must as far as reasonably practicable identify any way in which the participant can improve its energy efficiency; identify an energy saving opportunity (a measure reasonably practicable and cost effective) and identify the estimated costs and benefits of any energy saving opportunity. Notably any measures so identified do not presently have to be actively implemented, but a purpose of the scheme is to identify such measures so that at least managements’ minds are directed to consider the pros and cons of their implementation.
Sanctions for non-compliance
There are civil penalties for specified breaches of the ESOS Regulations. Amongst others, failure to undertake an energy audit may attract an initial penalty of up to £50,000, a daily penalty of up to a maximum of 80 working days and publication of the penalty. Separately, failure to notify, can attract an initial penalty of up to £5,000, a daily penalty of £500 upto a maximum of 80 working days and publication. Making a false or misleading statement can attract a penalty of up to £50,000 and publication.
Scoping for undertaking groups
Careful consideration will be needed to ensure the correct group is identified so that the energy consumption covered by the assessment is correct. Group members may participate together or as separate participants. Where the group has an overseas parent with several UK subsidiaries the default position is that there will be an ESOS participant for the highest UK parent or, if the UK subsidiaries do not fall into one group separate ESOS participants each of the highest UK parents (if more than one). Joint ventures may participate separately from other corporate groups. Assets held in trust are included if the organisation that is party to the agreement for the supply of energy to the assets qualifies for ESOS. There are specific rules regarding trustees, operators and alternative investment fund managers and franchises.
Of course by its very nature ESOS is not sector specific and will therefore apply across most sectors including retail, hospitality, property owners, tenants and investors, financial services (including as trustees and asset managers), owners and those operating in the energy efficiency market. Once within scope participants will need to assess the best routes to compliance and the timetabling of actions so that notification may be made to the Environment Agency as at 5 December 2015. Also, as the Energy Efficiency Directive’s requirements impact all Member States, enterprises based in a number of different EU Member States will need to understand how the Energy Efficiency Directive will apply in such other Member States and plan accordingly. There is a sunset provision within the ESOS Regulations so that their operation and effect are reviewed within 5 years which may lead to further change.
The ESOS Regulations
DECC ESOS Guidance
 For the purposes of the ESOS Regulations an employee includes all contracted staff, owner managers and partners employed directly by the undertaking in the UK or abroad. Companies do not have to include employees of subsidiaries or other group undertakings based overseas.
 Undertakings should use their most recent annual financial statements ending on or before the qualification date and convert sterling values into euros.
 The “energy consumption” is energy that is (a) supplied to the participant and (b) consumed by assets held, or activities carried on by the participant but excludes any energy which is supplied by the participant to another person.
 An undertaking may exclude energy consumed by any asset no longer held by it or by any activity which is no longer carried on by it on the compliance date.