Changes to the well-established Energy Savings Opportunity Scheme (ESOS), a UK wide mandatory energy assessment scheme, came into force on Thursday, 29 November 2023 by virtue of the Energy Savings Opportunity Scheme (Amendment) Regulations 2023. The changes affect the date of assessment notification (extending it by six months), exemptions, add to the scope of data to be collected, and require further implementation considerations/analysis and evaluation of energy saving opportunities. Participants in the scheme should adapt their assessment approach and ensure compliance with the new obligations with a view to proposed additional requirements in future phases. All of which are intended to focus attention on energy savings measures and encourage implementation of identified reduction measures.
Initially introduced to comply with requirements under Article 8 of the EU Energy Efficiency Directive, ESOS applies to large undertakings (and their groups) in the UK that meet certain qualification criteria on prescribed dates (namely, for the current phase: certain undertakings that either (a) employed 250 or more people; or (b) had an annual turnover in excess of £44 million, and an annual balance sheet total in excess of £38 million, as at 31 December 2022). ESOS applies to corporate groups if at least one UK group member meets the ESOS definition of a large undertaking – i.e., it is ‘one in, all in’. Participants are required to calculate their total energy consumption, carry out energy assessments or audits, and identify where energy savings can be made, including energy used by their buildings, industrial processes, and transport.
In 2021 the then Department for Business, Energy, and Industrial Strategy (BEIS) launched a consultation on strengthening ESOS by improving assessments and reports, and increasing the number and scope of ESOS recommendations that participants are required to implement. In 2022, BEIS published the UK government response which confirmed the 2023 (phase 3) reforms which are to come into force; the response also detailed the anticipated 2027 (phase 4) changes to refocus the ESOS scheme to cover both energy efficiency and net zero, and that in future phases, the UK government is considering extending the scope of ESOS to include medium-size enterprises, and mandating action on audit requirements.
The 2023 (phase 3) reforms make the following key changes to the existing regime to:
- reduce the current 10% de minimis exemption to 5% for energy use that does not need to be subject to an ESOS audit or achieve ESOS compliance by one of the alternative compliance methods;
- require responsible undertakings to conduct further analysis and to identify considerations for implementation of energy saving opportunities;
- prepare a ESOS report including an energy intensity metric and proposed programme, including a timescale, for implementation of the energy saving measures (if any);
- require companies to share ESOS reports with their subsidiaries;
- provide an ESOS action plan on notification to the EA; and
- require collection of additional data for compliance, monitoring and enforcement.
ESOS participants do not need to submit their notification of compliance until 5 June 2024 (previously the date was 5 December 2023).
The changes are intended to enhance and standardise ESOS reporting and publication requirements. In particular, where previously participants were only required to identify their energy savings, they are now required to make further assessments with any identified savings in ESOS reports. Whilst this is a dilution from the 2021 consultation, which suggested that participants may have to implement the changes identified, it aims to encourage participants to actively evaluate benefits of implementing any energy savings. For many participants identification of real energy savings with cost benefits will be welcome and for those with GHG reduction targets or energy reduction targets it is important that the results of the assessment are fully considered so that any action or inaction is consistent with publicly stated targets.
The UK Government is also inviting comment until 14 December 2023 on the costs, benefits, and practicalities of Scope 3 greenhouse gas (GHG) emissions reporting in the UK, and feedback on the existing Streamlined Energy and Carbon Reporting (SECR) framework. For more information please see our Law-Now: UK Call for Evidence on Scope 3 emissions reporting (cms-lawnow.com).