Blog

Energy Savings Opportunity Scheme (ESOS): Phase 3 and Beyond

Part of the raft of energy measures announced around the Spring Budget was a package of measures to bolster the Energy Savings Opportunity Scheme (ESOS), the UK’s main mechanism for ensuring large businesses understand their energy usage and potential improvements. ESOS is currently in Phase 3, but the measures announced means that more organisations than ever will qualify for ESOS reporting during Phase 4. Here, we summarise how ESOS works, how Phase 3 will finish and the changed expected going forwards. 

How ESOS Works 

ESOS is a mandatory reporting scheme that runs every four years. If your organisation meets the minimum size laid out by the Environment Agency, who administer the scheme, you must complete ESOS reporting. The penalties for failing to complete ESOS reports when required can be substantial, starting with a £5,000 fine that can rise by a further £500 for every additional day that an organisation is in breach. Failing to undertake an energy audit at all, one of the major aspects of ESOS reporting, can incur a fine as high as £50,000. 

Organisations that meet set parameters as large undertakings are required to complete ESOS, either in for the form of an energy audit and ESOS report from a qualified assessor, or by holding an up-to-date ISO 50001 certification. 

For the current ESOS Phase 3, businesses qualified if they met any of the following criteria on the closing date for qualification of the scheme, which was December 31st 2022: 

• Employ 250 or more people 
• Have an annual turnover in excess of £44 million 
• Have an annual balance sheet in excess of £38 million 

For organisations that qualify, they are required to complete their ESOS audit, which requires a full analysis of one year of consumption data, before the deadline of December 5th 2023.  

What is set to change with ESOS? 

While much is often made of the penalties that can be incurred for failing to comply with ESOS regulations, the primary purpose of the reporting requirement is not to punish non-compliance. Rather, ESOS is intended to help businesses better understand their energy usage and to identify ways they can improve their energy efficiency and, subsequently, save money on their bills. The government estimates that businesses acting on recommendations from their ESOS reports has so far collectively saved British businesses over £1.6 billion on their energy costs. 

From 2023, the scheme is set to expand, with a projected additional saving of £1.12 billion across Phase 4, which will run until 2027. The Government also positions this improved energy efficiency as a key part of the UK’s overhauled energy security strategy. 

The two key areas of change are set to be the extension of the scheme to medium sized enterprises alongside large ones, and the ability to mandate action to improve energy efficiency when an ESOS report shows clear scope for improvement. The exact mechanics of how this will be rolled out has not been confirmed, but there are now regulations in place that will allow the scheme administrators, the Environment Agency, to expand both the scope and mandate from improvements of the scheme. 

Other changes include the addition of a net zero element to audits, tracking net emissions as well as total energy consumption. This will be one of the first measures to be formally introduced but will remain voluntary during compliance Phase 3. High-level recommendations for participants will also be publicly disclosed, drawing inspiration from the similar Streamlined Energy and Carbon Reporting (SECR) requirement that many large businesses are also required to complete, where the findings are made publicly available. For many large businesses, the court of public opinion when it comes to their sustainability efforts is a significantly bigger motivator than the threat of financial penalties. 

If your business qualified for Phase 3 of ESOS but has not begun the process of an energy audit, time is rapidly running out to ensure that it is completed before the deadline at the end of this year. The first step is to contact a qualified ESOS assessor. 

For medium-sized businesses that may be required to complete ESOS reporting in the future, the key improvement is likely to be around energy efficiency. Many in the energy industry have warned that as we move closer to the UK’s net zero deadlines, legislation will put more pressure on individual businesses to rapidly decarbonise and improve efficiency. If your organisation has made no previous improvements in those areas, you could face an expensive, pressured process of trying to rapidly improve ahead of new legislative requirements. 

Powerstar’s technologies offer significant energy efficiency improvements for businesses across a broad range of sectors. Find out more about reducing energy costs and improving the efficiency of your site through our innovative technologies here.