Phase 4 of the Energy Savings Opportunity Scheme (ESOS), which requires large businesses in the UK to carry out an audit of the energy used by their buildings, industrial processes and transport at least every 4 years, was launched recently.

The audit is designed to provide tailored and cost-effective recommendations on energy efficiency measures to allow participating businesses to save energy and achieve carbon and cost savings.

Changes to ESOS made through the Energy Act 2023, which became law in October 2023, should help to improve the quality of energy audits by large businesses across the UK, reflect the UK’s net zero target, and encourage business to take action on their audit recommendations to increase energy and carbon savings. (1)

Mandatory assessment

ESOS Phase 4 changes include most significantly the addition of a mandatory net zero assessment. In SaveMoneyCutCarbon’s view, this is needed, given that only 35% of UK businesses have set an overall target to achieve net zero by 2050. What’s more, just 25% have met some of their interim targets, and only 15% have published an annual report that includes information on carbon emissions. (2)

The British Standards Institute is coordinating the development of an international standard for net zero assessments, which will eventually be the standard that Phase 4 participants have to meet. The BSI announced in June 2024 that the new standard will be launched at COP30 in November 2025. (3)

The new net zero requirements could add “between £600 and £7,500” to the cost of an ESOS audit but the government advises that more comprehensive planning should mean better investment decisions with potential for further cost reductions. (4)

ESOS extension

The Energy Act will also include the power to make regulations on options to be considered for potential future implementation - to extend the scheme to medium-sized enterprises, and to mandate action to improve energy efficiency. (5)

The government advises that ESOS has helped companies make annual efficiency energy savings of 1.65TWh from buildings, 1.51TWh savings for industrial processes, and 0.52TWh of fuel efficiency savings across the ESOS population, together with associated energy bill and emissions savings. (6)

Changes to the scheme from Phase 3 onwards are estimated to lead to an additional 28 TWh savings over 2024-2037, with an estimated £1.12 billion in energy bill savings. (6)

ESOS was introduced UK-wide in 2014, to help overcome a key barrier to energy efficiency, by providing tailored information to businesses on cost-effective energy savings across their buildings, industrial processes and transport.

The criteria for Phase 4 are similar to Phase 3. Businesses must be based in the UK, have more than 250 employees or have an annual turnover of £44 million. The compliance period began on December 6th 2023, with the qualification date of December 31st 2026 and final compliance date on December 5th 2027. (7) The Environment Agency is the scheme’s UK administrator and requires businesses to record and report on their energy consumption.

SaveMoneyCutCarbon advises that Phase 4 focus will be on reducing carbon emissions and the strategies needed. ESOS assessors would need to have more experience that the average employee in carrying out energy audits, with knowledge around carbon reduction.

Other ESOS Phase 4 changes include:

·      Strengthening requirements for audits and making them more standardised

·      Improving the quality of ESOS audits, for example through better oversight of assessors

·      Adding a net zero element to the audits (proposed to be voluntary in the 2023 compliance Phase 3)

·      Requiring public disclosure of high-level recommendations by participants. (8)

Compliance advice

SaveMoneyCutCarbon’s advice on ESOS phase 4 compliance is first to discover if the business is eligible now or is likely to be so by 2026. This is important as fines of up to £50,000 could be imposed.

Then businesses should:

·        Audit and record total energy consumption

·        Audit and record consumption where there is ample scope for reductions

·        Ensure the ESOS report is reviewed by lead assessors and approved by directors before being signed off

·        Inform the Environment Agency of ESOS completed.

ESOS benefits

The benefits to participating businesses of the changes to ESOS are estimated at savings of £1.12 billion over 2023-2037 through reduced energy bills. This is in addition to the net benefit of £1.6bn from the existing scheme. The savings will help support businesses to keep the costs of their products and services affordable for consumers, and build on the savings businesses are already making under the scheme. (9)

Failure to undertake an audit by the deadline if a company is ESOS compliant could mean in a fine of £50,000 plus £500 for every day in violation, up to 80 days – a maximum of £90,000.

SaveMoneyCutCarbon advises that for companies falling into compliance for the first time, the penalty could be reduced to £5,000 but this is not a certainty. More positively, ESOS-inspired energy savings not only reduce costs but can also shrink a company’s carbon footprint, contributing to overall national net zero targets as well as benefiting the environment.

ESOS compliance and action on energy savings could also be beneficial for company reputation while attracting and retaining customers - 21% of Britons are willing to invest more in products that favour sustainability. (10)

Conclusion

The government advises that changes to ESOS “will help to improve the quality of energy audits by large businesses across the UK, reflect the UK’s net zero target, and encourage business to take action on their ESOS recommendations to increase energy and carbon savings.” (11)

Businesses that will need to carry out audits under ESOS phase 4 should benefit from substantial cost savings through reduced energy usage, as well as reinforcing their climate-friendly credentials through reduced carbon emissions.

Bibliography

1 Energy Security Bill factsheet (Accessed November 2024) https://www.gov.uk/government/publications/energy-security-bill-factsheets/energy-security-bill-factsheet-powers-to-strengthen-the-energy-savings-opportunity-scheme (© Crown copyright. OGL)

2 UK businesses urge politicians for more support to reach net zero by 2050 (Accessed November 2024) https://www.bsigroup.com/en-GB/insights-and-media/media-centre/press-releases/2024/may/nine-in-ten-of-uk-businesses-urge-politicians-for-greater-support-in-reaching-net-zero-by-2050/

3 Independently verifiable international standard on net zero gets underway (Accessed November 2024) https://www.bsigroup.com/en-GB/insights-and-media/media-centre/press-releases/2024/june/creation-of-independently-verifiable-international-standard-on-net-zero-gets-underway/

4 Energy Security Bill factsheet (Accessed November 2024) https://www.gov.uk/government/publications/energy-security-bill-factsheets/energy-security-bill-factsheet-powers-to-strengthen-the-energy-savings-opportunity-scheme (© Crown copyright. OGL)

5 Energy Security Bill factsheet (Accessed November 2024) https://www.gov.uk/government/publications/energy-security-bill-factsheets/energy-security-bill-factsheet-powers-to-strengthen-the-energy-savings-opportunity-scheme (© Crown copyright. OGL)

6 Energy Security Bill factsheet (Accessed November 2024) https://www.gov.uk/government/publications/energy-security-bill-factsheets/energy-security-bill-factsheet-powers-to-strengthen-the-energy-savings-opportunity-scheme (© Crown copyright. OGL)

7 Comply with the Energy Savings Opportunity Scheme (ESOS): phase 3 (Accessed November 2024) https://www.gov.uk/government/publications/comply-with-the-energy-savings-opportunity-scheme-esos/complying-with-the-energy-savings-opportunity-scheme-esos#deadlines (© Crown copyright. OGL)

8 Energy Security Bill factsheet (Accessed November 2024) https://www.gov.uk/government/publications/energy-security-bill-factsheets/energy-security-bill-factsheet-powers-to-strengthen-the-energy-savings-opportunity-scheme (© Crown copyright. OGL)

9 Energy Security Bill factsheet (Accessed November 2024) https://www.gov.uk/government/publications/energy-security-bill-factsheets/energy-security-bill-factsheet-powers-to-strengthen-the-energy-savings-opportunity-scheme (© Crown copyright. OGL)

10 British attitudes towards sustainability in 2024 (Accessed November 2024) https://business.yougov.com/content/49572-british-attitudes-towards-sustainability-on-world-environment-day-2024

11 Energy Security Bill factsheet (Accessed November 2024) https://www.gov.uk/government/publications/energy-security-bill-factsheets/energy-security-bill-factsheet-powers-to-strengthen-the-energy-savings-opportunity-scheme(© Crown copyright. OGL)