Is ESOS the kick-starter to decarbonising your business?

The Energy Savings Opportunity Scheme (ESOS) is nearing the end of its second compliance phase (Phase 2). On 5 December 2019, thousands of qualifying organisations in the UK are expected to have completed audits.

A Review of ESOS Phase 2

The Energy Savings Opportunity Scheme (ESOS) is nearing the end of its second compliance phase (Phase 2). On 5 December 2019, thousands of qualifying organisations in the UK are expected to have completed audits of their energy usage that identify energy savings opportunities across their enterprises. ESOS is the UK implementation of the 2012 EU Energy Efficiency Directive – intended to lower EU total primary energy consumption by 20% from its projected consumption in 2020. Its first Phase ended in 2015, and the next will end in 2023 – regardless of the UK’s future relationship with the EU.

Phase 2 – ESOS proper

The Environment Agency (EA) expects a higher standard of compliance from ESOS participants in Phase 2. Around 1500 organisations failed to comply with Phase 1, with 300 enforcement notices given in the two years after the deadline. Sampling of Phase 1 reports by auditors and assessors found that as few as 16% were compliant without requiring remedial action. In Phase 1, the EA permitted late compliance (by nearly two months) if participants submitted a written notice before the original compliance date. In Phase 2 the EA is not granting extensions and is expected to expand the scope of its audits of compliance.

How are opportunities presented?

The energy savings recommendations in ESOS audit reports are usually presented as low, medium, and higher-cost options. They are also split into type, such as technological (e.g. installing solar panels), operational (e.g. adjusting thermostat settings), and managerial ones (e.g. beginning formal internal management of energy data or setting targets). Phase 2 audit reports are also expected to make behaviour change recommendations more prominent. These comprised a minority of the recommendations found in Phase 1 reports yet are among the lower-cost and more effective methods for reducing energy demand (up to half of the UK’s 2030 energy efficiency targets could be met through behaviour change).

How can ESOS fit in with corporate strategy?

ESOS is an opportunity for businesses to learn new information that might inform wider strategies for energy management and sustainability. Integrating the ESOS calendar into strategy planning can reduce the regulatory burden that ESOS presents. Furthermore, considering ESOS audit reports and the recommendations they contain during strategy planning and budgeting can make it easier to act on those recommendations. Alfa Energy has advised some companies considering significant capital projects for energy demand and emissions reductions to also allow ESOS recommendations to inform their future strategy. This helps companies make the best of the regulation.

Realising ESOS’s potential: the importance of managerial buy-in

If ESOS is to contribute to the EU Energy Efficiency Directive, implementation of the energy savings opportunities it identifies will become key. No aspect of ESOS mandates that implementation action be taken: only that the financial benefits of doing so are identified. However, the opportunities identified during ESOS have the potential to produce cost savings that greatly exceed the cost of compliance. Managerial buy-in to the scheme is at its core. Whether ISO 50001 certification or the completion of energy audits are used as the route to compliance, a top-down approach is emphasised which makes corporate leadership aware of the importance of energy savings and the financial potential of realising them. ESOS audit reports present a high-level business case for these opportunities that estimates pay-back periods. After the learning experience of Phase 1, organisations have a greater desire to see follow-up and implementation action from their compliance after the 5 December Phase 2 deadline. The impacts of ESOS will continue into 2020.

Net-Zero Carbon is on the agenda

With the demands of net-zero carbon being tabled at board level discussions, ESOS may now be the kick-starter to the question being asked by the CEO “How can I decarbonise my business?”.

Nicholas Fedson

Carbon Compliance Analyst – Alfa Energy Group

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