In February last year, we outlined the eligibility criteria determining which organisations have to comply with the Energy Savings Opportunity Scheme (‘ESOS’) as well as drawing attention to the compliance procedure and penalties for non-compliance.
The first submission date has now passed and, according to the Environment Agency, approximately 3000 eligible businesses have failed to comply (30% of the total) which, understandably, is leading to some negative press coverage. If your organisation meets the eligibility criteria but you have yet to comply, you need to carry out an energy audit as a matter of urgency. By failing to do so, you risk facing an enforcement notice and potential penalty of up to £50,000 plus £500 a day for each day your organisation remains non-compliant (up to a maximum of 80 days).
An ESOS recap
ESOS applies to a wide range of organisations and has a number of requirements, not least undertaking an energy audit over a continuous period to ensure that you have 12 months' of verifiable data. You can find our original article ESOS aware here
The eligibility criteria are based on an ‘undertaking’ (typically a large company) with either 250 or more employees, or a turnover of €50m and a balance sheet exceeding €43 million. Eligibility can also be triggered if your company is part of a corporate group of companies which includes an eligible company. If you have an accredited ISO 50001 energy management system, applicable to your whole organisation, this will count as your ESOS assessment.
The first eligibility date was the 31 December 2014 (for compliance by 31 December 2015) and qualification will be based on your organisation’s status on a four year cycle from that date.
The compliance procedure involves seven steps including measuring your organisation’s energy consumption, undertaking an audit of at least 90% of that consumption, appointing a lead assessor, and reporting to the Environment Agency.
Non-compliance can attract a range of penalties, depending on the specific breach, ranging from fiscal penalties (up to £50,000) through to the publication of specific non-compliance details. Updated details regarding enforcement and sanctions are being produced by the Environment Agency, and copies of the guidance (as at February 2016) can be found here.
You can find full details on the ESOS process, eligibility and compliance on the official ESOS website (Gov.uk), but if you have any queries regarding ESOS and would like further information, please contact a member of our property team.
Response to the first submission deadline
The first deadline for reporting to the Environment Agency was 5 December 2015, which was extended to 29 January 2016 in the light of low compliance levels. As both these dates have now passed, the Environment Agency has published its first update on the compliance figures.
It was estimated that 10,000 organisations would be eligible at the first deadline and would therefore need to submit an audit. There have been almost 6,000 submissions and another 1,000 notifications of compliance within the forthcoming weeks, meaning that around 70% of companies are deemed to be “on the road to compliance”.
However, the flip-side of these figures means that 3,000 organisations are at risk of enforcement action with the associated penalties and sanctions. If you believe your company is one of those at risk of non-compliance and enforcement action and would like to discuss this further, please contact a member of our property team.
What are the business benefits of ESOS?
Apart from the legal ramifications of non-compliance with the ESOS requirements, the ESOS audits have considerable scope to be commercially beneficial. While the audits themselves will uncover those areas of the business using large amounts of energy, the process should also help to identify opportunities to save energy and thus money.
The Carbon Trust has estimated that, typically, about 20% of a business’s annual energy costs are wasted through the use of inefficient equipment and the Department of Energy and Climate Change has suggested that businesses could be saving a total of £250million annually.
If legal compliance and saving money were not reason enough, organisations would do well to consider their public reputation. Considerable advantage could be gained by complying and publicising the changes that have been made as a direct result of the ESOS audit but, by the same token, the reputational damage could be significant if the Environment Agency decides to make an example of those who have failed to comply.
Looking to the future
For those companies affected by ESOS, the audit process and the continual review of energy use are now firmly in place. As we move into the next stage (compliance, enforcement and sanctions), it is expected that further reviews and amendments to hone the system will be made to streamline the process.
The ESOS scheme has a number of phases on a four year cycle starting on 31 December 2014. As such, the next date for ESOS qualification will be 31 December 2018 with compliance by 31 December 2019. Although these dates are seemingly distant, compliance with ESOS is mandatory and it is essential that you check your organisation’s eligibility and start incorporating the process of compliance into your business planning as soon as possible.
If you have not already undertaken an eligibility assessment but think you are eligible or would like advice regarding compliance, please speak to a member of our property team.