Are you prepared for upcoming Phase 3 ESOS changes?

First introduced in 2014, the Energy Savings Opportunity Scheme (ESOS) is part of the Government’s push to ensure the UK reaches its goal of net zero emissions by 2050.

ESOS is a mandatory energy assessment scheme for large organisations based in the UK. ESOS currently requires organisations that meet the qualification criteria to audit and report on at least 90% of their energy usage to the Environment Agency every 4 years.

Proposed measures to improve the effectiveness of ESOS

Following ESOS Phase 2, the Government undertook a consultation with the aim of improving the effectiveness of ESOS. Most proposed measures considered will not be implemented until ESOS Phase 4, but through an amendment to the Energy Bill, the Government still intends to implement certain changes at the Phase 3 stage.

Participants are still required to comply with Phase 3 of ESOS and the Government intends to make the changes announced in the government response to the ESOS consultation in the coming months. The changes will be subject to legislative scrutiny and timetable, with the enabling primary legislation (The Energy Bill) currently passing through Parliament. Government will update participants when the Energy Bill has received Royal Assent, and the draft regulations are introduced to ensure there is a reasonable amount of time to meet the new requirements.

Phase 3 changes – additional reporting & audit quality

The changes set out in the government response for Phase 3 are:

• Requirement for a summary template to include compliance information in the ESOS report
• Requirement to submit additional data in the compliance notification
• Requirement to include an energy intensity metric in ESOS reports
• A change to the de minimis exemption so that participants’ Significant Energy Consumption covers at least 95% of their Total Energy Consumption (as compared to 90% in Phase 2)
• Requirement for ESOS reports to provide more information on the next steps for implementing recommendations
• Requirement for participants to set a target or action plan following the Phase 3 compliance deadline, on which they will be required to report annually
• Requirement to share ESOS reports with subsidiaries

These changes for Phase 3 will therefore involve additional reporting to the scheme administrator (the Environment Agency) via the scheme portal, and other improvements in the quality of audits. They will generally not require re-visiting site-level audits that meet the requirements under the current ESOS regulations. However, some organisations may be required to audit additional sites as a result of the reduced de-minimis.

Revised Phase 3 compliance deadline

To ensure there is enough time for participants to meet the new requirements and for assessors to carry out assessments, it has been announced that ESOS participants will not be required to comply until 5 June 2024 (currently 5 December 2023), the revised deadline for when they will be required to notify compliance.

Whilst notifications cannot be submitted until the Phase 3 requirements have been finalised in legislation and the IT system updated, which is currently being developed, it is key that businesses that qualify are preparing for these changes now.

Phase 4 changes – going further than standard compliance

Though there is a cost of compliance, businesses should recognise that ESOS offers an opportunity for something greater, to go beyond standard compliance. Especially when looking even further ahead, indications are that Phase 4 of ESOS will go further than identifying energy savings opportunities.

The changes set out in the government response for Phase 4 are:

• The introduction of a ‘net zero element’ to ESOS audits. Phase 4 reports will need to include an assessment of actions needed to meet future net zero commitments. The government is currently working with BSI on the production of a new net zero audit PAS standard to facilitate this.
• Changing the ESOS balance sheet and turnover thresholds to align with SECR. Organisations would be in scope of ESOS if they meet at least one of the SECR qualification criteria: at least 250 employees, a balance sheet of at least £18 million, or a turnover of at least £36 million.
• Mandating action on audit recommendations. Firms will need to provide an explanation if targets and goals have not been met.
• ESOS reporting will be required to follow an existing auditing standard such as ISO 50002 or EN 16247.
• Display Energy Certificates (DECs) and GDAs will be removed as compliance routes for ESOS.

Use ESOS to begin your net zero journey

In light of this, ambitious companies should be looking to use ESOS to begin their net zero journeys and see it as a stepping stone for larger net zero strategies and goals. As ESOS evolves, choosing a partner with a good understanding of future requirements and the wider sustainability sector to deliver ESOS services for you is more important than ever.

ESOS compliance support

If you are looking for assistance with your ESOS journey, the time to act is now! We have developed a service to fulfil all of your ESOS compliance requirements. If you would like to find out more, please do not hesitate to contact us on 03450 682 572 or email [email protected]

We also offer a ESOS Rebate Solution, where Valpak ESOS customers can avoid carbon compliance costs and reduce energy expenditure. By letting our partner, ENERGYbubble, negotiate a new energy tariff for your business, your cost for achieving legal compliance with ESOS will be covered and your ESOS report will then identify further energy savings opportunities, which will in turn save even more money!

If you’re unsure if your business needs to comply, visit our web page.