Energy efficiency: Energy Savings Opportunity Scheme business impact

Getting on board

8 January 2016

Stephen Finnegan discusses the impact of the Energy Savings Opportunity Scheme for business

In March 2011, the European Commission communication on its 2011 Energy Efficiency Plan confirmed that the Union would not achieve its target of saving 20% of energy consumption by 2020. As a result, in October 2012, the EU produced the Energy Efficiency Directive, specifying that all member countries should aim to create an energy audit scheme to ensure the goal was met, and to pave the way for further energy efficiency improvements. This was implemented in the UK by the Department for Energy and Climate Change Energy Savings Opportunity Scheme (ESOS).

The scheme applies to large undertakings and groups containing large undertakings in the UK, meeting either one or both of these conditions:

  • it employs 250 or more people
  • it has an annual turnover in excess of €50m (£39m), and an annual balance sheet total in excess of €43m.

The scheme, administered by the Environment Agency, is estimated to generate up to £1.6bn net benefits to the UK, the majority directly felt by businesses as a result of energy savings. The qualification date for the first compliance period (of which there are 3 additional 4-year compliance periods to follow) was 31 December 2014.

The penalties for non-compliance are a fine of up to £50,000 and/or publication of company director details.

How has the market responded?

By June 2015, only 32 companies had notified the Environment Agency that they had completed an ESOS assessment. Around 14,000 businesses in the UK are required to comply before the 5 December 2015 deadline, which indicates that 99.8% of companies are still in the process of undertaking an ESOS assessment, are already compliant through an alternative scheme e.g. ISO15001 or Green Deal Assessment but have not yet notified the Environment Agency, are yet to act, or are intent on not responding.

Tick box exercise or real benefits?

The ESOS is split into 3 parts:

  1. companies are required to measure their total energy consumption through energy use in buildings, industrial processes and transport
  2. they are then required to identify energy saving opportunities through the use of an approved energy audit and auditor
  3. they must notify the Environment Agency when complete.

The energy audit is the key, which is why all companies are required to appoint an approved ESOS lead assessor, a qualified individual who can carry out the energy audit and sign off the evidence pack with the company director. A detailed energy audit can, on average, identify energy savings of 10%-40%.

...ESOS should not be treated as another tick box exercise and should be embraced by all as a real and significant opportunity to save money and reduce carbon emission

Clearly, there will be a requirement for capital expenditure and significant changes in operation to realise the bigger savings, but simple housekeeping exercises can yield good results. For example, New York’s Empire State Building is on track to save 38% of its buildings energy, and $4.4m per year following an extensive capital rich retrofitting strategy.

The results will vary by a significant factor for each UK business. However, ESOS should not be treated as another tick box exercise and should be embraced by all as a real and significant opportunity to save money and reduce carbon emission. The main hurdle tends to be the initial capital expenditure, which is why a number of energy service companies, which pay for and maintain the technology and share in the savings through energy performance contracts, are seeing a demand for services.

The future

After the first compliance phase, 3 4-year phases are to follow. This means that in 2019, 2023 and 2027 there will be another rush to undertake an assessment and notify the Environment Agency before the deadline. Smarter companies will put together a 4-year plan in 2016 and start to audit each part of their business to identify savings while others will wait until 2019 to act. Whether they are forward thinking or reactive, the following should be considered:

  • the next compliance phase/s may well require companies to identify energy savings across the whole business
  • the administrator may mandate all companies to implement cost-effective savings that have a payback of under 2 or 3 years
  • ESOS will become mandatory for all European business because it is derived from a European Directive
  • how will the naming and shaming impact your business and reputation of the director when bidding for new frameworks or contracts?

In my opinion, it is imperative that businesses act quickly because the regulations will only become more stringent over time, and significant energy savings can be made. Carrying on business as usual will not guard you against rising energy prices, or unlock the potentially lucrative opportunities.

Dr Stephen Finnegan is a Senior Lecturer at Liverpool John Moores University, a business adviser on ESOS and an RICS editorial board member on sustainability.

Further information

Related competencies include: Sustainability

This feature is taken from the RICS Construction journal (November/December 2015)