The Energy Savings Opportunity Scheme (ESOS) is a mandatory government scheme that requires businesses to identify energy-saving opportunities. Businesses in scope of ESOS have to carry out audits of their energy use every four years in order to identify potential energy-saving measures. ESOS runs in four-year phases and we are currently in Phase 3.
Your business has to comply with ESOS if it met the definition of a “large undertaking” on the Phase 3 qualification date, 31 December 2022.
For the purposes of ESOS Phase 3, a large undertaking is any UK company that:
- employs 250 or more people
- has an annual turnover in excess of £44 million, and an annual balance sheet total in excess of £38 million.
If your company fits this definition on the qualification date, it must carry out ESOS reporting, even if it subsequently changes in size and no longer meets the criteria.
The most recent official estimate from the Department for Business, Energy & Industrial Strategy (BEIS) is that roughly 11,900 UK businesses are in scope of ESOS.
Yes, because non-profits can still meet the definition of a “large undertaking”. Charities, trusts and unincorporated associations may also meet the criteria. For more detail, see the official guidance on who falls in scope.
No. If your organisation meets the criteria to count as a public body, then you are not required to participate in ESOS. But this is not necessarily straightforward to determine. For example, a university could fall in scope if it gets more than half its funding from private sources. The relevant legislation for defining a public body would be the Public Contracts Regulations 2015. The official ESOS guidance recommends seeking legal advice if you are unsure.
A small minority of organisations meet the definition of a “large undertaking” but actually have no physical assets such as buildings or vehicles using energy, or employees using energy. In these rare cases, you will need to get a board-level director to confirm that your organisation is “zero energy”. Then you have to submit an online notification to the Environment Agency informing them that this is the case.
If your organisation consumes energy, but the total consumption is below 40,000kWh, you have to carry out an ESOS assessment as normal but you are exempted from the requirement to have it reviewed by a lead assessor.
If the UK-registered or UK-based part of your organisation is big enough to qualify as a large undertaking in its own right, then your organisation is in scope of ESOS. See the official guidance for more detail.
ESOS runs in four-year cycles, or phases. We are currently in Phase 3, which started in December 2019. The deadline to complete and submit your Phase 3 ESOS reporting is 5 December 2023.
Each ESOS phase has two key dates: the qualification date and the compliance date.
The qualification date for Phase 3, the current phase, is 31 December 2022. If your organisation counts as a “large undertaking” on that date, you are in scope of ESOS and must comply with the scheme, even if your organisation subsequently changes size.
The compliance date for the current phase is 5 December 2023. If your organisation is in scope, this is the deadline by which you must publish your ESOS reporting and notify the Environment Agency that you have complied with your obligations.
ESOS is a UK government scheme administered by the Environment Agency. Each country of the UK has a different regulatory body to handle ESOS compliance and enforcement.
- England: the Environment Agency
- Wales: Natural Resources Wales
- Scotland: the Scottish Environment Protection Agency
- NI: the Northern Ireland Environment Agency
There are various ways in which an organisation in scope can fail to meet its obligations for ESOS Phase 3. These include, but are not limited to:
- Missing the deadline;
- Failing to carry out an energy audit;
- Carrying out a poor quality audit;
- Keeping incomplete or inaccurate records;
- Publishing false information in your records.
The consequences of non-compliance vary depending on exactly how the organisation has failed. For Phase 2, the phase before this one, 63% of organisations in scope were found to be “compliant with remedials” – that is, they had broadly complied but there were some areas requiring corrective action.
For more serious issues such as failing to undertake an energy audit at all, ESOS non-compliance could incur a penalty of up to £50,000, as well as fresh fines for each day that it takes the organisation to remedy the situation. For Phase 2, the Environment Agency has so far issued 82 civil penalties amounting to £1,271,440 in total – and the process of compliance audits is still ongoing.
The regulators do have the power to waive enforcement action and penalties, and in the past there has been some leniency. However, in Phase 3 the Environment Agency has been strengthening its approach to ESOS enforcement in Phase 3, making leniency less likely.
For Phase 3, there are four different routes to ESOS compliance:
- Energy audits
- ISO 50001
- Display Energy Certificates
- Green Deal Assessments
From Phase 4 onwards, Display Energy Certificates and Green Deal Assessments will no longer be valid, and both routes are “discouraged” in Phase 3. See our blogpost on routes to ESOS compliance for more details.
The official ESOS guidance lists seven steps in the process of carrying out an energy audit:
- Measure your total energy consumption over a 12-month period;
- Identify areas of significant energy consumption;
- Consider available routes to compliance;
- Ensure areas of significant energy consumption are covered by a route to compliance;
- Appoint a lead assessor; (There is an exception for the minority of organisations that have zero energy responsibility under the ESOS rules.)
- Get one or more board level directors to review the findings of the assessment;
- Submit your notification of ESOS compliance through the Environment Agency website.
ESOS reporting makes a distinction between your organisation’s total energy consumption and its significant energy consumption. Both require you to choose a reference period of 12 consecutive months, but it doesn’t have to be the same 12 months for both types of consumption.
For total energy consumption, your reference period for Phase 3 must include the qualification date of 31 December 2022. This means that the earliest date it could start would be 1 January 2022. It must end before 5 December 2023 (the compliance date). This means that the latest it could start would be 5 December 2022.
For significant energy consumption, you can take any consecutive 12 months of data from between 6 December 2019 (when Phase 3 started) and 5 December 2023. But the data should be no older than 24 months by the time you do the audit (so for an audit carried out on 1 January 2023, the data should not be from any earlier than 1 January 2021).
In practice, it is usually more straightforward to use the same reference period for both categories of consumption.
Your ESOS energy consumption calculation should include all sources of energy consumption, including building use and transport. You must use the same unit of measurement for all your calculations: either an energy unit such as kWh, or energy spend in pounds sterling. (It isn’t acceptable to record your energy consumption in terms of CO2 or CO2 equivalent, because these are not measures of energy.)
The government publishes tables of conversion factors that allow you to calculate the kWh for each litre of petrol burned in your company vehicles. Alternatively, you can state your company’s petrol and diesel consumption in terms of spending and give the calculations in pounds sterling.
You are also now required to include an energy intensity metric in your ESOS reporting. This is a requirement which came into force in July 2022 as part of government efforts to strengthen ESOS in Phase 3. For the energy use relating to your company’s buildings, this might be kWh/m2, while for transport energy it might be kWh per mile travelled. You should also use one or more energy intensity metrics relating to the output of your business, such as kWh per hundred customers served or kWh per £100 of turnover.
Your initial calculations will cover all sources of energy consumption, but when doing the full audit you are allowed to exclude specific areas of organisational activity, covering up to 5% of total consumption. This might mean leaving out a specific site, or consumption relating to a particular activity or fuel. This excluded proportion of energy use is known as your de minimis.
The de minimis rule applies if you are following alternative routes to Phase 3 compliance such as ISO 50001 certification – compliance only has to apply to the other 95% of consumption sources.
If an area of the business is excluded as de minimis, you will not get any energy-saving recommendations relating to this area of the business. Many businesses will choose not to take up the de minimis option and instead include 100% of their energy consumption sources in their ESOS report, to get maximum benefit from the ESOS process.
If you do choose to use this option, your ESOS report should state what percentage of your energy use is being classed as de minimis. Although you could class up to 10% as de minimis in Phase 2, for Phase 3 the maximum is 5%.
No. You must carry out site visits as part of your ESOS energy audit, but you don’t have to visit every site in your organisation.
You can instead take a sampling approach – whereby you split your portfolio into different building types, e.g. office, warehouse, retail etc. – and visit one of each. You can apply the findings to the rest of the sites that are identical or very similar.
At the moment, best practice for the sampling approach is not prescribed in the ESOS legislation and it is up to the organisation to work out the approach that will give the most accurate calculations of its energy use. You should agree the approach with your lead assessor and explain your methodology in your ESOS evidence pack.
Your ESOS reporting must be signed off by an officially approved ESOS lead assessor. It is fine if this person is an employee of your organisation, provided that they are on one of the approved registers for ESOS lead assessors.
The lead assessor may carry out all the energy audits and reporting themselves, or you may get others to do this work and then bring the lead assessor in to check that it meets the ESOS requirements.
The official ESOS guidance includes a list of approved registers for ESOS lead assessors. At Sustainable Energy First, we have a team of qualified and certified ESOS lead assessors, accredited by the Association of Energy Engineers, the Energy Institute and CIBSE.
A government evaluation of ESOS Phase 1 found that businesses spent on average 15 days of staff time on their Phase 1 data-gathering and reporting. The average may be less for Phase 3, now that organisations in scope know what is involved and are used to collating their energy usage information.
Unsurprisingly, larger and more complex organisations tend to need more time for ESOS compliance activity than smaller ones.
The most time-consuming part of ESOS compliance tends to be supporting the lead assessor by supplying the information requested, accompanying them on site visits and so on.
Under ESOS, energy is defined as all forms of energy products, including:
- combustible fuels
- heat (excluding your organisation’s surplus heat from industrial processes)
- renewable energy
- electricity
- fuel used in transport
There are no fuel type exemptions in ESOS, although some consumption may be deemed de minimis and therefore excluded from the report.
You only need to include data on transport that your company operates, e.g:
- Fuel used in company cars on business use
- Fuel used in fleet vehicles which you operate on business use
- Fuel used in personal/hire cars on business use
- Fuel used in private jets, fleet aircraft, trains, ships, or drilling platforms which your organisation operates.
If your employees take trains, flights or taxis for business use, that are not operated by the company, then you don’t need to report on these. You also don’t need to report on fuel used by subcontractors in transporting goods.
For advice on how to start gathering transport data, read our guide.
The point of ESOS is to help organisations identify opportunities for energy saving that they can actually act on. This means ESOS focuses only on the energy use your organisation controls.
So tenants in a building should take responsibility for the energy they consume through the operations of that business, but not for energy uses associated with shared areas of the building such as lifts, heating and so on.
The most useful tool for separating out the different areas of energy use is sub-metering. Sustainable Energy First has extensive experience of helping organisations use sub-metering to take control of their energy use. To find out more, get in touch.
For Phases 1 and 2, there was no template and no requirement for ESOS data to be presented in any particular format. At the time of updating these FAQs (December 2022), the government is working on a template to standardise the way participants present their compliance information. Keep an eye on the Energy Advice Hub for updates.
Whatever the eventual template looks like, it will definitely require participants to keep clear records of how they have met the ESOS requirements. The guidance refers to this as an “evidence pack”. The more clarity, detail and structure your records have, the easier it will be for your organisation to comply with whatever is coming in future.
For now, the only element of the process that follows a specified format is notifying the Environment Agency of compliance, which is done through a webform. (The webform for Phase 3 is not yet live.)
The whole point of ESOS is to identify possible energy savings and then carry out whichever measures are practical and good value for money. To get the most financial benefit from your ESOS audit, it’s a good idea to select an ESOS lead assessor who is also capable of helping you to implement the identified energy saving measures.
At Sustainable Energy First, we can help you to build a cost-effective carbon reduction strategy and gain a return on investment from your ESOS audits.
Some companies offer a ‘shared savings’ energy efficiency scheme, whereby the upfront cost of an energy saving project is covered by the supplier or a third party financing company. The customer then repays the cost through an agreed percentage of the energy savings achieved.
This means that energy efficiency projects can be cost neutral for an organisation in the short term, and in the long term they benefit from lower energy bills. Your lead assessor may have a similar offer or be able to recommend a company that offers such a scheme.
No. Although the point of the scheme is to encourage organisations to identify opportunities for saving energy, there is currently no requirement to actually implement any of the energy-saving measures identified by your audit. But the direction of travel is clear: the government is strengthening ESOS in order to nudge businesses towards taking more action. Changes made during Phase 3 now require businesses to work out the next steps towards implementing their recommendations and report on them.
In Phase 4 of ESOS, you will need to set an energy efficiency target and/or create an action plan for implementing energy-saving measures. But you do not need to do this before the Phase 3 compliance deadline.
Your evidence pack for ESOS compliance should contain the following:
- Contact details of the organisation doing the ESOS reporting;
- Details of any board-level directors or equivalent who have reviewed the ESOS assessment findings;
- Written confirmation from the director(s) to show that they have reviewed the ESOS assessment;
- Contact details of your lead assessor and the name of the approved register of which they are a member;
- Written confirmation from the lead assessor that they reviewed the ESOS assessment;
- The calculation of your total energy consumption;
- A list of your identified areas of significant energy consumption;
- Energy intensity metrics, e.g. kWh per unit produced;
- Details of the energy audits undertaken, including the audit methodology used in your ESOS energy audits;
- Details of the energy-saving opportunities identified;
- Details of the routes to compliance used to cover each area of significant energy consumption and, where applicable, evidence (e.g. certificates) of the alternative routes to compliance;
- Written agreements to support any disaggregation or aggregation of group members;
- If you didn’t choose the organisation’s highest UK parent organisation as the “responsible undertaking” for ESOS purposes, written agreements to support your alternative choice;
- If you couldn’t provide a full 12 months of data, the reasons why not;
- If you didn’t use verifiable data on energy use or energy expenditure to support your calculations, the reasons why you couldn’t;
- The methodology you used for any estimates you’ve made of energy use or energy expenditure;
- If your lead assessor has not used an energy consumption profile in your audit of an area of significant energy use, the justification for not doing so.
You must keep the evidence pack for the compliance period to which it relates and the two subsequent compliance periods.
It is up to your organisation to choose which measures to carry out and how to prioritise the ones you have chosen. But your lead assessor should have helped you with this decision-making by giving you information on cost-effectiveness, ease of implementation and so on. Some lead assessors may also be able to help you move forward with the actual work, and it is a good idea to select one with this capability. (At Sustainable Energy First, we can fulfil the lead assessor role and also help you gain the best return on investment from your energy efficiency measures.)
Some energy efficiency measures have a good return on investment but cost a lot upfront. It is up to your organisation to choose how to fund this kind of measure. Some companies offer a “shared savings” finance model, where the supplier or a third-party finance company covers the cost of the work, then the organisation repays the cost through an agreed percentage of the energy savings achieved. Your lead assessor should be able to advise you on the best options for financing your energy efficiency work.
Although nobody welcomes more paperwork, there is a reason why the scheme has “opportunity” in the name. It was designed to help organisations cut their carbon footprint and energy bills in a cost-effective way. Much of the benefit from ESOS will be felt directly by businesses in the form of cost savings. But there are other benefits too, mainly a reduction in the UK’s carbon emissions and an improvement in air quality.
Businesses have been slower to implement energy-saving measures than the government originally envisaged, which means we are not yet experiencing the full benefits. This is why the government is taking steps to strengthen the scheme. A July 2021 impact assessment estimated that the strengthened scheme in future could have a value to society of £1 billion, with £907 million of this value going to UK businesses.
A spokesperson from the Department of Business, Energy and Industrial Strategy (BEIS) told the Hub: “Generally, all large businesses in scope of SECR would be in scope of ESOS too. ESOS is wider in that it covers all large private sector businesses (including smaller companies that are part of a group that includes one large business) and also includes businesses that aren’t UK incorporated.”
Yes. There are a number of changes coming in for Phase 4, mainly designed to improve the effectiveness of ESOS. It will be mandatory to carry out a net zero assessment for your organisation, exploring possible routes to net zero and evaluating the cost-benefit ratio of each. There will also be an expectation that organisations act on the recommendations in their ESOS report – and if not, they will be expected to explain why. The Energy Advice Hub will publish more extensive guidance on Phase 4 in due course.
