Phase 3 of the Energy Savings Opportunity Scheme (ESOS) is officially over, but you still have until March 2025 to submit your action plan. Some businesses may also still be working on their initial report after missing the August 2024 deadline. Here’s what you need to know.

What ESOS is

The Energy Savings Opportunity Scheme is a mandatory scheme requiring large UK businesses to report on their energy use and identify possible ways to save energy. It runs in four-year phases. Phase 4 started on 6 December 2023 but most businesses are still working on at least some aspects of their Phase 3 compliance.

Check if your business has to comply with ESOS

Your ESOS obligations depend on the size category of your business as of 31 December 2022. This was the “qualification date” for Phase 3. If your organisation met the description of a “large undertaking” on that date, you now have an obligation to comply with ESOS Phase 3 even if the business has subsequently changed in size.

For the purposes of ESOS Phase 3, a large undertaking is any UK company that:

• employs 250 or more people;
• and has an annual turnover in excess of £44 million
• and has an annual balance sheet total in excess of £38 million.

If your company fitted this definition on the qualification date, it must carry out ESOS reporting, even if it has subsequently changed in size and no longer meets the criteria.

Scheme administrator the Environment Agency does not appear to have a systematic way of notifying businesses that they are in scope, relying instead on companies becoming aware of the scheme through sources such as the Energy Advice Hub and doing their own checks. As a result, some businesses may not yet be aware that they were in scope of ESOS Phase 3.

These businesses will still need to carry out an ESOS audit and submit a report as soon as possible, then start working on the action plan due in March 2025 at the latest. Businesses that do not meet their ESOS obligations may be fined.

If you previously had to comply with ESOS but now don’t

If your organisation qualified for ESOS Phase 2 but does not meet the criteria for Phase 3 on the qualification date, you are advised to submit a DNQ (Do Not Qualify) notification to the Environment Agency. This should be done through the same online portal that you would use for your compliance notification. The deadline for DNQ notifications was the same as for compliance notifications: 6 August 2024. If your business has not done this yet, do it as soon as possible.

If your business is in scope: what you should be doing now

1. Appointing a qualified lead assessor

The ESOS rules specify that you will need a qualified lead assessor to sign off on your reporting. Their role may be simply reviewing your energy audits, or they may actually carry out the audits for you.

As the compliance deadline has already passed, you need to move fast on finding a qualified person. If you don’t have that expertise within your organisation already, look for outside help. The person or agency you choose must be on one of the approved registers for ESOS lead assessors.

2. Putting together energy consumption data from the specified period

The data you use as the basis for ESOS Phase 3 reporting should be based on a 12-month period known as your reference period. Your reference period must end before the ESOS compliance deadline of 5 June 2024, which means the latest it could have begun is 6 June 2023.

If you prefer to choose an earlier reference period, the earliest date it can begin is 1 January 2022. Either way, you need to collate the energy consumption data from your meters, energy bills, petrol consumption and so on that dates from your chosen period.

3. Measuring your company’s total energy consumption 

For ESOS Phase 3 purposes you need to calculate all the energy consumed by your business in the UK during the 12-month reference period. That includes transport fuel as well as the energy used for industrial processes, heating and lighting buildings and so on. These should be recorded in a common unit, either an energy unit like kWh or in pounds sterling, and also as energy intensity ratios (see below).

4. Making a decision on “de minimis exemptions” 

The ESOS rules for Phase 3 allow you to exclude up to 5% of your organisation’s energy consumption by categorising it as “de minimis”. You might choose to leave out a site, a particular activity or usage of a specific fuel. The 95% or more that remains is your “significant energy consumption”. You are under no obligation to use your de minimis exemption. Some organisations may choose to exclude an area where it would be particularly hard or expensive to cut consumption. But others will find it more straightforward just to report their total, which they will already have calculated anyway.

5. Calculating your energy intensity ratios

The strengthened Phase 3 rules require your business to include energy intensity ratios in its ESOS reporting. This means that as well as recording energy use in kWh or money spent, you also need to put energy use in the following contexts:

• Buildings (kWh per square metre)
• Transport (kWh per mile travelled)
• Industrial processes (energy consumed per unit of output)
• Other energy uses relevant to your business not covered by the above

6. Writing your audit report

Your audit report should analyse all the data from the reference period. It should give figures and insights on your organisation’s energy consumption and how energy-efficient it is. It should recommend possible ways in which your organisation can become more energy-efficient and give the costs and benefits of these measures.

As well as getting sign-off from the lead assessor, you will need to get your report reviewed and signed off by one of more board-level directors of your organisation.

7. Notifying compliance

Scheme administrator the Environment Agency reported IT problems with the online compliance portal (MESOS) earlier this year, which is why it extended the deadline to August. These problems now appear to be fixed and the Environment Agency is encouraging businesses to submit their compliance notification as soon as possible. You should be able to download a copy of your submission for your records.

After submitting your compliance notification

Once you have submitted your notification of compliance through MESOS, you need to ensure that all your documentation is in order and shared throughout the organisation, then begin working on your action plan.

Prepare your evidence pack

Your evidence pack for ESOS compliance gives details of the organisation, details of your ESOS audit, an explanation of your methodology and more. A full checklist can be found in our article What should I keep in my ESOS evidence pack?

Share the report

Your ESOS report should be shared with all undertakings in your company group. Best practice is to be as public and transparent as possible with your energy consumption info, making it accessible on the company website too.

Writing an action plan

Your ESOS audit will include a number of suggestions for energy-saving measures that your organisation can implement. Once the audit is complete, Phase 3 requires you to use it as the basis for an energy-saving action plan. Which measures will your organisation be committing to? The plan should include:

• What you intend to do to reduce your organisation’s energy consumption over the next four years;
• When you intend to do it;
• Whether it was recommended through your ESOS assessment;
• What energy savings you expect to see by carrying out your action plan;
• How you estimated those energy savings.

At the time of writing (October 2024) MESOS does not yet have the functionality to accept submissions of ESOS action plans. It is expected to be up and running from early November. For this reason, the Environment Agency has extended the deadline for submitting the plans from December 2024 to 5 March 2025.

Progress reports

You are expected to begin implementing your action plan and documenting your progress. ESOS Phase 3 compliance requires two annual progress reports in the two years following the action plan deadline. This means a report by 5 March 2026 and another by 5 March 2027. Your plan and progress updates must be made public.

What about Phase 4?

Although we are currently in Phase 4 of ESOS, we have not yet reached the qualification date of 31 December 2026. Our ESOS Phase 4 blogpost gives an idea of what to expect but there will be lots more information to come. The Energy Advice Hub updates our ESOS FAQs regularly and reports any changes to the scheme as they happen. Keep an eye on the site to stay informed.