ESOS Phase 2: beyond compliance and added value

Many businesses were caught out by Energy Savings Opportunity Scheme (ESOS) in 2015 - either because the qualification criteria were obscure, or the communication from the Environment Agency (EA) didn't get through, or just because other priorities pushed ESOS to the bottom of the pile. Either way, ESOS Phase 1 was a bit of a scramble, and may not have been entirely valuable to your business (other than avoiding a fine!).

ESOS Phase 2: beyond compliance and added value

The administrators and legislators expect ESOS to continue as it is for the foreseeable. Perhaps that makes your heart sink, but there are huge business opportunities to be realised from exploring energy saving opportunities – which after all is one of the main drivers behind the legislation! Incorporating energy management as an integral part of how you do business can bring benefits including an average six-figure annual energy bill savings, increased productivity and commercial output, reduced compliance costs and administrative burden.

ESOS Phase 2 offers a greater opportunity to get real value from the ESOS process. With more time before the compliance deadline of 5th December 2019, you can be better prepared through earlier engagement with your senior decision makers, streamlining effort across your portfolio in the UK and on the continent, and exploring other commercial opportunities beyond energy efficiency.

There is much to be gained from ESOS Phase 2.

Face time ESOS with your Finance Director

One requirement of ESOS is for a board-level director to sign off the report. This means that ESOS is a useful lever to engage senior decision makers with the sustainability agenda from a strongly commercial perspective. Many energy efficiency interventions can achieve double-figure returns on investment – very attractive in a world of rising energy prices and stagnant interest rates.

The ESOS process can also be a vehicle for engaging others with a raft of other sustainability initiatives that otherwise might be deprioritised. We all know the landscape changes fast in energy and sustainability, and there will be new technologies and approaches that have come to market since you notified the EA in 2015. ESOS Phase 2 should give you best-in-class recommendations to implement for the benefit of your bottom line, improving employee well-being and contributing great stories for your public reporting framework.

Why not book time with your FD early to involve them in the process from the start and identify their priorities for the coming financial year?

Energy management systems deliver value across your portfolio

Did you know a certified ISO 50001 system meets the requirements of ESOS? So long as your system’s certification is valid on 5th December 2019, covers 100% of your energy consumption, and you notify the Environment Agency, you have complied with ESOS.

If you have multiple sites in your portfolio, ISO 50001 is a great way to comply, as you can roll out the same standards across all sites. You also get regular updates on energy management throughout the year, rather than the sporadic approach through energy audits every four years. ISO systems also recommend ongoing improvements, meaning that you can propose and implement energy savings as BAU, rather than taking a big ask to your FD with your ESOS report.

Many of the processes and procedures you may have in place for energy management through ISO 14001 or in-house energy management systems will already meet the requirements of 50001. You may be closer to a compliant system than you thought!

A useful first step, therefore, is to conduct a gap analysis to map what you currently have in place, and identify any other elements needed to ensure you meet the requirements of the standard.

It takes time to set up and establish any ISO system, not to mention getting third-party certification, so if you do want to go down this route for ESOS Phase 2, you need to get cracking soon. Once you’ve identified what else you need to do and have implemented this, you need to book your auditor. Our experience suggests that auditors will be in short supply in the run up to 5th December 2019, so the sooner you can do this, the better (and cheaper).

Streamline effort across Europe

The UK’s ESOS legislation has been translated from the EU’s Energy Efficiency Directive (EED) Article 8. This broad and deep Directive legislates for climate change mitigation through energy efficiency audits, energy metering and billing, incentive schemes from national governments, and national energy saving targets, amongst other measures.

The EED has been transposed locally into national legislation in the EU States. Probably your opposite number in Berlin, Rome, Madrid or Bucharest has been grappling with the same challenges as you! By working together across the EU, you can streamline internal resource and external support required to achieve compliance.

The requirements of the national translation of the legislation vary (for example, whether headcount or FTE figures determine SME status or the impact of a parent company outside of the nation-state), but the approach to energy audits for each complying market is similar. So there is significant opportunity to streamline resource through sampling across markets, where possible; using lead assessors accredited in other EU markets. This way you are getting all your energy audits in the same four-year cycle and reducing the transactional cost of managing multiple data collection and auditing processes. ISO50001 is also an accepted compliance route in many EU markets, ticking the boxes at home and abroad.

For the UK, other legislation has been adopted following the EED, like the Heat Network Regulations and Minimum Energy Efficiency Standards, some of which has been common practice on the continent for years. Taking a European-wide view of EED compliance through ESOS Phase 2 can cover off any other legislative requirements, in the UK and on the continent.

Electricity flexibility is a valuable commodity

Not *technically* energy saving, but flexibility is in high demand in today’s energy markets. Have you considered how your portfolio could participate in Demand Side Response programmes, like Frequency Response and storage?

Why not use ESOS Phase 2 as an opportunity to scrutinise your half-hourly data: do you know what your baseload power demand is? Where are your peaks in consumption, and what is causing that? How much do comfort heating and cooling play a role in your annual outgoings? For that matter – how cold is your server room?!

Since you are obligated to conduct energy profiling, ESOS Phase 2 can be an opportunity to identify where you could turn down non-critical assets, shift consumption away from potential Triad windows, or even incorporate onsite battery storage to relieve the Grid in those crucial moments. National Grid is offering generous incentives to businesses able to flex their consumption in this way, so even if you don’t experience any net reduction in energy, you can still earn money through flexibility.

Bask in the sunshine with renewables

While you’re in the plant room, examining HVAC and up on the roof (or sending an energy auditor up there!), why not think about renewables and onsite generation? Again, this isn’t usually energy saving, but investing in an onsite generation will save you money and significant carbon, and makes great stories for annual reports, CDP returns and stakeholder communications. Where energy efficiency projects might leave your senior managers cold, renewables are seen as cutting edge and sexy – positioning the business ahead of the pack – so more likely to get attention from budget holders.

Renewable feasibility audits usually analyse similar data to ESOS, and suppliers would conduct site visits to assess existing energy infrastructure and building fabric – much like ESOS audits. Why not combine ESOS site visits with renewables assessments to get more bang for your buck? There is also added benefit from combining onsite generation with flexibility, giving you access to yet more revenue streams.

ESOS Phase 1 may have been painful for all involved, but there is great opportunity to get huge value for your business from the process, rather than merely complying. Through involving colleagues up and down your company, using accredited energy management systems, covering entities in other EU markets, and incorporating other sustainability initiatives – ESOS Phase 2 should be a significant asset to your organisation.

Since we are older and wiser this time around, get started early and don’t just look for the cheapest ESOS provider – push your auditors and lead assessors to offer real added value to ESOS Phase 2.

Helen Troup is senior consultant at CarbonSmart

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