ESOS: what have we learned about the energy efficiency opportunities?

With the extended grace period for compliance with the Government's Energy Savings Opportunity Scheme (ESOS) coming to an end, David Tobin, energy consultant at the Carbon Trust, provides an insight into the environmental and financial benefits that the Scheme offers to businesses across a variety of industries.

Over the past year, individuals with responsibility for energy use in large UK organisations have had to get familiar with yet another acronym: ESOS – the Energy Savings Opportunity Scheme. This now sits alongside various other measures known by acronyms such as the CRC, CCL and EUETS, which are also designed to encourage energy efficiency and reduce carbon emissions.

The exact numbers are still uncertain, but it is estimated that around 9,000 of the UK’s biggest businesses (and other organisations outside the public sector, such as large charities) have had to comply with the scheme. The initial deadline of 5 December 2015 has come and gone, with the extended grace period now coming to an end.

We know that there are still a significant number of stragglers, who are now facing enforcement action from the Environment Agency. The only exception to this will be those organisations that have confirmed that they expect they will achieve certification to the energy management standard, ISO 50001, by June. On a positive note, the majority of the organisations caught up by the regulations have now submitted their compliance packs.

Like many other companies that support organisations with energy efficiency and sustainability, the Carbon Trust’s technical team has been overwhelmed with requests for support with ESOS compliance. We have now helped hundreds of businesses to better understand their energy use, identify cost-effective opportunities for reductions, and complete their ESOS evidence packs for submission. So now seems like a good time to share what we have learned from the process.

One of the first insights is that many of the companies we have supported were not only new clients for the Carbon Trust, but they were new to energy management in general. This should be seen as one of the real successes of ESOS that differentiates it from other legislation or regulations. It has cast a wider net than some other schemes and required real action in businesses to understand their energy use, rather than just encouraging it through imposing additional costs.

Analysis of a sample of the ESOS assessments undertaken by the Carbon Trust shows an average energy spend of around £1.8m. For any business this is a considerable expenditure, especially in an economic climate with lower energy prices. More significantly the average reduction achievable through cost-effective measures was around 20%, which for business with an energy spend of £1.8m would translate into savings of £360,000.

Initial estimates for the scheme impact from the Department of Energy and Climate Change (DECC) suggested that it could collectively save businesses £250m if just 5% reductions were achieved. So the real impact of the regulations could be far greater than expected if organisations make sure that their ESOS evidence packs become the basis for action.

Almost all businesses we assessed were found to have scope for improving general energy management practices and behaviours, which require minimal investment to implement. This finding is supported by Environment Agency data suggesting that over 40% of ESOS participants that complied before the original December deadline had to make estimates to determine their total energy consumption, showing a clear deficiency in the measurement practices that underpin good management of energy. Fewer than 4% had demonstrated that they meet international best practice in energy management by achieving the ISO 50001 standard.

A significant proportion of Carbon Trust work on ESOS was with manufacturing businesses. The largest element of energy consumption in the sector tends to be related to industrial processes. Though we often found that efficiency could be improved in steam systems, compressed air, motor efficiency and motor control (including the use of variable speed drives), the most common recommendations for improvements were still in lighting, metering and heating, ventilation and air conditioning (HVAC) plant control. These are all key operational technologies that are well understood by many businesses, yet we were still able to identify average savings of 23%.

We also conducted a large number of assessments for businesses that are primarily office-based. Here lighting and HVAC efficiency improvements dominated the opportunities we identified through audits. Again, many businesses are still not taking advantage of well-established efficiency technologies. Replacing traditional lighting technologies with LEDs is a very common recommendation, typically offering a payback period of two to five years.

Construction companies demonstrated the highest average level of energy spend within our sample, with annual energy costs of around £4.9m. Energy management, lighting, heating and metering again were again popular recommendations, with businesses able to save around 25% on average.

One element of ESOS that was a new challenge for many organisations, even those familiar with operational energy management from buildings and industrial processes, was the fact that the regulations included requirements to assess transport energy use. We found that most businesses outside the transport and logistics sector were not carefully managing vehicle energy consumption, even though on average it accounted for 28% of overall energy costs for those businesses we worked with that were required to account for transport energy use.

Transport should therefore be seen as another area of success for ESOS, as it shone a light on an area of energy expenditure that may not have previously received that much focus in businesses. In particular grey fleet (vehicles that do not belong to the company, but which are used for business travel) appears to have been regarded as an area of expenditure where business could have little impact.

In fleet audits we typically identified savings of around 15% on existing transport energy expenditure. There were a large number of recommendations relating to improvements to company strategy, policy and training programmes to help monitor and reduce vehicle mileage and fuel consumption. However, the most frequent recommendation was for better vehicle procurement and replacement, taking into account the efficiency of a company fleet or grey fleet before it has even travelled its first mile.

Even with a slight drop in petrol and diesel prices recently, improving transport efficiency is important for protecting against future rises in fuel costs. This can have a significant impact on the bottom line for many businesses, given the essential role transport plays in day-to-day operations.

ESOS currently has no requirement to act on the recommendations identified during the assessment process. The next compliance deadline is almost four years away and it is inevitable that some ESOS evidence packs will sit on a shelf collecting dust until then. But for those businesses that do seize the opportunities highlighted by ESOS the average overall payback period for measures we identified was less than three years.

We hope that this means that by the end of 2019 when ESOS rolls around again, we will see many businesses that are already reaping the financial rewards from investments in improving energy efficiency. We also know that many will seek to avoid the crunch period we have seen over the last few months by completing certification to ISO 50001, so that they can automatically comply with the regulations in future.

Based on our experience so far it is fair to say that ESOS has been successful in making sure that businesses have properly assessed and better understood their energy saving opportunities. But the real proof of success will be in the rates of actual implementation. We would encourage all ESOS participants to make the most of having to undergo a compliance process and realise the significant cost savings on offer.

Organisations that are unsure about how to make the most of the opportunities identified in their ESOS evidence packs can review guidance developed by the Carbon Trust for the Department for Energy and Climate Change.

David Tobin is an energy consultant at the Carbon Trust

FREE WEBINAR: Where’s the ‘Opportunity’ in ESOS?

Is ESOS another toothless compliance scheme which will fail to deliver concrete benefits for qualifying businesses? Or, with the assessment done, does ESOS pave the way for meaningful, measurable energy savings at scale? A recent edie webinar, which is now available on demand, answered these key questions…

In the hour-long webinar, energy management experts from Environment Agency, Jacobs Engineering and Starbucks were all on-hand to explain exactly how ESOS could be the key to securing crucial board-level buy-in for UK energy managers and unlocking massive savings.

View the ESOS webinar on demand here.

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