Four top tips for helping your business to comply with ESOS Phase 3
Earlier this month, edie hosted a 45-minute masterclass to help businesses stay ahead of the curve with the third phase of the Energy Savings Opportunity Scheme (ESOS), featuring expert speakers from BEIS and Inspired Energy. Here, we round up the key takeaways.
With the publication of policy frameworks such as the Net-Zero Strategy and Heat and Buildings Strategy, the picture of how the UK Government’s long-term climate targets will impact businesses in the short and medium-term is becoming clearer.
While much remains to be seen on emerging technologies, businesses of a variety of sizes and sectors will need to take action now to measure and reduce their energy consumption, which is why the Government is planning some significant changes to ESOS Phase 3 ahead of the compliance deadline.
With this in mind, edie’s recent masterclass webinar on energy efficiency provided energy and sustainability professionals with the insights and inspiration they need to get ahead of the curve with ESOS Phase 3 compliance – and an understanding of how this can fit into a broader net-zero corporate strategy. A Government consultation into changing the scheme for better net-zero alignment notably closed in September and the results are due out in early 2022.
Hosted in association with Inspired Energy, the masterclass also featured an expert speaker from the Department for Business, Energy and Industrial Strategy (BEIS), which collaborates with the Environment Agency to oversee ESOS in England.
The masterclass is now available to watch on-demand, in full, for free. However, for those who are pressed for time, this article rounds up four of the speakers’ top tips for ESOS Phase 3 compliance, and their thoughts on the bigger picture regarding energy efficiency in the net-zero transition.
1) Understand whether ESOS Phase 3 applies to your business and start your surveys now if so
Inspired Energy’s client optimisation manager Emma Hird set the scene by recapping the previous two ESOS phases and the eligibility requirements for Phase 3.
Phase 3 will apply to all UK-headquartered for-profit businesses with 250 or more staff, or with an annual turnover of £44m or more and an annual balance sheet of £38m or more. Businesses that are part of a corporate group that is eligible, regardless of whether they meet these criteria as a standalone, will also need to comply.
While the compliance date may seem distant (it is 5 December 2023), Hird encouraged viewers at eligible businesses to begin the survey process now, as they will need to provide basic energy data by the end of 2022, and the data collection process can be lengthy, particularly for businesses with diverse estates or estates which have changed since the last surveys.
ESOS Energy Surveys are the most common choice for completing this process, Hird explained. Depending on how many sites your business owns and operates, you may not need to complete surveys on all of them, but the sample must be representative if this is the case. Other options include ISO 50001 surveys, which Hird recommended over GreenDeal Assessments and Display Energy Certificates (DEC), as these may soon be removed from the Government’s list of valid routes to compliance with survey requirements.
A word of warning, also: the Government is considering extending ESOS Phase 3 to medium-sized businesses. Presenters in this session were not able to provide specifics on a possible extension date, but confirmed that a different qualification date will apply to medium firms.
2) Build the business case for acting on insights
Hird noted that, once the site audits have been completed, there is no requirement for businesses to leave a “gap” before acting to reduce energy consumption in the “hotspots” identified. While there is no obligation under ESOS to act on these insights, the fact is that all UK businesses will need to meet net-zero by 2050 at the absolute latest, with the Government ramping up disclosure requirements and beginning to mandate selected firms to produce credible plans to cut emissions in the interim. Moreover, as a result of the consultation, it may soon be mandatory for businesses to act on the insights.
BEIS’s head of business and industrial energy efficiency, tax and reporting, Gary Shanahan, noted that ESOS has helped UK businesses collectively save 3TWh of energy each year, on average, since Phase 1 commenced in 2014.
Of course, energy savings and regulatory compliance are not the only angles to take to secure boardroom buy-in. Hird emphasised the opportunities for cost savings at this time of economic recovery from Covid-19. One retail client of Inspired Energy, which implemented digital monitoring and targeting services, saved £34,000 on its annual energy bill within a year, achieving £3 of savings for every £1 of investment. A Ministry of Defence (MOD) site which installed LED lighting is expecting a payback period of 2.7 years on a £65,000 investment. Looking at projects with a larger upfront cost, payback periods are also shortening as technologies improve, Hird said.
Hird also highlighted the fact that ESOS Phase 3 non-compliance will result in fines, which will likely be higher than for previous phases. The maximum fine is likely to be £235,000, when fines across all potential areas for non-compliance are added up. “Also, the reputational damage of having that published on the Government’s website and across the board is important to consider,” Hird said.
3) Assess the net-zero opportunity
Hird and Shanahan agreed that energy efficiency is a cornerstone of delivering corporate net-zero targets, which are becoming increasingly common and, in a bid to avoid greenwashing, a growing cohort of businesses are now bolstering them with science-based targets. Energy efficiency can reduce Scope 2 (power-related) emissions in and of itself, and can also ensure businesses are prepared to adopt technologies such as electric heat pumps.
For the case studies mentioned by Hird above, each business reduced its annual energy consumption by at least 5% for the site or sites. In the best-case scenario, reductions of 30% had been achieved with just one intervention. Hird said that using a net-zero lens will help businesses to “really get the most out of ESOS”.
One important factor is to consider how the scheme can help businesses measure and reduce indirect (Scope 3) emissions, which typically account for the bulk of their total footprint. Suppliers and other value chain partners, Hird explained, can be encouraged to use ESOS to measure and reduce their direct emissions, which are your organisation’s Scope 3. This will make data easier to access and higher-quality, laying the foundation for actions such as CDP disclosures and verifying science-based emissions targets.
BEIS’s Shanahan confirmed that the Government’s consultation on ESOS Phase 3 will seek to align business actions with the national carbon budgets agreed as foundations for net-zero. These are designed to help front-load the transition and to ensure that emissions are reduced in line with climate science. Under consultation was a requirement for businesses to assess the actions needed to meet net-zero.
4) Don’t frame ESOS compliance as a tick-box
Several audience members asked questions about how ESOS compliance fits in with other mandatory and voluntary energy measurement and reporting schemes, voicing frustration that these can feel like box-ticking exercises and that, in some cases, actions that save energy are recommended over those that reduce carbon and vice versa (e.g. installing fossil-powered combined heat and power units).
Hird explained how completing ESOS surveys can help businesses identify “a pool of energy efficiency projects which can then feed directly into your Streamlined Energy and Carbon Reporting (SECR)”. “SECR does [require] that you report on projects being undertaken, not just what you’ve got planned or identified,” Hird noted.
“Rather than approaching net-zero in a piecemeal style, with a piece of compliance here and a piece of compliance there, you’re wanting to be looking at it all as one simple piece of not only compliance, but strategy,” she explained, encouraging listeners to combine the ESOS and SECR exercises as a minimum.
BEIS’s Shanahan explained that a requirement for businesses to assess the actions needed to meet net-zero, and an option for companies to include other net-zero and climate aspects including adaptation in their audits if they wish, will help to streamline processes and focus on the most impactful improvements. It is a question of both “sense-checking” and “joining-up” the framing, he said.
Want to learn more?
This masterclass is part of edie and Inspired Energy's 2021 masters series on ESOS Phase 3.
The other parts of the series are a free edie-explains guide on the topic, which is available to download here, answering FAQs and spotlighting case studies; and a special edition of edie's Net-Zero Business Podcast, featuring exclusive interviews with Inspired Energy and IHG. The podcast can be found on iTunes, Soundcloud, Spotify, Google Podcasts and here on the edie website.