Post: ESOS Phase 3 – What does this mean for your business?

ESOS Phase 3 – What does this mean for your business?

The UK government has set targets for the economy to achieve net zero by 2050. To facilitate that goal, regulations and schemes help drive large private and public sector organisations to behave more energy efficiently, and in turn, more environmentally consciously.

One such scheme is the Energy Savings Opportunity Scheme (ESOS). ESOS is a mandatory energy assessment for organisations in the UK. The scheme is designed to help organisations save energy and achieve cost and carbon savings in their buildings, processes, and transport fleets.

The ESOS compliance deadline was extended to 6 August 2024, but the latest Phase of this exercise requires that all companies who have to comply, must submit an Action Plan.

Compliance can often seem like a tick box exercise but the benefit of ESOS is that it identifies both cost and energy saving opportunities. This should be seen as an opportunity to put into place a feasible action plan with milestones to ensure that these energy and cost savings have the best potential for being achieved.

Who needs to submit an action plan or annual progress report?

Any organisation who was required to comply with ESOS Phase 3 is also required to submit an action plan and subsequent annual progress reports. This also includes organisations who have had changes to their size or turnover meaning they fall under the qualification criteria during the action plan period.

To qualify, an organisation must be a “large undertaking” on the qualification date (31 December 2022). This is defined as either:

• having an annual turnover in excess of £44M and annual balance sheet of over £38M; or
• employing at least 250 people in the UK.

Where one company in a group of companies meets the criteria, the whole UK group on the qualification date must be assessed. The highest UK parent will be responsible for ensuring the compliance of the whole group. A UK-registered establishment of an overseas organisation also falls within the scope of ESOS assessment where the UK-registered entity’s activities meet at least one of the threshold tests.

An action plan is a document that requires participants in the ESOS scheme to consider any actions they may commit to taking before their next ESOS assessment. This document also provides an opportunity for participants to establish energy reduction targets they aim to meet by the next assessment, although setting such targets is optional. Additional, non-mandatory details that organisations may wish to include are actions or targets related to other mandatory or voluntary schemes, beyond ESOS, focused on energy savings and/or reducing greenhouse gas emissions. While this information is optional, if included, organisations should be prepared to provide updates on their progress. Alternatively, an organisation may choose to submit an action plan indicating that no energy-saving actions will be taken during the plan’s duration.

An annual progress update reports on the actions an organisation committed to in their action plan for each relevant 12-month period. The first reporting period will cover 6 December 2024 to 5 December 2025, with the second covering 6 December 2025 to 5 December 2026. Organisations may also optionally report on additional energy-saving actions outside the original action plan, completed during either of these reporting periods.

If no action plan or progress reports are submitted, the Environment Agency will publicly disclose that the organisation does not intend to pursue energy-saving actions. All action plans and progress updates will be publicly accessible.

Key timelines

• Original action plan submission deadline; 5 December 2024

• Extended action plan submission deadline; 5 March 2025
• First annual progress update deadline; 5 December 2025
• Second annual progress update deadline; 5 December 2026

Effects of non-compliance

As the administrative authority for the ESOS scheme, the Environment Agency is responsible for compliance and enforcement, and can issue civil sanctions, including financial penalties as per its enforcement and sanctions policy. If the Environment Agency determines that there has been non-compliance, it exercises its discretion in deciding whether to waive, reduce, or extend the time to pay a civil penalty. The penalties for these offences include financial (an initial penalty of £5,000 for the failure to notify, maintain records or comply with a notice, and an initial penalty of up to £50,000 for failure to carry out an audit or providing a misleading statement).

For most of the breaches, the penalty amount increases for each day of non-compliance. The Environment Authority will also publicise information relating to the breach and can require organisations to take such steps as necessary to rectify the breach.

Compliance to benefits

The idea behind ESOS is to encourage businesses to carry out energy-saving measures that will ultimately benefit them by saving money as well as carbon. Treating it as a purely compliance exercise means that your organisation will miss out on these benefits. For businesses, ESOS should be seen as an opportunity to improve the efficiency of their operations and thereby their bottom lines.

At GridBeyond, we support ESOS-obligated businesses with metering energy use and emissions, generating reports, and finding new ways to enhance their sustainability. This can be done by enabling their participation in grid balancing services that support with the decarbonisation of the energy network, installation of onsite generation or CapEx free batteries that increase resilience and create opportunities for additional revenues from robotic trading.

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