Actions you can take to turn the ESOS changes into opportunities

There have been many small changes made to the requirements of the phase 3 Energy Savings Opportunity Scheme (ESOS). While in the 2021 public consultation, responses were largely favourable towards tightening up the scheme, the late publication of the new requirements has been met with disappointment, especially by those that have already prepared much of their compliance response and are now required to re-work existing content. But there are short-term actions that can be taken to turn these changes into an opportunity.

We interviewed two of our ESOS Lead Assessors, Tilly Shaw and Thanos Patsos, to find out what these changes actually mean for businesses on a practical level and what they should be doing in the 4 months remaining until the compliance deadline.

Q: There have been many changes made to Phase 3 ESOS requirements, can you give a big picture summary of the key changes that businesses should be aware of?

Tilly: At the end of November 2023, UK government formalised a raft of changes to the Energy Savings Opportunity Scheme. Many of the changes are minor, but they are numerous, and there are several amendments that were not previewed in the consultation that ran from 2021-2022. For most ESOS participants the key changes to be aware of are:

  • Much of the data that is reported to the Scheme Regulator will be made public including full details of corporate groups, energy consumption and savings achieved.
  • This year, participants are required to publish a 4-year Action Plan detailing which of the ESOS recommendations they intend to take forward, and how much energy will be saved. It is anticipated that this will need to be uploaded to the compliance portal by 5th Dec 2024.
  • From 2025, participants must submit annual Progress Reports, including how much energy has been saved (again this is anticipated to be reported via the compliance portal, and the progress reports will be made public). There is still no legal requirement to carry out any energy saving measures; just increased visibility for those that do (or don’t).

Further changes are still waiting in the wings for Phase 4. These are far-reaching and include a shift towards carbon reduction and net-zero transition planning. ESOS assessments will inevitably take longer. It will be essential to have these requirements clarified early in the Phase if participants are to have any hope of preparing for these new demands.

Q: So what do these changes mean on a practical level, what will the short-term impact be for businesses?

Thanos: perhaps the one short-term impact of the changes that clients are worried about is the additional administrative work to get all the information in the right shape and form as required by the new guidance. The effects of this can be reduced with having the right guidance from an experienced Lead Assessor but also by mobilising the right people in the organisation promptly.

Data transparency and additional disclosure is also a big change this time round: Board Directors, rather than signing off that they have seen the results and are happy with the ESOS process, now need to ensure that information is disseminated across the organisation. Disclosing progress made in savings achieved is likely to get more attention from your business as this will now be public information (the first time this is done explicitly). As this will be an ongoing requirement (see ESOS action plan below) engaging with, and informing the Board should be one of your top priorities.

Q: It sounds like there is more work to be done, and more complexity too. Is there a positive side to this, can organisations turn this mandatory work into a business benefit?

Thanos: It is not all doom and gloom. The fact that ESOS action plans are mandatory and additional information is publicly disclosed means additional scrutiny and therefore additional drive for the business to invest in the right opportunities. Building a credible ESOS action plan backed by a credible ESOS assessment increases the chances of good, “no-regret” projects being implemented in line with the timescales in the plan. We already see healthy competition from clients in ensuring they disclose all the savings they achieved in Phase 3, which is a positive mind-shift from an “ESOS-burden” to an “ESOS-achievement”, which is partly the aim of these changes.

Tilly: Tightening up the ESOS scheme makes good business-sense for the UK. There are billions of pounds to be saved by transitioning to a more energy efficient, low carbon economy and ESOS aims to make senior leaders directly aware of these investment opportunities. There is a competitive advantage to be gained by those that can streamline their overheads and align themselves with low-energy and low-carbon operating models; the ESOS process itself can support this long-term strategic planning by highlighting areas of the business with high energy costs or significant scope for efficiencies.

The changes to the scheme are designed to enhance the benefits of ESOS. For example, by ensuring that outputs are shared with subsidiaries across the group, recommendations are more likely to find their way to the relevant decision-maker.

Additionally, the publication of EUI and consumption data may (if used wisely) be a useful resource for benchmarking across industries going forward.

The value of an ESOS assessment can be maximised by:

a) Establishing data processes (e.g. energy consumption and savings achieved) to collect the necessary information as you go along

b) Contracting a Lead Assessor and audit team well ahead of the deadline

c) Being clear about your investment criteria and preferences, so that auditors can focus on projects most likely to be signed off

d) Make time for budget-holders and decision-makers to be fully briefed and align the ESOS outputs with the business-planning cycle, so that findings can be integrated with capex planning.

What are you advising clients to prioritise over the next 6 months in order to capitalise on ESOS and reduce the burden?

Thanos: getting your notification in time would get you over the initial stress (assuming the online portal is made available in time!). If you have not already done, get your ESOS results in a shape that will inform your ESOS action plan. This will need to be completed by December 2024 and be updated annually; put the appropriate governance in place to ensure that the ESOS action plan is robust.

Going forward, savings achieved each year will need to be publicly reported, so put the appropriate systems and tools (e.g. M&T system) in place to track and validate the savings to reduce administrative load and provide additional confidence to Board Directors signing off the reports. Board Directors, now signing off the ESOS action plan and annual updates, are most likely to want to see progress on what they are signing.

For details on how your M&T software can help with your submission, take a look at this useful article.

Contact us for advice on how you can benefit your business with ESOS