Out-Law News 4 min. read

Energy efficiency reporting regime set to come into force as final regulations published

Large UK businesses will be required to report on their annual total energy consumption across their buildings, transport and industrial activities, and identify cost effective energy saving measures, by December next year, following the publication of final regulations by the government.

The first reports under the Energy Savings Opportunity Scheme will be due by 5 December 2015 in respect of energy usage over a consecutive 12 month period starting no earlier than 1 January 2014 and ending before 5 December 2015, according to the government's response to last year's consultation on the scheme. The ESOS, which is being developed as part of the UK's responsibilities under the EU's Energy Efficiency Directive, will apply to "large enterprises" which meet certain employee, turnover and profit thresholds.

Energy minister Greg Barker said that the scheme "could benefit the UK as a whole by up to £1.6 billion, with the vast majority of this being felt directly by businesses through lower bills".

"ESOS aims to multiply existing good energy management practice - ensuring that businesses which are already seizing their own energy saving opportunity can comply easily, building on current work, while also providing an effective framework for less advanced companies to catch-up with the market leaders," he said.

"The scheme is designed to support economic growth through smarter energy use; by ensuring participants have access to trusted advice on energy saving opportunities. It is good for business, good for the environment, and will help ensure that the UK continues to be regarded internationally as a leader on energy efficiency," he said.

ESOS is aimed at all "large enterprises" with 250 employees or more; or those with fewer employees which meet certain annual turnover and profit thresholds. It will apply to large commercial businesses and charities but not to public sector bodies, as these are subject to different energy efficiency requirements under the Energy Efficiency Directive.

Firms will be required to carry out their first ESOS assessment of total energy consumption across a 12 month period by 5 December 2015 and to repeat the exercise every four years. In addition an energy audit is required which will analyse the consumption, identify ways energy efficiency can be improved, and recommend cost effective measures.  Firms will not however be legally required to take up the recommendations of these energy audits. The recommendations should focus on "those aspects of energy use that are within the participant's control" – for example, a landlord would not be required to assess the energy use of tenants occupying part of their office space, according to the consultation response.

During the first phase of ESOS, where the compliance period will run from January 2014 to December 2015 rather than the usual four year period, firms may use auditing activity carried out since 6 December 2011 as evidence of compliance, according to the government's consultation response. Firms that have an energy management system in place which is certified to ISO50001 standard will be considered to have complied with the audit requirement for all areas of energy use which it covers; while energy assessments carried out under the Green Deal or to obtain Display Energy Certificates (DECs) will also be recognised for that particular building for the purposes of the energy audit requirements of ESOS, it said.

ESOS will operate alongside other government initiatives aimed at improving business energy efficiency including the non-domestic Green Deal, additional tax breaks for energy-saving plant and machinery and the Electricity Demand Reduction scheme. It will also operate alongside, and distinct from, the Carbon Reduction Commitment (CRC), under which large public and private sector organisations that are not caught by the EU Emissions Trading Scheme (EU ETS) must measure and report on their emissions.

"Large businesses will be concerned to see yet more energy consumption reporting requirements coming from government; particularly as none of the ESOS scheme, CRC scheme or the greenhouse gas (GHG) emissions mandatory reporting in accounts for stock exchange listed companies use quite the same definitions as to what comprises energy consumption," said energy and environmental law expert Linda Fletcher of Pinsent Masons, the law firm behind Out-Law.com.

"Although there are some similar concepts used in ESOS to the CRC scheme – for example, disaggregation of groups, special rules for application to trusts, civil penalties for breach - an ESOS assessment, although it only covers UK consumption, refers to calculating the total energy consumption of assets held and activities carried on by the participant and expressly includes offshore activities and installations so far as they relate to UK consumption, and specifically includes energy consumed for the purposes of transport. Transport is excluded from the CRC," she said.

Although participants in the ESOS scheme would not have to purchase allowances to cover their energy consumption, as was the case under the CRC, ESOS assessments would still have to include an 'energy audit', Fletcher said. As this document would be designed to analyse energy consumption, identify ways a participant could improve its energy efficiency and recommend any reasonably practicable and cost effective measures by which it could do so, together with the costs and benefits of each measure, this document would be fairly similar to the recommendation plans currently produced alongside Energy Performance Certificates (EPCs), she said.

"Currently, there is no 'bite' to the recommendations contained in this energy audit, but if the UK is to meet its Climate Change Act targets we can see that this may well change in future, in a similar way to the proposals for minimum energy performance standards for buildings which are linked to the asset rating on an EPC," she said. "In fact, where a building has a valid Green Deal assessment, then in relation to that building the participant will have complied with its energy audit requirements under ESOS."

"The Environment Agency, which is the administrator of this scheme as it is for the CRC, has issued a summary of the scheme, and DECC has also issued guidance to sit alongside the regulations (91-page / 1.2MB PDF) ahead of the more detailed guidance expected this autumn – so, again, very much like CRC, businesses will need to review the guidance in detail to understand how the scheme is intended to work as the regulations do not make easy reading," she said.

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