Reducing energy costs and emissions: New Deadline for ESOS Phase 3 Compliance

In June 2023, it was announced that the ESOS Phase 3 compliance date had been extended from 5th December 2023 to 5th June 2024. This six-month extension has been given to ensure there is reasonable time for participants to meet new requirements and for assessors to carry out assessments. Though the compliance deadline may sound far away, EcoAct Senior Consultant, Naomi Rich explains why it’s time to start preparing for ESOS Phase 3 now.

With energy prices continuing to be turbulent, it is more important than ever to ensure your organisation is running as efficiently as possible. Energy efficiency slipped down the agenda for many organisations throughout the pandemic as office buildings went unused and changes in business practices put financial pressure on many. However, cutting energy use is now becoming a key priority across all sectors.

Energy Savings Opportunity Scheme (ESOS) is the Government’s mandatory energy assessment and savings scheme for organisations in the UK. Its aim is to help support your organisation identify and implement cost effective energy efficiency measures. While ESOS is mandatory for certain organisations in the UK, complying with the scheme has broader benefits to businesses, including reducing exposure to volatile energy prices and reducing emissions. Currently in the third phase of the scheme, important qualification and compliance dates are fast approaching. We outline everything you need to know to become ESOS-compliant below.

What are the qualification criteria for ESOS Phase 3?

The date for qualification for ESOS Phase 3 was 31st December 2022. The qualification criteria for ESOS Phase 3 has changed slightly since Phase 2. Businesses who met one or both of the following criteria on the qualification deadline will need to comply with the scheme:

1. Employs 250 or more people
2. Or has an annual turnover in excess of £44 million, and an annual balance sheet total in excess of £38 million

Additionally, those part of a corporate group which includes a UK undertaking that meets either of the above also need to comply.

What changes do you need to be aware of for ESOS Phase 3?

Since the Government’s response to the ESOS consultation in 2022, further guidance has been released by the Environment Agency detailing the changes coming into force for Phase 3. The guidance was released on 25^th May 2023, and as a result of the additional data and submission requirements, the Environment Agency announced on 13^th June 2023 that the compliance deadline for Phase 3 would be postponed from 5^th December 2023 to 5^th June 2024. Below we outline the changes for this phase, and what this means for your business:

1. In this phase, there will be a standardised summary template for including compliance information in the ESOS report. This has been introduced with the aim to improve the quality of the audit.
2. Collection of additional data for compliance monitoring and enforcement is also required. This includes additional information on an organisation’s structure, details of energy consumption and emissions, and energy intensity metrics.
3. De minimis exceptions have been reduced from 10% to 5%, and this change should uncover new opportunities to make energy savings and tackle Scope 3 emissions (e.g. fleet audits that previously fell into the de minimis for many).
4. ESOS reports need to include energy intensity ratios by use type as specified by the the Environment Agency. The aim is to enable comparisons of energy efficiency between businesses and identify those managing energy well.
5. Companies are required to provide detail on energy saving opportunities implemented during Phase 3 to enable monitoring of the scheme’s effectiveness and how pro-actively companies are taking action.
6. Further information is required on energy consumption and measures implemented in Phase 1 and 2 to show how companies’ consumption has changed and if they are reducing their consumption effectively.
7. There is now a requirement to share ESOS reports with subsidiaries, this is particularly important for businesses with complex organisational structures and ensures companies are aware of steps they can take to save energy.
8. There is a requirement for ESOS reports to provide more information on next steps for implementing recommendations which aims to enable companies to make it easier to realise the benefits from the recommendations.
9. Participants in the scheme need to set a target or action plan following the Phase 3 compliance deadline. Businesses are required to set a target or action plan and report annually on their progress on a comply-or-explain basis through SECR or a specialised format if not captured by SECR. Details on how to complete the action plan will be published in the final Government guidance in advance of the Phase 3 deadline.

Why you should get started on ESOS Phase 3 now

At EcoAct, we are encouraging clients to comply as soon as possible rather than delay by several months due to the change. This will enable more focus on submission quality rather than a deadline rush. However, we anticipate that the government may take the opportunity to delay the passing of the Energy Bill and submission system build and so cannot guarantee compliance by a certain date.

What can you do to prepare for ESOS Phase 3?

1. Ensure you have a robust evidence pack – The Environment Agency reduced auditing throughout the COVID-19 pandemic. They are now looking again at submissions, so be prepared to answer questions about what happened up to 3 years ago.
2. Don’t delay the process – data collection is now an even lengthier procedure, so it is best to get a head start on preparing the surveys for ESOS.
3. Go beyond compliance – Look at ESOS as more than a tick-box compliance exercise and your organisation will gain much greater value from the scheme including contributing to your net-zero ambitions. Looking ahead to Phase 4, it is expected that there will be a greater focus on net-zero.

For more information on energy efficiency access our factsheet. Our team of experts can support you with your ESOS compliance and survey submissions, get in contact with us to learn more.