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Outweighing the cost of compliance

15 May 2015

Outweighing the cost of compliance - read more

New energy reporting requirements present an opportunity organisations cannot afford to miss

By 5 December 2015, at least 10,000 of the UK’s largest businesses need to have submitted the findings of mandatory energy audits to the Environment Agency. Introduced in June 2014, the Energy Savings Opportunity Scheme (ESOS) is the UK’s response to the EU Energy Efficiency Directive and the latest piece of energy-related legislation to impact British business. All eligible organisations must comply with ESOS, unless they hold ISO 50001, and the audits will take place every four years from 2015 onwards.

A recent survey carried out by energy consultancy Inenco found that three quarters of organisations had not yet started the compulsory energy audits, but with only six months to go, time is tight and fines for non-compliance begin at £50,000. The criterion applies to businesses that have any of the following:

  • More than 250 employees.
  • An annual turnover of at least £42.5 million and an annual balance sheet of £36.5 million for the financial year end closest to December 2014.
  • One entity within a UK group of companies that meets the criteria – this means that all other companies in the group must also comply.

ESOS assessment

The audit must be conducted by a lead assessor, who is either an employee or an external contractor, providing that they are members of an approved professional body, such as the Energy Institute of Chartered Energy Managers.

An ESOS assessment involves taking an in-depth look at how your organisation uses energy. You must audit how energy is used in buildings, transport and industrial operations: this means using your energy data and evidence from site surveys to chart energy trends, calculate energy intensity and identify saving opportunities.

That means reviewing your energy data, conducting surveys of a sample of the different property types – such as a warehouse, a factory and an office building. Energy saving opportunities must be identified and a full report compiled that includes recommendations on how to save energy. For many organisations, ESOS compliance will fall to the company secretary, however, energy consultants can provide assistance.

The sprint for sign off

In a survey of business energy professionals conducted in March 2015, 47% admitted they had not yet begun any ESOS compliance activity, and a further 29% had appointed a lead assessor but not yet started the energy audits, which form a major part of ESOS compliance.

The findings are a cause for concern for two reasons: with fewer than 500 lead assessors available for over 10,000 organisations which must comply with the scheme, demand could well outstrip supply, threatening a bottleneck close to the compliance deadline. This demand almost certainly has the potential to push up costs. One of the most important factors in selecting a lead assessor is finding someone with sector-specific knowledge and expertise. Limited choice could well mean relying on someone who lacks a good understanding of the organisation and an appreciation of how ESOS affects it.  

Organisations will also need to engage a lead assessor before audits get underway. Even those who hope to conduct audits themselves will need an assessor to agree on the competency of their nominated auditor and obtain sign off for the sample sites selected to audit. This means that a sprint for sign off is not as tempting as it might otherwise sound for time poor energy managers. The bottleneck for lead assessors also has implications for organisations looking for an expert energy consultant to guide them through compliance – including analysing and identifying data, the area many admit to struggling with.

The survey also found that 52% of organisations believe that a lack of time and resource is the biggest barrier to compliance and 27% cited data as a major challenge. Despite the lack of progress and concerns around the scheme, 76% felt confident that they would meet the December deadline. This is possibly the most worrying statistic as it is very likely that ESOS compliance is going to take longer than planned.

The audit process typically takes two to three months to complete, but the compilation of data required before audits begin can be a time intensive task, particularly for areas of the business where data has not been collected or audited previously.

The report also confirmed that 36% of organisations were either unsure or unlikely to act on the recommendations. ESOS will however offer a complete picture of the organisation’s consumption and identify energy efficiency measures that the Carbon Trust estimates could deliver savings of at least 15%, from the quick win measures to medium to long-term projects. The sooner an organisation completes the report and reviews it, the quicker it can act on the recommendations, if only to cover the cost of compliance. ESOS takes organisations a long way towards a long-term energy strategy, with projects that can be prioritised and acted upon to deliver reductions in consumption and cost.

Long-term savings

Unlike other energy legislation introduced in recent years, ESOS is a chance for businesses to realise significant cost and carbon savings across their operations beyond their property portfolio.

ESOS audits are mandatory, yet acting on the recommendations is not. According to the Department of Energy, those businesses eligible for ESOS could make a combined saving of £300 million by 2016. The Carbon Trust believed that the saving figure could actually be threefold, making ESOS a major opportunity for businesses to grab with both hands rather than a burden to view with scepticism.

For almost all organisations, the savings identified within the ESOS report will far outweigh the cost of compliance. By collating data, surveying sites and analysing findings to identify savings, businesses will have already completed much of the work needed to implement energy reduction projects and achieve savings.

For organisations that take the minimum approach to compliance ESOS will remain a cost, however those which seize the opportunity stand to make long-term savings on the bottom line – something that few can afford to ignore.

Ian Nash is Group Company Secretary at Punter Southall Group Limited

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