ESOS IMPLEMENTATION: AN INDUSTRY PANEL DISCUSSION OCTOBER 2015 White paper report By Emma Bleach, Sustainability Analyst
ESOS IMPLEMENTATION
Overview This paper was put together following the CBx evening event in October 2015 which aimed to shine a spotlight on industry uptake of the Energy Savings Opportunity Scheme. Our panel of experts discussed the implementation of ESOS, explored the ESOS process alongside the challenges and opportunities identified, and discussed the learning outcomes from the process thus far. Research was presented on energy audits in complex buildings with the challenges associated ESOS. With special thanks to our fantastic panel of experts; Keith Brierley, Senior Advisor, Environment Agency, Paula Morgenstern, PhD Candidate at UCL Energy Institute, Lindsey Malcolm, Environmental Team Leader, XCO2 Energy Ltd, and Andries Van der Walt, Associate, Head of Sustainability, Asset Services, Cushman & Wakefield.
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ESOS IMPLEMENTATION
INTRODUCTION TO ESOS The Energy Savings Opportunities Scheme (ESOS) is a mandatory energy assessment and energy saving scheme within the UK that implements Article 8(4) of the European Energy Efficiency Directive (EED). The intention is to promote the implementation of energy efficiency measures within existing buildings and transportation portfolios, with participating companies requiring to perform an energy audit at least once every four years. ESOS targets ‘large undertaking’ under the boundaries set by the EED of 250 or more employees; or an annual turnover exceeding €50m and a balance sheet exceeding €43m; or if part of a Corporate group contains at least one large organisation, then the whole corporate group is required to meet the requirements. There is thought to be approximately 10,000 participants based on information from Companies House and the Charities Commission.
There has been confusion surrounding which companies need to comply with ESOS, particularly complex organisations where there are many parent or child entities. However, there has been confusion surrounding which companies need to comply with ESOS, particularly complex organisations where there are parent or child entities. Indeed, at the ESOS help desk where over 5,500 queries have been asked, the most popular question is in reference to whether or not their company needs to comply. For complex companies, at least one group member which is of a size sufficient to trigger the criteria for a large undertaking will cause that the rest of the group, in terms of any activities within the UK, to fall within the scope of ESOS.
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It has been projected that there is the potential for £250m saving for participants per year based on a conservative assumption of those companies that implement the savings opportunities - the assumption being that participants will save 0.7% of their energy per year. Therefore, there is much potential within the UK economy for greater savings and energy efficiencies. Of the companies that fall within scope of ESOS, it is estimated they account for approximately a third of the energy used in the UK. The requirements are: 1. 2.
3. 4.
5. 6.
Conduct an ESOS Assessment where not fully covered by ISO 50001 Conduct energy audits that are not covered by ISO 50001, Green Deal Assessments or Display Energy Certificates (partial or full coverage) Identify energy savings opportunities Use a registered ‘lead assessor’ to either complete or review points 1-3 above (unless fully covered by ISO 50001) Get a director to sign off the report and recommendations Notify the Environment Agency of ESOS compliance.
The official deadline for companies to submit their Declaration of Compliance to the Environment Agency is by the 5th of December 2015, which has subsequently been extended to late January and then mid-April. If companies are seeking to gain ISO50001 accreditation on their portfolio, the deadline was extended to 30th June 2016.
It has been projected that there is the potential for £250m savings for participants per year based on conservative assumptions…
ESOS IMPLEMENTATION For further information on ESOS, please refer to the CBx Whitepaper: “ESOS: An Industry Panel Discussion”.
ENFORCEMENT APPROACH The Environment Agency (EA) are the UK scheme administrators for ESOS, and as such are obligated under the Regulators Code. This means that they have to be transparent in what they do and when they take enforcement action. The primary objective of the EA enforcement approach is to bring participating organisations into compliance. It is thought that this will be mostly achieved through enforcement notices (EA, 2015). Civil penalties are only to be used in the most serious of cases, while compliance notices, which act as request for further information, can be issued only if an offence is suspected. There will be no criminal sanctions. Therefore, civil penalties are the highest enforcement level where those companies receiving civil penalties will be published, thus affecting the company’s reputation. It is worth noting that all notices can be appealed.
Civil penalties are only to be used in the most serious cases, while compliance notices can be issued only if an offence is suspected. There will be no criminal sanctions. Civil penalties will only be issued in the most extreme cases e.g. if a company has failed or ignored an enforcement notice. Penalty provisions are found within the ESOS Regulation 43-47, ranging in fixed penalty costs from £5,000 up to £50,000 including additional daily charges. For example, failure to uptake an energy audit could leave an organisation with a £50,000 penalty plus a daily penalty of £500 every day since receiving the penalty notice. Under the ESOS regulations, the EA intends to use considerable discretion. Each case will be individually
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assessed through a series of tests, such as public interest factors including: Intent, previous compliance history, proceed ability, and personal circumstances. Furthermore, the maximum penalty for fixed/daily penalties can be reduced by 50% for the first compliance period, and may be reduced further based on public interest and mitigating factors. However, the EA will publish and name organisations if served with a penalty.
The Environment Agency will publish and name organisations if served with a penalty.
COMMON ISSUES: While there have been several updated guidance documents from the EA on how to comply with ESOS, there are still several common issues from the current compliance phase of ESOS that has been brought up from companies and consultants alike.
1.
THE BOUNDARIES FOR SELECTING PARTICIPATING COMPANIES
Selecting boundaries for any regulation is complicated. ESOS had the bonus of being guided under the EED, which would apply to organisations of more than 250 employees OR an organisation with a turnover of more than €50million and a balance sheet of more than €43million. However, there has been criticism to whether this is encompassing enough. For example, local authorities and governmental portfolios have not had to submit under ESOS despite some meeting criteria thresholds. Instead they are captured under separate EED criteria to improve 3% of floor space per annum. Conversely, there are many companies that meet the turnover threshold or over 250 employees but have a relatively small energy supply, such as financial institutions and FM providers. Some countries, such as
ESOS IMPLEMENTATION Italy, have set an additional energy threshold to be met, therefore removing those organisations. Selecting boundaries is never a simple matter, and a review of the Phase 1 threshold should educate the boundaries in the future.
2.
BACK LOADED DEMAND FOR LEAD ASSESSORS
The confusion surrounding whether a company needs to comply has meant that many companies have been slow to respond to the ESOS regulations. This has meant that the months leading up to the compliance deadline have seen lead assessors being in high demand resulting in a delay in progress for some companies. It is intended that the “intent to comply” period up until April 2016 should allow for additional time for the lead assessors to complete and sign of the required work. This benefits both the lead assessors having more time to complete the work and does not penalise those companies that could not supply a lead assessor before the compliance deadline.
3.
QUALITY OF THE LEAD ASSESSOR
While all lead assessors who either personally complete the routes to compliance or check over them at the final stages, must be a registered and competent individual, the quality level still varies depending on their training and knowledge. However, the main issue surrounding quality is on the assessor’s knowledge of complex buildings and transport assessments. There is no previous experience or knowledge required from the lead assessors when auditing complex buildings. Instead it is left to the decision of lead assessors whether they are able to audit such a building and understand the complex process e.g. manufacturing. While some might have previous experience, they will be in the minority which might add to the backlog in
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demand. This is hopefully less of an issue due to the exceptions including government bodies and hospitals. On the other hand, transport assessments will be required by many companies under ESOS. Many assessors and consultants alike will have had little previous experience with performing such an audit and in many cases, it is likely that a company’s transport data has not previously been verified. The guidance provided by the EA has specific requires on ensuring energy savings and cost will be captured including payback time but it is still left to the individual to interpret. While this is a useful exercise in verifying the transport data, the learning outcomes should be captured and recommendations made to ensure that this is consistent in later ESOS phases.
While a lead assessor must be registered and competent individual, there is no previous experience or knowledge required when auditing complex buildings, nor transport portfolios.
4.
SPLIT INCENTIVES BETWEEN LANDLORDS AND TENANTS
There are a number of split incentives depending on whether you are a tenant or the landlord of a particular building. The collaborative approach would, for example, see one building with 10 tenants having the whole building audited in one go, saving time and money. This satisfies the EA who are not necessarily looking for 10 separate audits. However, there are complications of who investigates, arranges, communicates and indeed pays for this style of audit. Therefore, while this might be a good idea in principle,
ESOS IMPLEMENTATION the issues are likely to extend and complicate meeting the regulations.
The collaborative approach to building audits satisfies the EA requirements. However, issues between landlord and tenants are likely to extend and complicate meeting the regulation deadlines. Another incentive is over who benefits from the potential saving opportunity. Tenants with a long lease would want to reduce the energy and wish for the landlord to make any capital payments for changes within the common parts. However, the landlord can place these charges back to the tenant, or argue that if they want the work done, they must do it themselves. Unfortunately, at this stage of ESOS, there is no clear guidance on service charging and recoverability. However, future phases are likely to benefit from the addition of the Minimum Energy Efficiency Standard (MEES). This is unlikely to stop spilt incentives from occurring initially, but through both mainly MEES and additional phases of ESOS, it is hoped that both parties will want to work towards a common goal of a more energy efficient building with similar success to the NABERS Commitment Agreement in Australia.
In additional phases, it is hoped that both parties will want to work towards a common goal of a more energy efficient buildings, supported by additional regulation such as MEES.
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UNUSED VALIDATED DATA Despite the EED stating that the data used in energy audits shall be storable for historical analysis and tracking performance, this would appear to be for the benefit of individual companies rather than industry. ESOS provides the largest repository of validated data that has been available but it is not being collected by government, academia or anywhere. Instead it is being held with the responsibility of individual participating companies, only being stored for the purposes of an audit.
ESOS provides the largest repository of validated data that has been available but it is not being collected by government, academia or anywhere. In fact, after choosing an ESOS compliance route through either Display Energy Certificates (DEC), Energy Audits, Green Deal Assessments of ISO15001, the online submission to the EA to confirm compliance acts as more of an administrative task. A tick box exercise of forty-five questions mainly relating to company and contact information, has only a handful of questions relating to percentage of energy consumption and statements of confirmation to ensure that you are complaint under ESOS. Moreover, only a selection of companies will be audited at random to check for compliance, suggesting that a company could “risk� submitting a statement of compliance without having followed an ESOS compliance route. This validated data could be invaluable in improving the performance of the UK’s energy efficiency through research and/or benchmarking perspectives. While it is understood that there might be complications surrounding anonymity, the potential knowledge and learning that could be gained through this data should
ESOS IMPLEMENTATION have vastly outweighed any anonymity complication. As such, there are many who see this as the biggest missed opportunity of ESOS.
The validated data from ESOS could be invaluable in improving the performance of the UK’s energy efficiency through research and/or benchmarking perspectives.
implemented recommendations from the outcomes of ESOS and present them to the whole market, not just those within the ESOS scope, thus engaging with those companies who did not qualify as well. But in order to share these energy saving opportunities, the data, knowledge, and best practices is required to be shared from the companies who participated. While unavailable at present, there is hope that the industry will respond rather than relying to the government wholeheartedly.
RESOURCES 1.
CONCLUSION Overall, the first Compliance Phase of ESOS was intended to engage and sense check the scheme. And indeed, ESOS has engaged with companies that have not previously considered their energy usage, audited their portfolio or considered saving opportunities in both energy and cost. While there have been several points of criticism, which many within the industry hope will be improved by the second compliance phase, the lessons learnt are a good initial step, albeit slower than the desired pace. After the Business Energy Tax Reform, the energy legislation across the UK is being impacted. It is thought that the removal of the Carbon Reduction Commitment from 2018, will see an updated ESOS that incorporates the most important parts. Within this next phase, it would be useful to also incorporate the impact on not only energy and cost efficiencies, but also the impact on the occupant. Wellbeing and productivity could be easily captured through days off and staff performance but it is clear that measuring these factors will have its difficulties. But what is clear is that these are also virtual aspects that should be captured. What could be most beneficial at the end of this compliance phase could be a list of the common or most Page 6 October 2015
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CBx (2014) ESOS – An Industry Panel Discussion http://cbxchange.org/knowledge/whitepaperesos-industry-panel-discussion/ Environment Agency (2015) Complying with the ESOS https://www.gov.uk/government/uploads/sys tem/uploads/attachment_data/file/509835/L IT_10094.pdf Environment Agency (2016) ESOS company list https://data.gov.uk/dataset/energy-savingsopportunity-scheme CBx (2014) Making sense of metering http://cbxchange.org/knowledge/whitepapermaking-sense-of-metering/