Everything you need to know: ESOS Phase 3

ESOS (Energy Savings Opportunity Scheme) Phase 3 is an obligatory plan that large UK-based businesses must adhere to. Businesses that qualify must report on their energy consumption and highlight the ways they are working to reduce their demand.  

The final deadline for businesses to comply is December 2023, however, this has now been extended to June 5^th 2024 so businesses have a better chance of achieving the requirements.

If your business qualifies, you must comply or your organisation will be penalised. Any business that fits the following criteria as of 31^st December 2022, is included in ESOS.

• A business that employs 250 people, or more.
• A business that has an annual turnover in excess of £44 million, and an annual balance sheet total in excess of £38 million.

Even if your business has changed criteria in the time since 31^st December 2022, you must still comply with ESOS.

To address ESOS Phase 3 immediately, contact our team for quick and efficient support, here.

If you Don’t Qualify for ESOS Phase 3

If your organisation qualified for ESOS Phase 2 but does not meet the criteria for Phase 3 on the qualification date, you are advised to submit a DNQ (Do Not Qualify) notification to the Environment Agency.

This should be done through the same online portal that you would use for your compliance notification.

How to Prepare for ESOS Phase 3

The data that you use to submit your ESOS Phase 3 report should be based on a 12-month period that includes the qualification date (31 December 2022) and ends before the compliance date (5 June 2024).

Your ‘reference period’ could have started is 1 January 2022 and the latest it could end is 4 June 2024. This window provides you with a period of two and a half years to choose your measurement period from. You must select 12 consecutive months as your reference period.

Once you have worked out the best time, these are the steps to follow.

Calculate your Total Energy Consumption

Within your 12-month reference period, you need to carry out an energy audit to calculate all the energy consumed by your business in the UK.

This includes the fuel for transportation, energy used for industrial processes and heating and lighting in your buildings.

Using a common unit, either an energy unit like kWh or in monetary terms, make a total calculation. For example, a litre of petrol would need to be recorded either in terms of the energy consumed or the cost, but it wouldn’t be acceptable to record it in terms of miles driven or carbon emissions produced.

This will be an arduous task and will require a significant amount of time and resource, which is why it’s essential that you begin this process as soon as possible.

Identify Significant Energy Consumption

To simplify the calculation process, you are permitted to exclude up to 5% of your businesses energy consumption by categorising it as “de minimis”.

You might choose to leave out a particular site, activity or usage of a specific fuel.

The remaining 95% is your “significant energy consumption”.

Some organisations may choose to exclude an area where it would be particularly hard or expensive to cut consumption. But others will find it more straightforward just to report their total, which they will already have calculated anyway.

Energy Consumption Data Analysis

The audit report you produce should provide a thorough analysis of your organisation’s energy consumption and how energy-efficient it is.

However, a major addition to this report is the recommendations that you have for reducing your energy consumption and the strategy you will take for generating a higher volume of renewable energy.

Verify your energy Reporting

Once your report is completed you must submit your documents to a qualified lead assessor. Though, businesses with the following energy models will be exempt from this step.

• If 100% of your energy use is covered by ISO 50001 certification

• If the company’s total annual energy consumption is below 40,000kWh

• If you have zero energy supplies (you need to notify the Environment Agency and get a director to confirm this)

If your business does not fall under these exceptions and you have had your report reviewed by a lead assessor, you must ensure that your company directors carry out a review on the same day before signing off on the final version.

Simplifying ESOS

As highlighted above, it is compulsory to have a lead assessor check your ESOS reporting, however, to make the process significantly easier to manage, many businesses have hired external lead assessors to carry out the audit.

Whichever option you choose, your lead assessor must be on the approved ESOS lead assessor register. You can find a list of registers as part of the gov.uk ESOS guidance.

Starting ESOS Phase 3

Once more, the reference period for your data collection must end before 5 June 2024, which means the latest it can start is 6 June 2023.

If your organisation was in scope of Phase 2, hopefully you will have established ongoing processes for measuring your energy data and can simply continue for your Phase 3 data.

It’s important that your business also gets started on the other elements of Phase 3 compliance as soon as possible, as there are a number of other factors to consider.

It is likely that a number of organisations will leave their planning for ESOS Phase 3 until the last minute, meaning that demand for qualified lead assessors will raise. Furthermore, with less time to create your report, you’re more likely to make mistakes and be penalised.

What about ESOS Phase 4?

The next phase of ESOS won’t be far behind and it’s clear how the UK government is looking to drive change. In ESOS Phase 4, businesses who do not carry out the cost-effective, practical measures suggested in their reports will be required to explain why.

Furthermore, Display Energy Certificates and Green Deal Assessments are being phased out as routes to ESOS compliance, which means they will not be valid for Phase 4.