UK: Navigating ESOS Phase 3

The UK’s Energy Savings Opportunity Scheme (ESOS) is an energy usage assessment scheme that requires in-scope organisations to audit their energy usage every four years. The audit assessments must cover energy consumed by buildings, industrial processes, and transport, and the Environment Agency (EA) administers the scheme. 

ESOS applies to large UK undertakings and their corporate groups. An organisation qualified for ESOS Phase 3 if, on 31 December 2022, it met the ESOS definition of a large undertaking. Corporate groups also qualify if at least one UK group member meets the ESOS definition of a large undertaking. UK registered establishments of an overseas company will also need to take part in ESOS (regardless of their size) if any other part of their global corporate group activities in the UK meet the ESOS qualifying criteria.

The scheme runs in four-year cycles. Phase 3 ended on 5 December 2023 and Phase 4 commenced the day after. 

For ESOS Phase 3, in-scope undertakings were required to have conducted an ESOS assessment over a 12-month period which includes 31 December 2022 and ends before 5 December 2023. The deadline to complete and submit to the EA a notification of compliance with the audit requirement was 5 June 2024.  

If your organisation meets the criteria for Phase 3 and has not yet submitted its compliance notification, it should do so as soon as possible. 

Additionally, organisations should begin considering whether they might be in scope of ESOS Phase 4, and how they aim to comply with the ESOS requirements.

What’s new in ESOS?

The ESOS regime was amended at the end of 2023 to introduce new requirements for in-scope undertakings to publish ESOS action plans and prepare annual progress updates (see new Part 6A of the Energy Savings Opportunity Scheme Regulations 2014, as amended). The plans and progress updates are intended to help undertakings identify what energy savings actions they should implement over coming years. 

There are no penalties for non-compliance, but the EA will publicly state if an undertaking does not submit a plan and/or progress updates. 

ESOS action plans 

Deadline: 5 December 2024

An ESOS action plan is a list of actions planned to reduce energy consumption from 6 December 2023 to 5 December 2027. 

The action plan must include:

• the planned month and year for each action;
• the source of each action (i.e., ESOS assessment, or other);
• expected energy savings for each action over the four year period; 
• the source of data for each estimate; 
• the total estimated energy savings across all actions over four years; and
• a breakdown of the savings by purpose (i.e. buildings, transport, industrial processes and other energy use).

A board level director (or equivalent) must approve the plan. 

If no actions are planned, in-scope undertakings must still submit a notification by 5 December 2024 stating that no action will be taken. 

Any future actions to reduce energy consumption can still be submitted and published in annual progress updates.

ESOS progress updates

Deadlines: By 5 December 2025 and 5 December 2026

Each year, undertakings are required to submit updates on the actions taken and energy savings achieved in the previous 12 months.

Key considerations

• Consequences: There are no penalties for not submitting an action plan or progress updates. However, the EA will publish the names of undertakings that do not make submissions. There will also be no consequences if actual energy savings differ from estimated savings. 
• Publication: The EA will publish action plans and annual progress updates within 6 months of the relevant deadline. If no plan/update is submitted by the deadline, the EA will publish a plan/update for that undertaking stating that no commitments were made.
• Aligning updates with SECR reporting: Where there is a substantial overlap in dates between a company's reporting financial year and the ESOS annual progress update (i.e. 6 December to 5 December), undertakings may use the text from their ESOS progress updates in their SECR reporting narrative. For more information on the Streamlined Energy and Carbon Reporting (SECR) regime, see our previous blog posts here and here. 
• Government guidance: The UK government has updated its ESOS guidance to include guidance on ESOS action plans and progress updates. The guidance includes details on how to comply when corporate structures change, how to account for mid-period actions, and further information on record keeping requirements. 

Conclusion

With the deadline swiftly approaching, it is crucial that organisations start thinking about preparing their ESOS action plans. 

Organisations should also consider how the actions and progress they report in their ESOS action plans and progress updates align with their broader ESG narrative and reporting requirements, particularly if their reporting financial year differs from the ESOS year.