UK businesses need to prepare for upcoming energy reporting changes

Within months, more than 7,000 businesses across the UK will have to report on energy use for the first time under a scheme run by the Department of Energy and Climate Change (DECC).

To tackle rising energy bills and pressure from investors on businesses to deal with climate change risks, DECC is implementing a new scheme to track energy use – the Energy Savings Opportunity Scheme (ESOS). The scheme responds to the EU’s Energy Efficiency Directive, which emphasised the need to cut the amount of energy the EU uses by 20% by 2020.

‘Double-edged sword’
Under the ESOS scheme, any company in the UK with more than 250 employees, a turnover of more than €50m (£41.5m) or an annual balance sheet total of more than €43m will now be required to produce comprehensive reports about their energy use.
While the exact details, including penalties for non-compliance, will be revealed by DECC in June, ESOS is already being viewed as something of a ‘double-edged sword’ for businesses in the UK.

DECC’s scheme will require a significant reporting increase from UK businesses. Currently approximately 800 companies in the UK have to report on their energy use, but come June, ESOS will cover more than 7,000 companies and up to 200,000 buildings. The Directive says that all large enterprises must carry out this energy audit by December 2015, meaning they will have to start gathering information later this year.

Minimum requirement
As a minimum, firms will be required to provide energy performance information to the Government to comply with ESOS, including a review of the total energy use and energy efficiency of their organisation, and a report on the energy use per employee focused on key buildings, industrial operations and transport activities. They would need to identify information on potential savings and quantify cost effective energy savings opportunities. These should be, wherever practical, based on life cycle assessment (LCA) instead of simple payback periods (SPP). Finally, businesses must also name an approved ESOS assessor to conduct the assessment.

Businesses which are already stretched for time and resource may see these requirements as yet another burden on their bottom line. However, energy saving assessments like those ESOS demands can actually help firms identify where money can be saved. Cutting out waste and putting energy saving measures into place could potentially save the average large business £56,400 per year on energy bills*.

Without external support, though, under pressure businesses may find it difficult to gather the required information to conduct a continuous energy audit of this scale. By making ESOS part of a wider improvement programme, firms can continually identify areas for ongoing efficiency improvements, cutting energy bills year after year. With an embedded process, updates can be made constantly, and reporting becomes much easier over time.

This also makes it easier for businesses to juggle ESOS with multiple policies, including the CRC Energy Efficiency Scheme, Climate Change Agreements, the EU Emissions Trading System and mandatory greenhouse gas reporting. Processes such Certified Emissions Measurement and Reduction Scheme (CEMARS) in the UK from Achilles can allow companies to use energy data they are already collecting to minimise the costs of compliance.

The government estimates that the ESOS policy could save the UK around £1.9 billion between 2015 and 2030. This is, however, based on the conservative estimate that only 6% of the potential energy saving opportunities will be implemented.
With Achilles’ past experience of energy audits through CEMARS, the benefits could indeed be much bigger. The ESOS audits will recommend cost-effective ways for businesses to save energy and cut their bills, making them more efficient and competitive.

Emissions impact
Companies will want to put these into practice for the benefit of their business. The scheme will not just help individual businesses – it will also ease the pressure on the UK’s energy system as a whole and help to meet emissions targets.

Even for businesses that are not yet covered, the scheme remains significant, as big businesses that are being asked to do this are likely to ask their suppliers to follow suit in the long term. Large companies can only really know their own impact when they know what their supply chain is doing.

ESOS is a significant step towards cutting costs whilst tackling climate change through business policy. While it might seem to businesses like a burden at first, it creates a positive need for internal reporting that ultimately leads to business savings, both financial and in terms of efficiency.

It also has the potential to make a positive impact on emissions to help achieve the EU emissions guidelines. Proper awareness of DECC’s ESOS scheme in advance of the announcement will best position large enterprises for future environmental, legislative changes and continued growth.

*Source, Energy and Climate Change Minister Greg Barker, 11 July 2013. https://www.gov.uk/government/news/energy-efficiency-measures-for-large-firms-could-see-19-billion-net-benefit-for-uk