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UK Government ESOS Phase 3 consultation outcome published

25 August 2022

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ESOS Phase 3 Consultation Outcomes

Outcomes to strengthen ESOS compliance

On July 19th 2022 the Government announced the outcome of last year’s ESOS consultation. 

The government declared its intentions to include powers to make the necessary changes to ESOS in the Energy Bill via a Government amendment.  

The consultations aim was to review the Energy Savings Opportunity Scheme (ESOS) and explore ways to strengthen it. 

The aim is to bring new regulations into force ahead of the compliance deadline (5th Dec 2023), setting out the requirements that ESOS participants will need to comply with in Phase 3. 

A key aim of the consultation was to look back at the quality of ESOS audits during Phases 1 and 2 and focus on improving the standards for Phase 3 and beyond. Additionally, further guidance for Lead Assessor’s on how best to implement the new changes are expected to be published at a later date on how best to implement the latest proposed changes to ESOS. 

What is changing in ESOS Phase 3? 

A handful of the changes will be implemented prior to the December 2023 compliance deadline. Some of the proposed changes to Phase 3 are classed as non-mandatory guidance but are to be made mandatory for Phase 4.  

In terms of the qualification criteria for Phase 3 changing, it isn’t – although the thresholds are now set in GBP.  

All large businesses (with either 250+ employees or a turnover of £44m and a balance sheet of £38m on December 31, 2022) or businesses that are part of a corporate group will be required to meet the new requirements. 

Key changes being introduced for ESOS Phase 3 that companies should be aware of: 

  • Reporting will become standardised to boost audit quality.  Lead Assessors will use a new template, designed by stakeholders which will be made available in sufficient time so that participants can make the appropriate changes to their reporting. 
  • As a result of this, standard ESOS recommendation templates will also be moved forward. The finalised template is still to be designed and requires SIC codes to be stated, an explanation of rationale for site survey selection and any actions taken since any previous audits. Participants are expected to provide this with supporting commentary. 
  • Where applicable, half-hourly consumption data will be analysed and included within reports. 
  • The de minimis exemption is to be reduced from 10% to 5% of total energy consumption. The aim is to help companies understand greater energy saving opportunities that haven’t been within audits previously. For example, transport could be included if between 5% and 10% of the total. 
  • New guidance to be provided for current Phase audits. Mandatory thresholds for site sampling will be a part of Phase 4.  
  • ESOS reports will require an overall energy intensity metric in the overview section. Suggested metrics include kWh/m2 for buildings, kWh/unit output for your industry as well as kWh/miles travelled for transport. It is unknown if using these metrics will be at site level or overall corporate level. 
  • The government is taking forward the requirement to collect additional data for monitoring and enforcement within ESOS reporting. Additional data will cover corporate structure, details on energy consumption and emissions along with energy intensity metrics. 
  • The final change is a target or action plan will need to be submitted once Phase 3 concludes, which will be a reporting requirement for Phase 4. If a goal has not been met, then participants will be required to explain why. 
  • The publication of a target/action plan should be done within 12 months of the ESOS compliance date, where targets are set under other schemes, such as CCA 
  • These can be reflected under any target setting for compliance purposes, action plans should clearly relate to opportunities found in the ESOS report and the new net zero assessment.  
  • Reference to Chapter 4 of the original consultation outlines new potential reporting fields.  

Proposed reporting fields to be introduced during Phase 3 are as follows:  

  • Total organisational energy consumption, energy cost and resulting carbon emissions, broken down by: Fuel type and Use category (buildings, transport, or industry). 
  • Total predicted savings from ESOS recommendations broken down similarly for Phases 1 and 2, where the organisation was obligated to comply during these phases. 
  • Current government support received for carbon emissions or energy consumption. 
  • Energy audit method/standard used (e.g., ISO, BS). 
  • Results of assessment of energy management practices (see chapter 1 of original consultation). 
  • Energy/carbon reduction target or action plan set by the participant and the date when targets or actions are expected to be achieved.  
  • High-level data on results of net zero audit (see chapter 3 of original consultation). 

It has been proposed that additional data will be submitted to the Environment Agency but there are concerns around privacy and availability of data – there is also opposition to any additional reporting to include historical data from Phase 1 and 2. 

How ESOS Phase 4 will look?

The Government has stressed that ESOS Phase 4 will focus on covering net zero as well as energy efficiency, to help support the Net Zero 2050 target.  

Suggestions include helping companies understand the risks associated with moving to net zero, pathways to reduce emissions and supporting information for companies with or without net zero plans. 

These changes will mean that Lead Assessors will require significant knowledge on carbon reduction methods. Companies should therefore look to choose a Lead Assessor who has experience with net zero and carbon reduction strategies. This will improve the reports quality and reliability. 

Other ESOS Phase 4 changes: 

  • ESOS reports will have to meet either ISO 50002 or EN 16247 auditing standards, which is only a recommendation within Phase 3 guidance. 
  • The removal of Display Energy Certificates (DEC) and Green Deal Assessments as routes to compliance. 
  • The Government is set to change the ESOS balance sheet and turnover thresholds to align with SECR. 
  • Site audit sampling guidance and transparency to include a minimum threshold for the number of buildings audited and a % of total energy consumption that is sampled. 

Certain data will become mandatory to be made public, for example carbon reduction targets and net zero assessments. Our Lead Assessors are ESOS compliant and have strived to help companies meet the requirements as early as possible for Phase 1 and Phase 2. 

So, as the changes to ESOS take effect, our Lead Assessors will be ensuring they are appropriately skilled and meet the competency requirements to continue supporting companies with compliance. 

To further understand the changes coming to ESOS Phases 3 and 4 and how it may impact your business, schedule a meeting below.

Book a meeting with one of our experts to discuss ESOS Phase 3.

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