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The Countdown to ESOS Phase 2

With so much currently happening: Brexit negotiations, new policy frameworks SECR, end of CRC and FiT… the list goes on; it’s hard to believe that there are only 12 more months to comply with the next phase of Energy Savings Opportunity Scheme (ESOS). We are on the countdown to ESOS Phase 2.

Energy Savings Opportunity Scheme (ESOS) is a mandatory reporting regulation that requires large undertakings to audit their energy use. The key word in this scheme is opportunity. The aim is to identify opportunity to save energy and potentially cut related energy costs.

Yes! It has already been 4 years. We are officially in the last 12 months to comply.

While ESOS phase 1 may be in the distant memory of the corporate world, it remains fresh in the minds of Consultants, Energy Managers and Lead Assessors. Also, ever present in the mind of the Environment Agency’s (EA) own auditors, the introduction of ESOS requirements in 2014 was chaotic. As a result, many companies struggled to complete the scheme before the first compliance deadline 5th December 2015.

During phase 1, over 2700 companies were forced to send notifications advising of their need for late compliance to the Environmental Agency. However, even with the resulting deadline extension into the first quarter of 2016, many organisations were ultimately fined for non-compliance.

The UK regulators continue to conduct ‘Compliance check audits’ for Phase 1 ESOS while companies should be preparing for phase 2.

Lessons Learnt from Phase 1

  •  Poor quality energy data
  •  Poor quality energy audits including due diligence due to poor quality data
  •  Poor quality reports due to lack of detail
  •  Lack of Early Action taken compounded by the availability of Lead Assessors

In 2018, it was reported that 15 businesses had been issued in civil penalties of up to £45,000 for non-compliance. While several other businesses received non-compliant designations without financial penalty.
Standards are expected to be considerably higher for phase 2

Are you ready?

Don’t leave choosing your assessor until too late. As the 12 months moves on it will be more challenging on the supply of auditors and Lead Assessors available to work with you.

Research suggests that few companies have started to secure the support of Lead Assessors for the fast approaching ESOS Phase 2 compliance deadline on 5th December 2019. Its time to actively support now to avoid repeating the bottlenecks and other challenges of phase 1. The countdown to ESOS Phase 2 is on!

What has changed since Phase 1?

In short, nothing has changed with regards to the regulation. Compliance dates remain the same for Phase 1 but have been updated to reflect the new Phase. The regulation will remain in place unaffected by the UK leaving the European Union.

If the size and structure of your organisation has changed since the first compliance period, then it is best you re-assess your organisation against the qualification criteria.

Who Must Comply?

Companies have grown, merged and evolved since 2014 which could mean that they are now eligible for compliance. For those who are new to ESOS…

If your organisation has maintained its size (as a large undertaking) for at least two consecutive accounting periods but has reduced in size since it remains eligible to comply. However, for organisations which were SME’s for two consecutive accounting periods, but has changed in December 2018, these would not be required to comply.

Even more so you must understand your organisations’ legal corporate structure when assessing the qualification.
All large undertaking (as defined in the Companies Act 2006) except Public Sector organisations, which meet any of the following criteria must comply with ESOS:

1. ≥250 employees
2. Annual turnover >£44mil (€50 mil) and, Annual balance sheet total >£38mil (€43mil)*
3. Part of a Corporate Group undertaking (overseas company) that meets one of the other criteria.

Your organisation will be assessed by these criteria as the ESOS qualification date – 31st December 2018. You may still be eligible to comply if your organisation is close to either of these criteria. Contact us for a consultation if you are unsure about your eligibility.

* Using the Bank of England spot exchange rate at the close of business on qualification date 31 December 2018.

Routes to Compliance

Energy Assessments and notification of compliance must be completed by 5th December 2019 to comply with ESOS via:

• ESOS Energy Audit
• ISO 50001 Certification
• Display Energy Certificates
• Green Deal Assessments

Assessments must consider all business energy consumption for buildings, industrial processes and transport over 12 consecutive months including qualification date 31 December 2018.

Does ESOS apply to our Europe based businesses?

If you are a multinational organisation with businesses throughout Europe, you may also need to comply in these territories. We have extensive experience with auditing for the transposed Article 8 of the European Energy Efficiency Directive; the ESOS equivalent in EU countries. Our lead assessors and consultants have worked in and with assessors in Europe to ensure our clients effectively comply with the regulation and meet business objectives. Make sure your business has the Countdown to ESOS Phase 2 in its sights!
To understand more about the energy audit compliance requirements for EU sites have a look at our Making Policy Clear – EED Article 8 or get in touch.

Acclaro Advisory Expertise

The Acclaro Energy Programme helps organisations adapt for and address the very visible responsibilities that sit within energy efficiency. We aim to deliver the right result for our clients. That’s why we start our programme by finding out your drivers and barriers to making energy interventions. Understanding your concerns means we can deliver recommendations that really fit the way you work. We’d be happy to assist you in taking action whether mandatory or voluntary to manage risk, reduce cost or enhance business reputation.

NB This blog was updated 19th June 2019

Through the Making Policy Clear Series, Acclaro Advisory informs clients of policy and regulatory changes around energy, environmental and social issues. Series 1 is focused on the energy and carbon regulatory schemes which impact business energy cost and reporting responsibilities.

Increased Climate Change Levy – Why is CCL increasing?

At end of July 2019, the Carbon Reduction Commitment (CRC) Energy Efficiency Scheme is set to be closed.

The CRC is one of the two energy taxes that target large energy-intensive organisations. This tax is levied to encourage energy efficiency in business. The end of CRC will result in a significant increase to the Climate Change Levy (CCL) to recover the loss of the CRC energy taxation revenue.

Who pays CCL?

The second energy tax is to encourage energy efficiency in business is the CCL.
Exempt from CCL are organisations using less than 1,000kWh electricity and less than 4,397kWh gas, per month.

The end to CRC will simplify the various levels of compliance and reporting regimes for many organisations. While energy and carbon reporting will remain, the additional administrative burden of CRC will be significantly reduced, as it is likely that the organisations affected will also be compliant to mandatory greenhouse gas reporting.

How will the increase to CCL Affect Me?

  1.  For organisations where energy consumption is not a major component of business expenditure, the increase in CCL rates may not create a major impact on overall business costs. However, energy cost will increase from 1st April 2019.
  2.  If you are covered under the Climate Change Agreement (CCA) scheme, the CCL rate increase will have little to no impact on business energy cost, with the increase more significant to natural gas and LPG costs in comparison to the previous years’ costs.
  3.  If you are currently part of the CRC scheme, the energy tax is ultimately transferred to the increased CCL rates. From April 2019 energy bills will increase. Organisations will be required to submit their last CRC report by the 31 July 2019 and surrender allowances for the last time by the end of October 2019. The new Streamlined Energy and Carbon Reporting (SECR)1 framework will require organisations to continue to calculate and report the total annual energy consumption and carbon emissions.
  4.  Typically, this change will add between 2 – 4% to the business energy bill.

More on the impacts of SECR can be read in part one of this series here.

How can I prepare for this change?

CCL is added to energy bills by energy suppliers, therefore there are no changes necessary for consumers to accommodate the increased taxes. However, these organisations should consider ways to reducing business energy cost to minimise the impact of the increased tax.  Energy efficiency is widely recognised as the most effective way to reduce energy consumption and costs. The CRC scheme was designed with an aim to incentivise improving energy efficiency and reducing carbon emissions in large energy intensive organisations.  Well run energy audits can uncover several opportunities for energy efficiency. However, if not combined with effective implementation, the true value of these opportunities can be lost.

How Acclaro Can Help?

The Acclaro Energy Programme is an end-to-end energy management package that helps your business to get to grips with its energy consumption from all angles. Our programme helps you adapt and address responsibilities of energy efficiency as a business, whether cultural, technical or financial.  At Acclaro, we possess vast experience in CRC, CCA, energy efficiency and reporting with a variety of clients. Our Energy Team assists clients through expert advice and detailed energy audits, providing opportunity for further energy reduction when in-house teams can no longer identify. Our energy programme is designed to support you through a series of phases forming parts of your energy efficiency journey; from understanding energy consumption to embedding energy efficient practices into day-to-day business.

As organisations portfolios, data collection, emissions methodologies and reporting procedures vary significantly, it is important to plan before the change occurs. We are setting up discussions with a range of clients to further understand how the closure of CRC will impact their organisation. If you are keen to learn more, please contact us.

Our team can create a detailed action plan utilising your current processes to help streamline and reduce the impact of this transition. For a breakdown on the full extent of the impact to your organisation, steps to comply and where Acclaro’s expertise can support, email us now at info@acclaro-advisory.com to arrange a consultation.

Today we launch the Acclaro Energy Programme, and with it comes a series of free guidance that opens up the world of energy management and policy. Today we begin with a jargon busting look at UK energy and carbon compliance.

The energy and carbon industry is so full of reporting acronyms, that sometimes it’s hard to keep up.  July (2018) brought yet another to the doors of the UK corporate world; SECR – Streamlined Energy Carbon Reporting. For the many businesses currently navigating the energy and carbon regulatory regimes, adding another to the mix should not be too difficult to handle. In many instances, reporting requirements utilise the same energy data in a variety of ways to translate into business energy and carbon. But, as new regulations are added, the harder the names roll off the tongue.

Let’s talk a bit about what currently exists.

CCL
Climate Change Levy is first of the two energy taxes targeted towards energy-intensive organisations. Introduced in 2001, the tax is applied to electricity and gas bills for all businesses and public sector organisations that pay the standard rate of VAT. Exempt from CCL are businesses using less than 1,000kWh electricity and less than 4,397kWh gas, per month. No reporting is required by business energy users. CCL seems to be here for the long haul.

MGHG
Mandatory greenhouse gas reporting (MGHG reporting), introduced in 2013, requires all UK quoted companies to publicly report their greenhouse gas emissions on all forms of energy used annually. At present this policy only affects around 1200 companies. The main focus is on transparency of carbon data for carbon management and reduction.

CRC
The Carbon Reduction Commitment Energy Efficiency Scheme, this one doesn’t exactly roll of the tongue, but luckily it is also known as the CRC scheme. CRC is second of the two energy taxes targeted towards large energy-intensive organisations. This tax and reporting mechanism, introduced in 2016, is levied to encourage eligible businesses and public sector organisations to consume energy more efficiently. Over 5000 undertakings report annually to the Environment Agency. The reports cover UK energy use and the purchase of allowances to cover their carbon emissions. The scheme phases cover emissions generated over UK financial year; March 2019 will mark the last phase – the end of the CRC scheme.

ESOS
Energy Savings Opportunity Scheme (ESOS) introduced in 2014; another which seems to be here to stay, is a mandatory reporting regulation that requires non-SME undertakings to audit their energy use. The key word in this scheme is opportunity; the aim is to identify opportunity to save energy and potentially cut related energy costs. However, whilst this scheme requires an element of reporting, the minimal nature of the reporting does not include public disclosure. In fact, unless formally audited, the compliance reports are not reviewed by the regulator, Environment Agency.

SECR
Streamlined Energy and Carbon Reporting framework, as the name suggests is aimed to simplify and bring together elements of the above reporting schemes into one clean process. This framework will be in play from April 2019 with a wider compliance qualification. Similar to MGHG reporting, it will be implemented through disclosure in annual directors reports with Companies House. SECR will replace CRC reporting, with a combination of MGHG and ESOS reporting elements. These changes will add value to robust reporting mechanisms and the opportunity to quantify ESOS outputs with energy efficiency action and carbon management into one streamlined approach.  It is estimated that the number of companies which will be required to comply with SECR will change from the 1,200 covered in MGHG to 11,900. This includes all quoted and large unquoted companies with some exceptions. In other words, many companies complying with ESOS will be scooped up into the SECR framework.

Our team of energy and sustainability experts have extensive experience in navigating the policy landscape and delivering reporting that meets regulatory requirements and business objectives. To find out more about the above reporting mechanisms and how they may affect your business, please get in touch.

The Acclaro Energy Programme helps organisations to adapt for and address the very visible responsibilities that sit within energy efficiency. We’d be happy to assist you in taking action whether mandatory or voluntary to manage risk, reduce cost or enhance business reputation.

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