Guidance

Appendix C: Advice for complying with ESOS

Updated 29 August 2024

C1. Introduction

This appendix provides additional information for participants on the approaches they might take to comply with Energy Savings Opportunity Scheme (ESOS) in order to help them maximise the benefit to their organisation.

ESOS energy audits have the potential to increase your business profitability and competitiveness by identifying cost-effective savings which, if implemented, will improve energy efficiency. The scheme is estimated to have already delivered £1.6bn net benefits to the UK, with the majority of these being directly felt by businesses as a result of energy savings. (Figure calculated on basis of NPV (2015 to 2030). Full details can be found in the final stage ESOS impact assessment.)

Optimising energy use leads to improved profitability and increased competitiveness. It also constitutes an integral part of the UK’s climate change mitigation effort, which also includes the CCA scheme, and the UK ETS. There is significant potential to decrease energy consumption across all sectors, and yet opportunities to improve energy efficiency are often under-exploited.

The changes to the scheme being introduced from the third compliance period onwards are estimated to lead to an additional 28TWh across all participants over 2024-2037, which equates to an estimated £1.12 billion in energy bill savings for participants over that period. (Data from the Energy Security Bill factsheet: Powers to strengthen the energy savings opportunity scheme.)

However, ESOS participants and the UK as a whole will only realise this benefit (which more than offsets the cost of complying with ESOS) if they implement the cost-effective recommendations identified in ESOS audits and engage with their lead assessor to ensure that they have access to the information and staff they need to develop meaningful recommendations.

C2. Identifying areas of significant energy consumption

One of the key decisions that organisations will need to take is in determining their areas of significant energy consumption. Businesses have flexibility to determine this. For instance they could exclude particular assets, types of fuel, or activities.

In determining which energy consumption to deem ‘de minimis’, businesses will want to consider where ESOS can have maximum potential for their organisation. Some businesses may opt to audit more than 95% of their total energy consumption in order to get the most benefits from the scheme.

C2.1 Worked example of identifying areas of significant energy consumption

Group A is a UK registered corporate group in the transport industry. The group consists of A Ltd, the holding company, and its two subsidiaries: A Transport Logistics Ltd and A Services Ltd.

A Services Ltd has more than 250 employees and as such meets the definition of a large undertaking. As a result, the other members of the group, A Ltd and A Transport Logistics Ltd, both also qualify for ESOS through the group (see section 2 for details).

The default is that all three members of the group will participate as one participant (see section 2 for details of group participation and disaggregation or aggregation). To do so, the group must first select a reference period (see section 4.4) and determine its total energy consumption (in either energy units or energy expenditure) in this period.

Group A has mapped its organisational structure and the energy consuming activities of each group company, as presented in Figure A1 and Table A1.

The principal business activity of Group A is the shipping and transportation of goods by road and sea. Group A knows (prior to calculation) that the energy associated with fuel consumption in its freight operations will be the largest single item of significant energy consumption. As such, Group A decides to convert all energy use into gigajoules (GJ) as a standard unit of energy use for all its activities.

Figure A1: Group A’s energy use

In this example A Ltd is a holding company. It does not have any energy use.

A Ltd is the parent of A Transport Logistics Ltd. This has:

• freight fuel use of 4,500,000 GJ
• building energy use of 2,330,000 GJ

A Ltd is also the parent of A Services Ltd, which has more than 250 employees. This has:

• travel energy use of 300,000 GJ
• building energy use of 375,000 GJ

Table A1: Group A’s summary of energy using activities

Energy conversion is based on government conversion factors for company reporting.

Activity	Fuel used	Fuel use	Density (litres per tonne)	Energy conversion	Energy (GJ)	Percent of total energy consumption
Freight	Diesel	125,244,755 litres	1,194	42.90 GJ/tonne	4,500,000	60%
Buildings (A Transport)	Electricity and gas	647,222 MWh	not applicable	3.6 GJ/MWh	2,330,000	31%
Buildings (A Services)	Electricity and gas	104,166 MWh	not applicable	3.6 GJ/MWh	375,000	5%
Company vehicle travel	Diesel	8,349,650 litres	1,194	42.90 GJ/tonne	300,000	4%

After assessing total energy consumption, Group A decides its areas of significant energy consumption are the energy used in:

• its freight operations
• the buildings of A Transport Logistics Ltd
• the buildings of A Services Ltd

C3. Choosing compliance routes

ESOS participants have flexibility to choose from a number of different compliance routes. Each route has its own advantages and disadvantages, and some of these are considered below. Participants will want to decide which routes are most appropriate for their type of business and will help maximise the value they get from ESOS energy assessment.

ESOS energy audits

Advantages:

• covers all energy uses – buildings, industrial processes and transport
• can draw on data from existing energy efficiency compliance activities such as Climate Change Agreements to the extent that these support compliance
• organisations can use existing energy auditing or measurement activity to support compliance such as the Carbon Trust Standard or the Certified Emissions Measurement and Reduction Scheme (CEMARS) provided that these are carried out in a way which meets the minimum requirements for ESOS audits

Disadvantage:

• may duplicate work or assessments already carried out under other schemes

ISO 50001

Advantages:

• part of an overall energy management system for effective management of energy consumption
• ISO 50001 could be employed by a multinational company across its operations. This is likely to mean that, for operations qualifying for audits under other European mandatory auditing schemes, the requirements would be met through the energy management system

Disadvantage:

• additional effort, above minimum ESOS requirements, may be required to maintain a certified ISO 50001 energy management system

Display Energy Certificates

Advantage:

• low cost assessment

Disadvantages:

• restricted to building energy use (including regulated energy such as heating and building fabric) and also lifts and small power use (for example, IT). May require further assessment for activities carried out in the building
• certificate needed for each individual building, so may be less suitable for large portfolios

Green Deal Assessments (domestic)

Advantages:

• domestic GDAs are bespoke assessments that take account of the occupant’s specific energy use behaviours
• domestic GDAs build on the established Energy Performance Certificate (EPC) assessment process
• providers are free to market assessments however they see fit – meaning some offer free or low cost assessments

Disadvantages:

• a good quality assessment is reliant on a good quality Domestic Energy Rating Software (RdSAP) assessment
• one assessment is needed for each individual building, so the approach may be less suitable for large portfolios

C3.1 Additional information on ISO 50001

ISO 50001: provides a framework of requirements for organisations to:

• develop a policy for more efficient use of energy
• fix targets and objectives to meet the policy
• use data to better understand and make decisions about energy use
• measure the results
• review how well the policy works
• continually improve energy management

You can buy:

• digital and hard copies of ISO 50001:2018 from ISO
• a digital copy of ISO 50001:2018 from the British Standards Institution
• a hard copy by post from the BSI Group customer services department at 389 Chiswick High Road, London W4 4AL (telephone 0345 086 9001)

C4. Additional guidance on conducting energy audits

C4.1 Benefits of energy audits

Energy audits are a valuable tool in understanding and improving the energy performance of your organisation. Conducting energy audits allows you to:

• measure and understand the energy consumption of your assets and activities
• build an energy consumption profile showing where and how your organisation consumes energy – this can also be used to identify any variations in your energy use between areas and over time
• identify patterns, build explanations for these and identify any opportunities to reduce your overall energy use through increased levels of efficiency

This information could allow you to make long-term savings or reduce the impact of energy price increases on your organisation.

Improved energy efficiency could also boost your productivity and growth.

C4.2 Measuring energy consumption

To make it easier to carry out an energy audit, it’s helpful to have systems in place to collect, collate and analyse your energy data as often as possible.

It’s also a good idea to make sure that you can ‘drill down’ into your data to identify trends and inform detailed analysis.

The following are some generic methods you could use to help you measure data:

• meter readings
• energy bills
• fuel or waste delivery notes
• transport receipts
• vehicle, shipping and aviation routes, and average fuel consumption rates
• mileage claims (expense claims)
• heat imports

You can use this data to find patterns that may show you how you can save money.

If your organisation’s accounting system already includes this data, define a report that incorporates all energy use and cost information.

This will mean you can easily retrieve the data in future.

If the data is not included in your accounting system, nominate a person to record energy use and costs.

C4.3 Validating data

You should validate and cross-check data which you use for auditing purposes. You can do this by:

• previous period checks – comparing the data between two periods for example March 2021 and March 2022
• sample checks – checking a data point against another independent source, for example checking invoice totals against meter reads
• sense checks – comparing data points against reasonable expectations based on your knowledge of how your organisation has used energy in the past
• identifying data gaps and finding the missing information, or using an estimate
• making sure meter readings and equipment you use for them are as accurate as possible
• metering any energy you generate on-site

C4.4 Choosing an auditing methodology

ESOS does not mandate a particular auditing methodology that must be followed. Businesses may have their own preferred methodology developed in-house, or there are a range of European and International Standards that set out internationally recognised energy auditing practices. Whatever methodology you use must meet the minimum standards for ESOS. Here are examples.

ISO 50002 and BS EN 16247 energy audits set out a good practice method for identifying energy savings opportunities

These are useful for in-house managers or external consultants carrying out an energy audit, or as a guideline for organisations who want to understand what a good energy audit looks like. The EN16247 series of standards also includes more detailed standards setting out possible auditing approaches to buildings, transport and industrial processes.

ISO 15099:2003 Thermal performance of windows, doors and shading devices – Detailed calculations

This standard specifies detailed calculation procedures for determining the thermal and optical transmission properties (for example thermal transmittance and total solar energy transmittance) of window and door systems. This standard may be applicable as an auditing methodology when seeking to determine the energy saving potential associated with an organisation upgrading the windows (including glazing) or doors in its buildings.

ISO 16346:2013 Energy performance of buildings – Assessment of overall energy performance

This standard defines the general procedures to assess the energy performance of buildings, including technical building systems. This standard may be an applicable auditing methodology for the assessment of energy saving potential from buildings.

ISO 15686-3:2002 Buildings and constructed assets, Service life planning, Part 3: Performance audits and reviews

The standard outlines the approach and procedures to be applied to planning, briefing, design, construction and, where required, the life care management and disposal of buildings and constructed assets. This standard may be applicable as an auditing methodology when seeking to determine the whole-life energy saving potential related to the replacement or retrofitting of a building and its likely performance over time.

ISO 11011:2013 Compressed air – Energy efficiency – Assessment

This standard sets out requirements for conducting and reporting the results of a compressed air system assessment from the energy input through the work performed by the compressed air system. This standard may be applicable as an auditing methodology when seeking to determine the energy saving potential associated with an upgrade or change to a compressed air system as part of an industrial process.

ISO/DIS 14414 – Pump system energy assessment

This standard sets the requirements for conducting and reporting the results of a pumping system assessment. This standard may be applicable as an auditing methodology when seeking to determine the energy saving potential associated with an upgrade or change to a pump system as part of an industrial process.

C4.5 Using voluntary energy management and energy auditing schemes to support ESOS compliance

There are a range of energy management schemes and programmes already run by private enterprises and other bodies in the UK. Some examples of these include the Carbon Trust Standard, Logistics Carbon Reduction Scheme, and Green Fleet Reviews.

ESOS is designed to allow companies to include activities under these schemes, or other business as usual reviews of energy efficiency opportunities, to contribute to compliance.

Where an organisation wishes to use such activities to support ESOS compliance, they will need to ensure that these meet the minimum requirements of ESOS. This includes ensuring that a lead assessor reviews records of the activities to confirm that they have been conducted to a satisfactory standard, in line with the requirements of ESOS.

C4.6 How to make an energy audit timetable

It’s for you to determine your energy auditing timetable in each compliance period.

You’re not required to have the same timetable for each compliance period. Audit work undertaken at any point within a four-year compliance period can be used to support compliance provided it is completed by the compliance date.

Audits can be staggered over the whole of a compliance period, provided each audit complies with the rules.

For instance, you might choose to look at either:

• all buildings in one year, all industrial processes in the next, and transport in the third
• undertaking a rolling assessment of different buildings or assets over the course of the compliance period

The flexibility of undertaking a staged audit may be particularly useful if you have a large number of assets and activities in the UK and auditing all the assets or activities at once would either put a significant strain on internal resources or simply not be feasible.

It may be timely to conduct audits before and after:

• significant group acquisitions or disposals
• significant alterations to the layout and internal or external appearance of your buildings
• upgrading of a building’s heating, ventilating, and air conditioning (HVAC) or lighting
• an upgrade to your IT equipment
• a major replacement of process machinery or purchase of additional process equipment
• replacement of a fleet of owned or leased company vehicles
• implementation of a new working procedure for staff

Conducting audits before such changes may inform investment or operational decisions. Conducting them after these changes may help to identify how effective they have been from an energy efficiency perspective and if further changes are necessary.

Alternatively, conducting audits before and after a ‘pilot’ measure has been implemented (within a defined area of your organisation or group) may help to inform your procurement processes in terms of the cost savings and benefits the measure has realised for your organisation.

ESOS requires organisations as a whole to be audited once every four years. Some areas of significant energy consumption could be audited more frequently or less frequently depending on how an organisation manages its audit of different assets. However, on average, each area will need to be audited once in each compliance period.

Example of a participant’s audit timetable

Audit area	Audit year – compliance period 3	Audit year – compliance period 4	Audit frequency in years
Buildings	2020	2026	6
Industrial processes	2021	2025	4
Transport	2022	2024	2
Sign of off and compliance notification	2023	2027	4

In this example, transport energy audits are conducted two years apart and the building energy audits are conducted six years apart.

However, the organisation as a whole is audited once every four years, with sign off of the overall compliance by directors and the lead assessor and compliance notification to the scheme administrator for the third and fourth compliance periods in 2023 and 2027, respectively.

You may choose to plan an audit timeline like this, staging audits before and after the implementation of an energy saving measure to best capture the effect of the measure compared with the anticipated impacts.

Planning an audit of transport energy in 2022 before implementing a new transport policy in 2023, and subsequently auditing transport energy again in 2024, may best capture the impact of the new policy and allow you to make amendments as part of continual improvement, as well as meet your ESOS requirements.

C5. How to find energy saving opportunities

C5.1 Examine your data

Look at your energy patterns to identify:

• minimum usage levels (base load)
• maximum usage levels (peak load)
• fluctuations in energy use (for example per unit output)

This can help you to help you identify any areas you can make more efficient.

You should also try to identify potential areas of waste, like unnecessary base load energy use.

C5.2 Engage with your energy users

You should find out how employee behaviour or processes affect energy use in your organisation.

Talk to energy consumers (stakeholders) across your organisation about where they think savings could be made.

You should think about whether it’s better to do this before, or after any analysis of energy data or physical auditing work.

You could also engage with stakeholders by setting up a system of more structured energy governance.

For example, you could set up an energy management committee to oversee energy measurement and performance reporting.

Feedback the results of any subsequent energy analysis or physical auditing work to stakeholders to obtain their views on:

• the practicality of any energy saving measures identified
• the magnitude of the estimated energy and cost savings highlighted

Engaging stakeholders and listening to feedback will help you to gain support to implement any new measures across your organisation, and maximise the benefits.

C5.3 Examples of common energy saving opportunities

As part of carrying out or reviewing and approving your energy audit, your lead assessor may present you with recommendations on the most cost-effective and applicable energy saving opportunities specific to the organisation, sector, site or activity.

The list below presents some common examples of energy saving opportunities that you may find when conducting your energy audit.

Buildings:

• heating – turn heating down, replace inefficient boilers, install de-stratification fans (fans used in commercial and industrial buildings with high ceilings), shorten hours of operation
• ventilation – specify higher efficiency motors, consider variable speed fans, review time settings and turn off when not in use
• air-conditioning – review temperature controls, consider variable speed drives, free cooling (using external air as a source of cooling)
• lighting – install occupancy sensors, install daylight sensors, review and improve the maintenance plan (more regular maintenance), replace inefficient incandescent bulbs with high efficiency LED lighting or energy saving fluorescent lighting (for example, T5 lighting)
• building fabric – install cavity wall and roof insulation, install high efficiency windows and glazing, draught proofing
• building control – install a computer-based building management system, ensure control systems are set correctly for different weather conditions and occupancy levels, install variable speed drives

Industrial processes:

• refrigeration – reduce the heat loads on systems through reduced air infiltration, free cooling, raise process temperatures, improve control of auxiliary equipment (pumps or fans), install better temperature control, keep doors closed, do not overfill units, ensure lights are off inside units when not in use, clean condensers regularly
• motors and drives – install high efficiency motors, install variable speed drives, implement automatic switch off controls and procedures, install time switches, interlocks or sensors, monitor motor output to identify energy wastage

Transport:

• fuel consumption – monitor fuel consumption, monitor driver fuel performance, conduct fuel efficiency driver training, invest in telematics systems that can identify areas for improvement
• driver fuel performance – can be enhanced by switching off the engine when safe to do so, minimising idling, shifting to higher gears earlier, accelerating and braking gently and smoothly, avoiding excessive speeds, use of cruise controls and closing windows at higher speeds. (Could be supported by linking to driver incentives.)
• routing and scheduling – review logistics routes, reduce empty running, maximise loads
• maintenance and vehicle improvements – tyre management, implement fleet renewal programme, aerodynamic improvements, improved maintenance schedules

These apply to both grey fleet (employee owned vehicles used for business purposes) as well as normal fleet.

Employees:

• awareness campaigns – employee engagement, communications on energy efficiency, targeted incentives

Further information and guidance on energy efficiency saving opportunities in buildings, industrial processes and transport, and through employee engagement is available from a range of sources including:

• Carbon Trust guides
• Logistics UK’s webpage on its Logistics Emissions Reduction Scheme

C6. Measuring the benefits of energy saving opportunities

C6.1 Using a life-cycle cost analysis (LCCA) or simple payback period (SPP)

You should usually assess the costs and benefits from energy saving measures you identify using a LCCA.

For some organisations, it might not be practical to undertake an LCCA for all identified energy saving measures.

In this case, you can use SPP calculations.

These two methods are common ways that accountants assess financial investments.

For more costly measures and measures that might be more complicated to implement, an LCCA may be necessary to make a sound decision. LCCAs are financial decision making methods that consider all costs and benefits over the lifetime of the project.

C6.2 Advantages and disadvantages of LCCAs

Advantages:

• helps you compare measures like-for-like, financially even if they have different timings and magnitudes of costs and savings
• provides you with a more complete financial picture by considering all costs and benefits over the lifetime of the measure
• enables you to compare different combinations of measures and choose the one that will maximise your savings and financial return
• allows you to present the financial benefits of your proposal in terms used by your directors or chief financial officer – for example, net present value (NPV), internal rate of return (IRR), and cash flows
• reduces your investment risk by projecting a more complete picture of the future

Disadvantages:

• is a more complex and time-consuming methodology to apply
• getting accurate input data (costs, timeframes) can be more challenging

It may be more appropriate to apply an LCCA where the energy saving measure identified has, for example:

• a long asset life
• a high upfront capital cost
• an initial downtime period (that is, a process has to be shutdown to implement the measure)
• additional quantifiable benefits other than reduced energy consumption
• associated maintenance costs
• a usage profile of the process or equipment that is likely to change (for example, increased usage of a new production line)

LCCAs are a way to consider if an investment will be economical over its entire life by predicting how much it will ultimately cost. LCCAs are particularly useful when implementing an identified energy saving measure that involves significant capital investment.

The ultimate aim is to calculate the NPV. An acceptable NPV will be specific to your organisation.

C6.3 Example LCCA

In this illustration below of an LCCA, a company operates a boiler that is 10 years into a nominal 20-year life but which is inefficient compared with modern standards.

In scenario 1, the company continues with the current boiler for a further 20 years, incurring significantly increased maintenance costs to keep it operational over that period.

In scenario 2, the company installs a new more efficient boiler with a 20-year life and with lower fuel and energy tax costs and lower maintenance costs.

The new boiler would be installed in year 0 during which time the current boiler would operate. For simplicity, no operational or maintenance costs for the current boiler are assumed in year 0 as these would be the same in both scenarios. Again, for simplicity no consideration is given to decisions or resulting cash flows after year 20.

The illustration attributes residual value as if the unused equipment were sold. Thus in scenario 2 there is residual value from sale of the current boiler at the end of year 0 and sale of the new boiler at the end of year 20. The current boiler is assumed to have no value at the end of year 20.

Costs are assumed to be incurred at the end of each year. The discount rate is a typical commercial rate of 6%, although in practice the range of discount rates employed by companies varies widely.

Indirect impacts, such as wider societal impacts, are excluded from the assessment.

This analysis shows that, in this scenario, the NPV for installation of the new boiler is lower than that for retention of the old boiler. In other words, although it initially costs more money to install the new boiler, when all the costs are considered over the full life cycle this option will actually save money.

Example LCCA scenario 1: continue with current 200 kW boiler

	Maintenance cost	Fuel cost	Energy tax	Total
Year 0				£0
Year 1	£3,000	£20,215	£1,348	£24,563
Year 2	£3,000	£20,215	£1,348	£24,563
Year 3	£3,000	£20,215	£1,348	£24,563
Year 4	£3,000	£20,215	£1,348	£24,563
Year 5	£3,000	£20,215	£1,348	£24,563
Year 6	£3,000	£20,215	£1,348	£24,563
Year 7	£3,000	£20,215	£1,348	£24,563
Year 8	£3,000	£20,215	£1,348	£24,563
Year 9	£3,000	£20,215	£1,348	£24,563
Year 10	£3,000	£20,215	£1,348	£24,563
Year 11	£3,150	£20,215	£1,348	£24,713
Year 12	£3,308	£20,215	£1,348	£24,871
Year 13	£3,473	£20,215	£1,348	£25,036
Year 14	£3,647	£20,215	£1,348	£25,210
Year 15	£3,829	£20,215	£1,348	£25,392
Year 16	£4,020	£20,215	£1,348	£25,583
Year 17	£4,221	£20,215	£1,348	£25,784
Year 18	£4,432	£20,215	£1,348	£25,995
Year 19	£4,654	£20,215	£1,348	£26,217
Year 20	£4,887	£20,215	£1,348	£26,450

Example LCCA scenario 2: invest in new 200 kW boiler

	Capital cost	Installation cost	Maintenance cost	Fuel cost	Energy tax	Residual value to take off	Total
Year 0	£18,000	£4,000				£4,000	£18,000
Year 1			£2,000	£16,774	£1,118		£19,892
Year 2			£2,000	£16,774	£1,118		£19,892
Year 3			£2,000	£16,774	£1,118		£19,892
Year 4			£2,000	£16,774	£1,118		£19,892
Year 5			£2,000	£16,774	£1,118		£19,892
Year 6			£2,000	£16,774	£1,118		£19,892
Year 7			£2,000	£16,774	£1,118		£19,892
Year 8			£2,000	£16,774	£1,118		£19,892
Year 9			£2,000	£16,774	£1,118		£19,892
Year 10			£2,000	£16,774	£1,118		£19,892
Year 11			£2,000	£16,774	£1,118		£19,892
Year 12			£2,000	£16,774	£1,118		£19,892
Year 13			£2,000	£16,774	£1,118		£19,892
Year 14			£2,000	£16,774	£1,118		£19,892
Year 15			£2,000	£16,774	£1,118		£19,892
Year 16			£2,000	£16,774	£1,118		£19,892
Year 17			£2,000	£16,774	£1,118		£19,892
Year 18			£2,000	£16,774	£1,118		£19,892
Year 19			£2,000	£16,774	£1,118		£19,892
Year 20			£2,000	£16,774	£1,118	£500	£19,392

Net present value

• discount rate: 6%
• current boiler: £285,314
• new boiler: £246,013
• net discounted benefit of new boiler versus current boiler: £39,301

Assumptions behind continuing with current 200 kW boiler:

• maintenance cost: £15 per kW boiler in years 1 to 10, increasing by 5% year on year thereafter
• fuel cost: 78% boiler efficiency, 30% utilisation, fuel charged at 3p/kWh
• energy tax (CCL): 78% boiler efficiency, 30% utilisation, tax charged at 0.2p/kWh
• no residual value – costs of decommissioning equal scrap value of components

Assumptions behind investing in a new 200 kW boiler:

• capital cost: 200 kW at £90/kW
• maintenance cost: £10 per kW boiler
• fuel cost: 94% boiler efficiency, 30% utilisation, fuel charged at 3p/kWh
• energy tax (CCL): 94% boiler efficiency, 30% utilisation, tax charged at 0.2p/kWh
• residual value of old boiler realised at start of replacement scenario is £4,000, residual value of new boiler after 20 years’ life is £500

C6.4 Advantages and disadvantages of SPPs

For relatively inexpensive, simpler measures, calculating the SPP can be enough to make a sound decision on investment. SPP is a method for determining how long it will take for the cumulative energy savings and other benefits to equal, or payback, your initial investment. The advantages and disadvantages of SPPs are summarised below.

Advantages:

• a simple way to screen relatively low-cost measures based on payback
• easier to communicate to a non-technical audience

Disadvantages:

• cannot compare complex measures where costs and savings vary in magnitude and timing
• does not account for benefits and costs after equipment has paid for itself, so can disadvantage projects with long useful lives
• does not account for: maintenance costs, interest on any loans and disposal costs, volatility of utility costs
• it can make economically sound improvements to efficiency look economically unviable

It may be more appropriate to apply a SPP where the energy saving measure identified has, for example:

• a low asset life
• no or low associated capital and maintenance costs

C7. Implementing energy efficiency opportunities

ESOS is intended to provide high quality and targeted advice to large enterprises on cost-effective energy efficiency opportunities, which will ultimately lead to financial savings.

If you invest more time and effort into your ESOS energy audit, you are more likely to identify ways that you can save money through reducing energy consumption.

C7.1 Board level engagement

Large investment projects may require authorisation from your board of directors. In addition, your ESOS assessment will need to be signed off by at least one director.

Engaging with the board at the most appropriate time and presenting the correct data will be essential in ensuring projects are authorised.

To enable this, it is important that your cost-appraisal methodology can stand up to financial scrutiny, is consistent and not biased.

ESOS audits will identify cost-effective recommendations, including the payback period for proposed measures.

Your board level director, or equivalent senior manager, will be responsible for reviewing these findings as part of the ESOS compliance process.

For organisations that do not already do so as a matter of routine, this provides an important opportunity to engage with board level managers on energy expenditure and potential savings.

Senior management buy-in is crucial to establishing a successful energy use reduction programme.

You may wish to propose that your board discusses the findings of the audit to ensure that all the directors are aware of the expenditure on energy and the potential savings that could be made.

C7.2 Presenting findings and recommendations effectively

ESOS assessments will have a greater impact if the findings are presented in an accessible manner for directors or your board and others across your organisation.

To engage the board in particular when presenting recommendations, it will be important to make clear:

• the financial cost of energy to the organisation
• the financial benefits and payback periods from investing in recommended measures to improve energy efficiency

In 2022 the government commissioned the Behavioural Insights Team (BIT) to do some research into presenting information in ESOS reports. The resulting template is provided in Appendix A and more information can be found in the Behavioural Insights Team report, available on the BIT website.

C7.3 Overcoming potential barriers to implementation

In addition to the need to secure financing for investment in energy efficiency opportunities, a range of potential barriers to the implementation of recommendations can exist within organisations. Here are some examples.

Split financial incentives

In larger organisations, the team responsible for paying utility bills may not be responsible for selecting and replacing plant or other equipment. It is helpful to ensure that investment decisions and equipment replacement or maintenance decisions consider the full cost to the organisation. One option that a number of organisations are increasingly adopting is ensuring that energy budgets are delegated appropriately.

Undervaluing energy efficiency opportunities

It may be helpful to present financial savings that can arise from energy efficiency in terms familiar to the board – such as equivalents in increased turnover. Your energy audits should also ensure that all the potential costs and benefits of recommendations are captured (for example, reduced tax liabilities, reduced waste, greater energy security and reduced exposure to future price shifts).

Lack of access to trusted information

ESOS is intended to overcome this barrier by ensuring that audits are undertaken or approved by a suitably qualified lead assessor. To get the best for your organisation, you’ll need to ensure that the lead assessor has the right technical skills for your sector.

C7.4 Government support for implementing energy saving opportunities

Although implementing energy saving measures will be case and organisation specific, many sources of information and financial support are available to organisations looking to implement such measures.

Sources of financial support for implementing audit recommendations

This list outlines some sources of possible government financial support to help cover the costs of implementing ESOS energy audit recommendations.

Quality Assurance for Combined Heat and Power (CHPQA)

CHPQA certification allows combined heat and power (CHP) operators to claim

Climate Change Levy exemption on fuel inputs to and power outputs from their CHP schemes.

CHPQA website

Office for Zero Emission Vehicles, plug-in car or van grant

You can get a grant towards the cost of each new electric (plug-in) car or van you buy provided it meets certain conditions.

Plug-in car and van grants

Fleet reviews

The Energy Saving Trust (EST) provides free transport audits, supported by the Department for Transport for certain company vehicle fleets.

EST’s transport advice

C7.5 Energy performance contracting

Energy performance contracting is a way for organisations to:

• reduce the cost of investing in energy efficiency measures
• mitigate the risk that can arise from uncertainty about the benefits that will be realised - energy performance contracts are typically delivered by energy service companies (ESCOs)

An ESCO typically conducts an energy audit for a client. They then identify and implement energy efficiency opportunities and guarantees that these will be self-funding through the energy savings generated. In the event that the savings are not realised, the ESCO generally makes up the difference. The ESCO will realise any energy savings for the duration of the contract, with the client receiving any benefits once the contract ends.

C8. Recording energy usage in freight transport

For participants operating commercial vehicle fleets (for example, heavy goods vehicles and vans), fuel data should be captured and collated to establish the amount of energy consumed.

As a freight transportation organisation you may operate a fleet of vehicles and trailers ranging in size and consuming different input fuels. As the energy use profiles of these vehicles will vary significantly, it is valuable to have detailed information to allow you to categorise your fleet, including the vehicle numbers in each category.

It may also be useful to monitor the number of trailers in use and to categorise these as applicable. For example, the categories could be:

• single-decked trailers up to 4.3m
• single-decked trailers over 4.3m
• multi-decked trailers (all heights)

You may also wish to consider monitoring your fleet’s fuel use using telematics systems. Fleet telematics systems use global positioning system (GPS) transmitters in each vehicle to collate information about a vehicle’s position at any given time. The collated information is often then presented to the user using software installed onto a computer (for example, at your head office). Telematics systems can provide real-time data on the fuel consumption and routing or scheduling of your fleet, helping to identify fuel saving opportunities linked to better routing or scheduling, or improved driver fuel efficiency performance.

Real-time, actual data may be more useful in identifying fuel saving opportunities.

Other considerations in relation to identifying and implementing energy saving opportunities in freight transport are:

• structure of your distribution network:
  • routing and scheduling planning
  • vehicle records and maintenance schedules
  • criteria for fleet renewal
• data collation, flow and checking:
  • what system is in place for recording total fuel quantity purchased for the fleet?
  • how do you ensure that data from each depot is collected?
  • what checks are in place to ensure the accuracy of the data?

Businesses which have undertaken a Green Fleet review, or which are part of another transport focussed energy management scheme, such as the Freight Transport Association’s Logistics Carbon Reduction Scheme will be able to use those activities to support ESOS compliance, where they are undertaken in a way which meets the minimum requirements of an ESOS energy audit.

C9. Converting expensed mileage into energy usage

When calculating total energy consumption from transport activities, you may estimate energy consumption from other verifiable data (for example expenditure) where you do not have actual usage data (for example litres).

For instance, you could use the number of expensed miles multiplied by an average fuel consumption factor to estimate the usage.

Expensed mileage can be converted into energy use by applying standard conversion factors, such as those included in the UK government conversion factors for company reporting.

Below is an example of calculating energy use in kilowatt hours (kWh) from an expensed mileage figure, using some reasonable and permissible assumptions.

Company X needs to determine the energy use associated with employee transport in company cars.

Available data: The only data that Company X has is a total mileage figure of 4,500,000 miles.

Company X also knows that all company cars are diesel fuelled.

Step 1: Obtain conversion factors

Refer to a reputable source of conversion factors such as the latest UK government conversion factors for company reporting.

Company X finds the following factors for its company cars.

Company X does not keep centralised records of the size or engine capacity of its company cars so it assumes an ‘average car’ to obtain an emission conversion factor.

Emission conversion factors for different types of cars, on the ‘Passenger vehicles’ sheet show the conversion factor is 0.298469 kg CO₂e per mile for an average diesel car.

Emission conversion factors for diesel on the ‘fuels’ sheet show the conversion factor is 0.251355kg CO₂e kWh on a gross calorific value basis.

Company X is determining its total energy consumption on a gross calorific value basis. Note – the company could have chosen to measure total energy consumption using a different unit, including net calorific value, if it so wished.

Step 2: Calculate energy consumption in kWh

Company X converts the mileage into an emissions figure using an activity-based (mileage) emission conversion factor:

4,500,000 miles × 0.298469 kg CO₂e per mile = 1,343,110 kg CO₂e

Then converts the emissions into energy (in kWh) using a fuel-property emission conversion factor:

1,343,110 kg CO₂e ÷ 0.251355 kg CO₂e per kWh = 5,343,478kWh

Company X has estimated its energy use from expensed miles using authoritative conversion factors where information on actual fuel consumption was not available.

C10. Links between ESOS and other climate change policies

Your organisation or group might be part of other energy efficiency schemes, which may mean that you can save time and effort by using some of the information gathered under these schemes for an ESOS assessment.

Other UK climate change policies also require organisations to measure and manage energy consumption accurately. These include Climate Change Agreements (CCA), the UK Emissions Trading Scheme (UK ETS) and mandatory company reporting, including Streamlined Energy and Carbon Reporting (SECR) and mandatory Taskforce for Climate-related Financial Disclosures. However, the eligibility requirements and scope of energy and emission reporting vary across these mechanisms. ESOS is different in placing a greater emphasis on the identification of energy saving opportunities.

The requirements of ESOS have been designed to align, as far as is possible, with those of other schemes. For example, if you are a participant in other schemes, then you will already be gathering energy data and you are encouraged to draw on this to comply with ESOS. This will avoid the duplication of compliance efforts and reduce your administrative costs.

To assist with this, ESOS allows participants flexibility in when they set their reference period, the window in which they measure their energy use.

The following information describes how you can use data reporting under existing systems to support your ESOS compliance.

CCA

CCAs are voluntary agreements that provide discounts on the Climate Change Levy (CCL) to a number of sectors. The scheme is primarily aimed at energy-intensive sectors, requiring participants to meet energy reduction targets and report their energy consumption against targets set for a reporting period.

If you have a CCA then you can use the CCA milestone data as a part of the ESOS assessment. Furthermore, to meet your targets, you may have undertaken energy audits as part of your participation in the CCA scheme. The results and recommendations of such audits could feed into ESOS. It may also count as an ESOS compliant energy audit, provided it was conducted, verified or reviewed by a qualified lead assessor and meets the minimum standards set by ESOS.

The CCA scheme requires reporting on the combustion of any fuel and consumption of electricity within an eligible industrial process at a facility.

The CCA scheme operates on a facility basis. So, in complying with the requirements of ESOS, you will need to extend your data management processes to cover any additional on-site energy use and sites that are not part of the CCA target unit. (A CCA ‘target unit’ is a facility, or group of facilities, subject to a CCA scheme energy reduction target.)

UK Emissions Trading Scheme (ETS)

The ETS requires the measurement and reporting of direct emissions from eligible installations on an annual basis with a calendar year monitoring, reporting and verification cycle. ESOS will allow participants to align their data measurement period with that of the ETS. Therefore, data reported under ETS could be used. For ESOS assessments you would need to consider data collection processes for other sites and activities not included in ETS and for the inclusion of electricity.

Environmental reporting

The geographical scope of environmental reporting, including mandatory greenhouse gas (GHG) emission reporting and streamlined energy and carbon reporting (see entry below), is much wider than ESOS and it requires energy and emissions to be accounted for internationally. However, mandatory GHG reporting is likely to include a lot of the energy data required for an ESOS assessment, including energy usage in buildings, industrial processes and transport and progress with ESOS audit recommendations could also form part of the required narrative on energy efficiency action taken in the previous 12-month period.

Industrial Emissions Directive and Environmental Permitting Regulations

The Industrial Emissions Directive (IED) required all prescribed installations to apply best available techniques for energy efficiency and to be operated in an energy efficient manner. Permits issued under the Environmental Permitting Regulations (EPR) deliver these IED requirements and also include a requirement to provide information on energy consumed or generated by the activities falling within the permit. The UK is committed to maintaining environmental standards and continues to apply the existing successful model of integrated pollution control. The EU Withdrawal Act 2018 maintains established environmental principles and ensures that existing EU environmental law will continue to have effect in UK law, including the IED and BAT Conclusion Implementing Decision made under it.

The UK government has introduced secondary legislation under the EU Withdrawal Act 2018, and further legislation in the devolved administrations where required, to ensure the domestic legislation that implements the IED (including the Transitional National Plan) can continue to operate.

Information collated as part of compliance with an EPR permit may, in part, be useful in the development of energy data for an ESOS reference period. Horizontal and sector-specific EPR guidance from UK regulators outlines how to comply with the energy efficiency requirements in the environmental permits. This guidance outlines the specific sources of energy consumption and generation required to be covered in the permit.

Streamlined Energy and Carbon Reporting

From April 2019, unquoted large companies and large limited liability partnerships will be required to disclose as a minimum their UK gas, electricity and transport energy and associated scope 1 and scope 2 emissions, an intensity metric and action taken on energy efficiency in their annual reports. Information collected, and systems put in place, for ESOS can provide a significant part of the required information

Voluntary schemes

A number of ESOS participants will already participate in voluntary mechanisms such as the Carbon Trust Standard, the greenhouse gas protocol and CDP (formerly the Carbon Disclosure Project). As such, they are likely to already have gathered a lot of the energy data required, and may have the advantage of data having already been audited.