Guidance

Energy Security Bill factsheet: Powers to strengthen the energy savings opportunity scheme

Updated 1 September 2023

The benefits to participating businesses of the changes to Energy Savings Opportunity Scheme (ESOS) are estimated at savings of £1.12 billion over 2023-2037 through reduced energy bills. This is in addition to the net benefit of £1.6bn from the existing scheme. The savings will help support businesses to keep the costs of their products and services affordable for consumers, and build on the savings businesses are already making under the Scheme.

Why are we legislating?

ESOS is an energy assessment scheme which requires large businesses in the UK to carry out an audit of the energy used by their buildings, industrial processes and transport at least every 4 years. The audit is designed to provide tailored and cost-effective recommendations on energy efficiency measures to allow participating businesses to save energy and achieve carbon and cost savings.

ESOS has broadly to date fulfilled its original objectives to provide large organisations with information about, and stimulate the take up of, cost-effective energy efficiency measures. It has resulted in estimated annual efficiency energy savings of 1.65TWh from buildings, 1.51TWh savings for industrial processes, and 0.52TWh of fuel efficiency savings across the ESOS population, together with associated energy bill and emissions savings. The total energy saving equates to more than the electricity generated annually from landfill gas in the UK but there is still scope to go further.

Following an evaluation of the scheme (2017-2019), a Post-Implementation Review of ESOS (2020) identified opportunities to increase the uptake and implementation of energy efficiency measures by businesses. These opportunities included mandating implementation of ESOS recommendations and requiring public disclosure of ESOS recommendations and/or action, and were in alignment with recommendations made in a July 2019 report from the Business, Energy and Industrial Strategy Select Committee. In addition to the Post-Implementation Review findings, there is recognition that ESOS needs to reflect the changes to the policy landscape since it was first introduced, such as net zero targets and new policy initiatives.

In the summer of 2021, in line with a commitment in the 2020 Energy White Paper the government conducted a consultation on strengthening ESOS which built on the findings of the Post-Implementation Review. There was widespread support across stakeholders for the core proposals on strengthening the scheme. A government Response to the consultation, published on 28 July 2022, set out a summary of feedback received, and decisions made, following careful consideration of the significant number of responses.

On 19 July 2022, the government announced its intention to include powers to make the necessary changes to ESOS in the Energy Bill via a government Amendment. The changes to ESOS will help to improve the quality of energy audits by large businesses across the UK, reflect the UK’s net zero target, and encourage business to take action on their ESOS recommendations to increase energy and carbon savings.

The estimated total energy saving from the changes over the appraisal period 2023 – 2037 is 28TWh, which is equivalent to more than the total net electricity imported by the UK in 2021 (25TWh). This equates to an estimated £1.12 billion in energy bill savings to businesses and will support our energy security strategy by helping reduce the UK’s exposure to price fluctuations in international fossil fuel markets.

How the Bill will achieve this

The Bill will provide a power to replace the repealed regulation-making power in the European Communities Act 1972 under which the UK established ESOS in 2014. The replacement regulation-making power confers a power to make a scheme imposing requirements on organisations to carry out an assessment of their energy consumption and certain greenhouse gas emissions, including by amending the 2014 ESOS regulations.

The replacement regulation-making power will include the power to make regulations in the following areas, which are those which the Government committed to take forward in the Government Response to the ESOS consultation:

• Strengthen requirements for audits and make them more standardised
• Improve the quality of ESOS audits e.g. through better oversight of assessors
• Add a net zero element to the audits (which is proposed to be voluntary in the 2023 compliance Phase 3)
• Require public disclosure of high-level recommendations by participants

The replacement power will also include the power to make regulations on two further options, to be considered for potential future implementation:

• Extend the scheme to Medium-Sized Enterprises
• Mandate action to improve energy efficiency.

The power will additionally include the ability for regulations to set out the actions and standards that are required of ESOS assessors and professional bodies, and to specify the information from the ESOS assessment that organisations must provide to the scheme administrator. It will also include the ability to set out penalties that apply to persons that do not comply with requirements imposed under the ESOS regulations, or for making a false or misleading statement in connection with an ESOS scheme.

Frequently asked questions

Will these changes add reporting burdens on businesses?

The Government does not intend to change the core focus of the scheme, which requires participants to commission an energy audit every 4 years, but the requirements around the content of the audit will be strengthened to improve consistency and quality and to include net zero considerations

Business should already be collecting much of this information for the evidence packs they are required to make available to the Scheme Administrator on request; and the increased savings from the additional online reporting are estimated to significantly outweigh any additional costs.

Participants will be required to provide more data to the scheme administrator to improve compliance and enforcement and will be required to set and report against improvement targets or plans to improve accountability, but we do not anticipate that these additional requirements will be burdensome in terms of time or cost.

The net zero elements are also being introduced initially on a voluntary basis and BSI will consult widely on the new standard to give stakeholders the opportunity to input on the balance between costs and benefits.

What will the costs be to business of the changes?

The additional costs for the changes in the current Phase 3 are likely to be quite modest in comparison to the current costs of ESOS audits, estimated at £6000 to £15,000 over 4 years. Businesses should already be collecting much of the information now required to be disclosed.

Initial estimates are that the net zero element in Phase 4 (which begins on 6 December 2023 and has a compliance deadline of 5 December 2027) could add between £600 to £7,500 to the cost of an audit. Many organisations are already collecting significant information on emissions, which would potentially reduce the costs of the net zero elements.

Improving energy efficiency is one of the most cost-effective mechanisms for businesses of all sizes to reduce their emissions, whilst also reducing their energy bills. The addition of a net zero element to the audit will enable businesses to make investment decisions that consider both shorter-term energy efficiency opportunities as well as longer-term decarbonisation needs.

Background

ESOS was introduced UK-wide in 2014, to help overcome a key barrier to energy efficiency, by providing tailored information to businesses on cost-effective energy savings across their buildings, industrial processes and transport. The scheme’s introduction also met requirements for large businesses to have such audits as set out in the EU Energy Efficiency Directive.

A 2019 BEIS Select Committee report made recommendations for changes to ESOS to encourage greater investment by businesses in energy efficiency. The government response committed to publishing the evaluation and Post-Implementation Review of ESOS and confirmed that a consultation would be conducted on proposals for its future reform. The consultation took place in the summer of 2021 and a government Response to the consultation was issued on 28 July 2022. Primary powers are needed to take forward the changes set out in the government Response.

Further information

The following documents are relevant to the measures and can be read at the stated locations:

• Government response: ESOS consultation (28 July 2022)
• Government announcement to introduce a measure on ESOS in the Energy Bill Hansard HL Deb vol 823 col 1887 (19 July 2022)
• Government consultation: Strengthening ESOS (6 July 2021)
• BEIS Committee Twenty-first Report of Session 2017–19, Energy efficiency: building towards net zero (HC 1730) (12 July 2019) and government Response (12 September 2019).
• Independent evaluation and Post Implementation Review of ESOS (February 2020).