How was ESOS for you?

28th April 2016


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Author

Craig Hales

Paul Suff hears from regulators and lead assessors about their experiences of phase one of the energy-efficiency scheme and the lessons learned

There was concern leading up to the first compliance deadline for the energy savings opportunity scheme (ESOS) on 5 December 2015 that some of the estimated 10,000 organisations covered would fail to comply or would not make the most of £3bn savings Decc claimed were possible across the economy.

Despite publicity by the scheme administrator, the Environment Agency, which sent out 40,000 notifications, and ESOS service providers, there was unease that many companies would leave it too late to meet the deadline. By delaying engagement compliance options were reduced and the choice of a lead assessor was limited. There was also concern over the level of competence among auditors. In particular whether there were enough highly skilled assessors to ensure that ESOS audits added value and whether demand for lead assessors in the run-up to the deadline would outstrip supply, leaving some companies unable to comply and face enforcement action or rely on poor quality assessments. So what did happen?

The voice of the regulator

In October 2015, the agency amended its ESOS guidance, in effect extending the deadline for submissions to 29 January (and 30 June for compliance through ISO 50001). By the end of January, nearly 7,000 companies had informed the agency of their compliance or intent to comply. A further 800 had told the regulator that they did not qualify.

Keith Brierley, senior adviser at the agency, told delegates at the UK Green Building Council’s (UKGBC) ESOS showcase event in March that about 1,750 organisations had yet to notify their qualification status (some 250 of these are based in Northern Ireland, Scotland or Wales). He warned that the regulator would be starting action against those in breach, with enforcement notices issued initially and civil penalties used in the most serious cases. He said the agency had started doing compliance audits in January and expected to complete 45 by the end of March.

Speaking to the environmentalist, Jo Scully, the agency’s ESOS project manager, outlines some of the lessons learned by the regulator in the run-up to, and in the aftermath of, the December 2015 deadline. She says 45% of organisations complying had to estimate energy data to be able to work out their consumption. ‘If you don’t measure and review the energy you are using how can you keep it under review?’ she asks.

Scully advises organisations to make measuring their energy a business-as-usual activity. ‘As long as businesses take the time to regularly review this data – rather than waiting until the next ESOS deadline in December 2019 – this will hopefully lead to continuous improvement in energy usage and embed energy management for the long term,’ she says. This should prevent a reoccurrence of December’s last-minute dash to comply. Scully says 55% of those that complied by the deadline notified the agency in the week before. ‘People always leave things to the last minute but, to get the most value from the scheme requirements, we hope next time people willtake a more planned approach.

‘We appreciate that, with this being the first compliance period, it took some time for awareness of the reality of the deadline to sink in. Our aspiration is that ESOS compliance will be undertaken over the four years between deadlines so that businesses can fully benefit from conducting thorough energy audits across their portfolio of assets.’

In terms of some of the challenges faced by those responsible for ESOS compliance, Scully singles out the need to better understand corporate structures. ‘These can be complicated and those responsible for ESOS need to make sure that they understand the extent of their organisations to ensure that they fully comply,’ she says. ‘Talking to company secretaries or lawyers is essential to understanding which businesses and energy consumption need to be covered by ESOS. We have found that alot of organisations missed off companies in their structure because they didn’t realise they were part of their group.’

She also advises ESOS participants to take ownership of their compliance rather than leave it to a third party. ‘Some organisations are fully outsourcing everything to do with ESOS and treating it merely as a compliance requirement,’ she says. ‘We believe that, where the company are more actively engaged in compliance themselves – even if they are using external consultants to help them – they will stand to gain a lot more from the process.’

Data gathering

Many of those working to help organisations comply with ESOS tend to support Scully’s assessment that companies struggle to produce energy data, often relying on estimates. In his presentation at the UKGBC ESOS event, Paul Sutcliffe, operations director at energy management consultancy Sustainable Commercial Solutions, which assisted 27 organisations to comply with ESOS, said a lack of data, due mainly to poor planning, had been fundamental for some clients: ‘Some could not tell us how much energy they used.’

‘Data – or the lack of it – was a big obstacle for companies and consultants alike,’ says Wendy Buckley, director at consultancy Carbon Footprint, which worked on ESOS with more than 70 companies. ‘On the whole we found transport data to be much patchier than for buildings. Incomplete fuel card records and lack of expense mileage data often slowed projects down,’ she says. ‘Data for leased buildings, where the landlord passed on charges for energy use, was also not easy to obtain.’

Buckley says the best data was captured on half-hourly meters and read on proprietorial software packages: ‘This permitted granular analysis and quick identification of energy hotspots.’

Lead ESOS assessors registered with IEMA report similar problems gathering data. Anya Ledwith, director at consultancy ESHCon, who helped retailers, manufacturers, finance companies and an air travel business, describes compiling energy data as challenging. ‘About one-third had a 14001-certified environment management system [EMS],’ she says. ‘Although the energy management information contained in the EMS was not always extensive, they did at least have processes in place to gather the data. But about 40% of clients were starting from scratch and, in some cases, collating all their ESOS data was not easy, particularly for transport. Staff at one organisation do a lot of short-duration business travel and the mileage information needed to be consolidated from 4,000 spreadsheets.’

Part of the problem was that the same departments tended not to be responsible for every piece of information: ‘Facilities managers often deal only with buildings, and some had reasonably good data for energy. But they are not responsible for transport, so you had to get mileage expenses or fuel invoices from HR or the finance department.’

Andrew Marlow, managing director at One Planet Solutions, found that many of those responsible for ESOS, including facilities or environment managers, had difficulty accessing energy data. ‘Traditionally, energy bills tend to go straight to the finance department and the amount is recorded as a cost, with the actual consumption figures filed away in the absence of any drivers to make savings,’ he says. He believes many companies will have gained valuable insight from phase one of ESOS and will in future be in a better position to manage their energy bills and data, and gain significant benefits.

Deadline day

Clare Taylor, who runs her own consultancy business, confirms a last-minute rush for assessors: ‘I think the agency did an effective job raising awareness about the scheme, but some organisations still left it late to get help and engage a lead assessor.’ Ledwith says demand for her ESOS services began in January 2015: ‘There was a steady trickle to start with and demand ramped up from September.’ She took on four more clients during the deadline extension.

Marlow also took on additional clients. He says organisations’ engagement with the scheme and potential energy savings were dictated largely by how close the deadline was. He says: ‘It was very much about compliance for those that started late in the day, whereas those that had planned in advance tended to take the opportunity to extract maximum value from the audits. They were spending money on the assessment so wanted some material savings.’

Niall Enright, director of consultancy SustainSuccess, is critical of how the scheme is structured. ‘The four-year cycle is nonsense. It packs a huge amount of work into a limited period and then goes away,’ he says. ‘That’s no way to build up a quality supply chain or for firms to approach energy efficiency.’ He fears the best ESOS assessors become busy very quickly, diminishing the choice and quality for organisations that are slow to engage one.

Enright worked with Manchester-based property company Peel on its ISO 50001 certification and compliance with ESOS. He recommends spreading the assessment cycle over a longer period, for example by requiring 25% of companies covered by the scheme to comply each year. ‘This would be better for participants and service providers,’ he says.

Energy savings?

The ESOS regulations, which transposed the EU energy efficiency directive, require qualifying companies to audit their energy use every four years. Assessors must identify reasonably practicable and cost-effective ways to improve energy efficiency, but their clients do not need to implement any of the recommendations. This ‘mandatory audit, voluntary implementation’ approach relies on the scale of potential savings to convince firms to take measures to reduce energy.

According to Michael Jampel, deputy director for business energy use at Decc, a medium-size company could save £35,000 a year by investing £7,000 annually in measures identified by the audits. He told delegates at the UKGBC’s ESOS event that payback for most measures was less than two years. He also said further savings could be achieved through better energy management and behavioural measures, which require no capital investment. Overall, Decc estimated that if firms implemented just 6% of the measures identified by the assessments this would save a cumulative £1.9bn between 2015 and 2030. If the uptake was greater the savings could be as high as £3bn.

Marlow says many of his clients were surprised by how much they could save: ‘There was a lot of savings opportunity in transport, from behavioural changes, like fuel-efficient driving courses for staff travelling on a regular basis, to revising company fleet policies to encourage drivers to opt for more efficient or low-carbon vehicles.’ A survey of ESOS clients by Carbon Footprint (panel p28) also highlighted transport as an area where significant savings could be achieved. Buckley says improving lighting efficiency in buildings was the only more commonly identified savings opportunity.

Marlow’s audit of one company achieved a change in attitude towards energy saving at senior level. ‘The [measures] had been proposed in the past but discounted by the board, mainly because there was not enough data to show the potential savings. The detail in the audit provided a much stronger business case,’ he says. Some of his clients were in rented accommodation, which limited the savings potential because investment was the landlord’s responsibility.

Ledwith’s assessments focused on the behavioural and operational changes that could save energy, not just technical measures. The scale of the savings opportunity varied, mainly due to how engaged companies were already on managing their energy. ‘There was a lot of “low-hanging fruit” in many of the companies new to energy management,’ she says. ‘This ranged from changing how people worked or altering the layout of a warehouse to technical solutions, such as more efficient lighting and improving the control of heating, ventilation and air conditioning [HVAC] systems.’

Taylor outlines a similar picture: ‘Often there was disbelief about the level of savings that could be achieved in companies that hadn’t undergone an audit before.’ Many of the potential savings could be secured with very little investment and would quickly payback the outlay.

Ledwith says some facilities managers were surprised by the audit findings or had no idea some of the identified savings were feasible or achievable. ‘Others were more aware of the savings potential but previously did not have influence to drive change. Many are now using the findings to get what they want.’

All three IEMA lead assessors say they advised clients to align energy management and maintenance programmes. ‘Air conditioning systems over a certain size have to have energy efficiency inspections every five years and that is an ideal opportunity to consider what improvements can be made,’ says Taylor.

Looking forward

Scully hopes that more accurate measurement of energy will lead to fewer estimations.‘The better the data the more realistic the projected savings and the more compelling the case to implement the required changes will be.’

Marlow says companies should plan their audits over the four-year ESOS cycle rather than leave it close to the compliance deadline. He also advises regular energy reports to keep senior managers up to date.

‘For phase two,’ says Buckley, ‘I would like to see the agency communicate with company secretaries and directors and the person taking care of the ESOS process – a belt-and-braces approach. The agency should have suitable information from the [phase one] compliance submissions to enable this.’

Taylor’s advice for phase two is for companies to start early and to continue to monitor and focus on energy in the interim: ‘Effective energy management needs to seen as an ongoing process, not something done every four years.’ If a company has a 14001-certified environment management system (EMS), they should view ESOS in the same way. ‘There is three-year re-certification cycle for 14001 and the EMS is maintained during the cycle,’ Taylor says. ‘Firms should adopt the same approach to ESOS audits. ‘It will cost less, be less painful and they will derive more from the assessment.’

The path to compliance

ISO 50001, the international energy management standard (EnMS), is one route to compliance, but most organisations in phase one have opted for the ESOS audit approach.

Anya Ledwith, director at consultancy ESHCon and an IEMA-registered lead assessor, says there was little appetite for 50001 among those she worked with, while several clients were not aware that having a certified EnMS was enough to comply with ESOS. Ledwith, who is also a 50001 lead auditor, says: ‘50001 became less of an option the closer they were to the deadline.’

Another IEMA-registered lead assessor, Andrew Marlow, managing director at One Planet Solutions, says two of his clients are now considering 50001 for future ESOS compliance because the costs and benefits work, but that in phase one most regarded it as too costly or time-consuming.

Clare Taylor, who runs her own consultancy and audited a number of organisations for ESOS as an IEMA lead assessor, had a similar experience. ‘Whether they chose the 50001 or audit route largely depended on the nature of the organisation,’ she says. ‘If they were compliance-driven or had a lot of sites, the energy management standard was seen as too expensive.’

‘When the two routes to compliance were compared, the additional costs of certification and audit for meant that, for most organisations, 50001 was not financially viable,’ says Wendy Buckley, director at consultancy Carbon Footprint.

However, analysis by consultancy SGS of the voluntary questions answered in the notifications of compliance to the Environment Agency found that those organisations taking the 50001 route had stronger senior management buy-in for energy-saving benchmarks and targets: 54% confirmed top-level discussions about the results of the ESOS assessment through the energy management standard compared with 33% that complied through ESOS audits.

SGS also reported that 97% of the organisations complying through 50001 stated they would act on energy-saving measures identified compared with just 11% of those that used a different route.

‘50001 provides a more holistic approach to energy management than ESOS assessments and delivers more benefits than other compliance routes,’ says Terry Coyle, 50001 product manager at SGS. ‘It’s the only compliance route that is embedded with practices that ensures energy performance improvement and the cost savings that go along with it.’

Snapshot of ESOS

Carbon Footprint surveyed a cross-section of businesses it worked with on ESOS. Of the 35 firms polled, 75% found the ESOS process easy. Interestingly, those that found it harder were exclusively companies that had completed most of the work ‘in-house’, relying only on certified ESOS lead assessors to perform the sign-off.

ESOS has been criticised because the legislation does not require qualifying companies to carry out the savings identified by the energy audits. However, 48% of companies said they would probably invest in some of the measures highlighted to improve energy efficiency, while 50% said they would consider doing so. There are three main reasons for this generally positive response:

  • identification of simple energy-saving solutions that had previously gone unnoticed rather than only more visible but higher capital expenditure options;
  • new equipment, such as LED lighting on the buildings side and telematics for transport, is not prohibitively expensive;
  • focus on payback periods that are acceptable to businesses – from six months to two years.

The most popular choice reducing transport energy consumption was telematics systems or, in some cases, better use of telematics data. Updating transport policy to encourage staff to select more fuel-efficient vehicles was also popular. LED lighting upgrades and changing staff behaviour were popular for reducing energy use in buildings as well as upgrading heating systems. Scoring poorly was solar PV, with businesses put off by recent cuts to feed-in tariffs and perceived long payback periods.

Some respondents said access to company directors to view and sign off the report had provided a welcome platform to champion energy needs.

Views on ISO 50001 as a future route to ESOS compliance were mixed: just 12% said they were ‘definitely’ or ‘likely’ to do this; 41% said they would not; and 47% said ‘maybe’. Set-up time, scale of resources needed, certification cost and annual maintenance costs for surveillance visits were key concerns with the energy management system standard. Those attracted to 50001 tended to be in specific sectors, such as construction.


By Wendy Buckley, director at Carbon Footprint.

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