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ESOS Phase 4  Consultlancy

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  • We include helping you collate data for your building, transport, and process energy use, analysing the data and reviewing your portfolio.

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Who needs to comply with ESOS Phase 4?

Companies will need to comply with ESOS Phase 4 if they are:

  • Registered or based in the UK or a UK establishment
  • Employ 250 people or more or
  • Have an annual turnover greater than £44m, and an annual balance sheet greater than £38m

Starting with Phase 4, the Government is changing the ESOS balance sheet and turnover thresholds to align with the Streamlined Energy and Carbon Reporting (SECR), bringing more organisations in scope for reporting on their ESOS. 

Organisations part of a corporate group which contains at least one “large undertaking” continue to be in scope.

  • Exploration of Net Zero Commitments and Targets: Organisations may be required to thoroughly review and assess their Net Zero commitments, ensuring that clear, measurable targets are in place. This includes evaluating current carbon reduction strategies and identifying the necessary steps and actions needed to achieve these targets within specific timeframes. This process will likely involve regular monitoring and reassessment to ensure progress towards the Net Zero goal.

  • Identification of Risks in Transitioning to Net Zero: As part of their Net Zero journey, organisations will need to conduct risk assessments to identify potential challenges associated with transitioning to lower emissions. These could include financial, operational, and regulatory risks, as well as risks related to the adoption of new technologies and changes in market dynamics. Understanding these risks will enable organisations to plan mitigation strategies and ensure a smoother transition.

  • Support for Creating and Enhancing Carbon Reduction Plans (CRP): Organisations may receive detailed guidance on how to develop a comprehensive Carbon Reduction Plan (CRP) or how to update existing strategies. This support will be aimed at aligning organisational efforts with industry best practices and regulatory requirements, providing clarity on setting realistic carbon reduction targets and identifying key performance indicators to track progress.

  • Increased Clarity on Site Audit Sampling Requirements: Businesses will likely face stricter requirements regarding energy audits, with a focus on improving the accuracy and comprehensiveness of data. Organisations may be required to audit a minimum number of buildings or facilities and ensure that a certain percentage of their total energy consumption is covered in these audits. This will enhance the reliability of the data used for emissions reporting and strategic planning.

  • Mandatory Compliance with ISO 50002 or EN 16247 Auditing Standards: It is anticipated that energy audits conducted as part of the ESOS scheme will need to comply with internationally recognised standards such as ISO 50002 or EN 16247. These standards ensure that the auditing process is rigorous and follows best practices, thus improving the overall quality and credibility of the reports submitted under the scheme.

  • Removal of Display Energy Certificates (DEC) and Green Deal Assessments as Compliance Routes: Phase 4 is expected to eliminate the use of Display Energy Certificates (DEC) and Green Deal Assessments as valid routes to compliance with ESOS. Organisations will need to shift towards more comprehensive and detailed reporting methods that provide a clearer picture of their energy consumption and efficiency.

  • Development of an ESOS Web Portal for Annual Progress Reporting: For organisations not covered by SECR, a new web-based reporting platform may be introduced, allowing them to report on their annual progress towards carbon reduction targets. This portal could include a requirement for businesses to explain any failure to meet specified targets, increasing accountability and transparency.

  • Public Disclosure of Energy and Carbon Reduction Data: Following the example set by SECR, Phase 4 may require organisations to publicly disclose key data, such as energy consumption figures, carbon reduction targets, and progress on Net Zero initiatives. This increased transparency will help stakeholders, including customers and investors, assess a company’s sustainability efforts.

  • Improved Collection and Monitoring of Energy Data and Training: ESOS reports may require businesses to enhance their data collection and monitoring capabilities, ensuring that energy use is tracked more accurately. Additionally, recommendations for improved energy controls and staff training may be incorporated into audit findings, fostering better energy management practices throughout the organisation.

  • Consideration of Future Electricity Demand in Net Zero Planning: As part of the Net Zero assessment, businesses will likely need to evaluate their future electricity demand, particularly in the context of their impact on the overall energy system. This will encourage organisations to adopt strategies that reduce strain on the grid, such as increasing energy efficiency or investing in renewable energy sources.

  • Public Access to ESOS Submission Data: Similar to Phase 3, the data submitted under Phase 4 will likely be made publicly available. This increased transparency is intended to promote accountability and allow stakeholders to evaluate the energy performance and sustainability initiatives of organisations.

  • Requirement for More Comprehensive Data Submission: Phase 4 is expected to impose more rigorous data submission requirements, meaning that businesses will need to provide greater detail in their reports compared to previous phases. This will likely include more granular information on energy use, carbon emissions, and reduction strategies, ensuring that the reports are more insightful and actionable.

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What are the ESOS Phase 4 Changes?

To align with the UK Government’s goal of achieving Net Zero by 2050, Phase 4 of the Energy Savings Opportunity Scheme (ESOS) will place greater emphasis on how organisations are addressing energy efficiency and their strategies for becoming Net Zero. Key changes to Phase 4 may include increased scrutiny on organisations’ Net Zero commitments, requiring them to assess their current targets and outline the specific actions needed to meet these goals. Additionally, businesses will be expected to identify potential risks associated with transitioning to Net Zero and map out their emission reduction pathways.

Phase 4 may also provide guidance on creating or enhancing Carbon Reduction Plans (CRPs), helping businesses align their efforts with existing or future carbon reduction strategies. Organisations might face stricter requirements on site audit sampling, with a likely introduction of a minimum threshold for both the number of buildings audited and the percentage of total energy consumption sampled. Reports under Phase 4 may also need to adhere to ISO 50002 or EN 16247 auditing standards, which were previously only recommended in Phase 3.

Several other changes could be introduced as well. Display Energy Certificates (DEC) and Green Deal Assessments may no longer be accepted as routes to compliance. For organisations not within the scope of SECR, a new reporting function on the ESOS web portal might be introduced, allowing for annual progress updates. Should targets not be met, companies may be required to provide an explanation. Following SECR’s lead, Phase 4 could make it mandatory for some data, such as energy or carbon reduction targets and Net Zero assessments, to be publicly disclosed. Additionally, ESOS reports might require improved methods for monitoring energy data, controlling energy use, and providing staff training. Finally, businesses may need to consider their future electricity demand within the context of the overall energy system impact as part of their Net Zero assessment. As with Phase 3, data from ESOS submissions will continue to be publicly available, but Phase 4 is expected to require even more detailed reporting.

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ESOS – Avoiding the Penalties!

If a qualifying organisation doesn’t meet the deadline, the management team can expect to receive a basic fine of £50,000, plus an additional fine of £800 per day up to a maximum of 80 days!

In June 2023, the Environment Agency (EA) announced its intent to strengthen the requirements for ESOS Phase 3 for large businesses, aiming to improve the quality of audits and deliver more meaningful results. The objective is to encourage businesses to implement energy-saving measures based on more rigorous assessments. In response to stakeholder pressure, a new ESOS Phase 3 deadline was set for 5 June 2024, though delays in the online portal extended this deadline further to 6 August 2024. Unlike previous phases where no further action was required after submission, Phase 3 introduces an Action Plan, with work to be completed by 5 March 2025. While the advised deadline remains 5 December 2024, organisations are encouraged to submit earlier where possible.
 

Action Plan Requirements

An Action Plan must be developed covering the period from 6 December 2023 to 5 December 2027. This plan accounts for any energy efficiency improvements already made and provides a strategic outline for future actions. Key elements include a commitment to specific energy efficiency measures, timelines for implementation, estimated energy reductions, and the assumptions behind these estimates. The plan should also include a breakdown of actions by organisational function and must be signed off by a director. Only businesses in scope as of the ESOS Phase 3 qualification date (31 December 2022) are required to complete this plan, with the submission deadline being 5 December 2024. However, the EA has granted flexibility, allowing submission up until 5 March 2025. The Action Plan can also serve a multipurpose role, incorporating additional information related to the company’s broader energy reduction or decarbonisation efforts, such as associated carbon reductions. Annual updates on the plan’s progress are required, ensuring continued alignment with energy-saving goals.

Annual Progress Updates

Following the submission of the Action Plan, organisations are required to submit annual progress updates, tracking the implementation of the proposed energy-saving measures. These updates should outline whether the planned actions have been carried out, provide explanations for any deviations from the original plan, and detail how the organisation may have exceeded its targets. The annual review serves to ensure that companies remain accountable and on track towards achieving their energy efficiency and decarbonisation objectives.

Phase 4 – Even More Effort Required!

While it remains uncertain how compliance may evolve beyond Phase 3, it is clear that Phase 4 will build upon the current enhancements introduced. To ensure a seamless transition between phases, businesses will be required to submit annual updates on their energy efficiency implementation progress. These updates will play a key role in demonstrating ongoing efforts to improve energy performance and meet the government’s long-term sustainability objectives. The Action Plan for Phase 4 is expected to be submitted in 2028, but unlike previous phases, it will not coincide with the Phase 4 submission itself, allowing businesses time to refine and update their strategies based on Phase 4 requirements.

There have been significant changes to ESOS legislation that will impact organisations differently, depending on their compliance pathways and operational practices. These changes underscore the importance of businesses understanding the evolving compliance framework as they prepare for Phase 4. By staying informed of these regulatory shifts, companies can better position themselves to maximise the benefits of compliance, ensuring that energy efficiency measures not only meet legal obligations but also contribute to improved sustainability, reduced costs, and enhanced competitiveness in an increasingly eco-conscious market.

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