With less than two months to go before the compliance deadline we thought it would be good to give you an update on the latest ESOS news and views. This is particularly timely as the Environment Agency (EA) last week updated their guidance on Enforcement and Sanctions as well as revealing some interesting views about how they see the 1st compliance period panning out.

For a refresher on what ESOS is, see our previous blog: ESOS in 5 minutes

So, what’s the current state of play with ESOS compliance then? Well, the EA reckon on about 10,000 organisations demonstrating compliance based on information from Companies House and the Charity Commission. Of those, they believe 20% currently have to comply with CRC obligations and hence should be pretty familiar with this kind of process; for the rest, they recognise that this is unchartered territory.  This might be part of the reason that to date they have only received little over 300 compliance notices. Now admittedly it is still early days, and businesses are notoriously last minute with this kind of thing, however, it seems that the low turnout so far has raised a few questions within the EA as evidenced by their latest stance.

Grace Period:

Recent feedback from EA representatives has noted that their biggest challenge will be getting smaller organisations to comply, with the lack of ready access to the data they need being cited as the chief concern for said organisations. In light of this the EA have said that they will accept a notice of current circumstances in lieu of a notice of compliance on 5 December. Specifically they state: “For the first compliance period, we would not normally expect to take enforcement action for failing to notify by 5 December 2015, providing the notification is received by 29 January 2016. Organisations that submit a notification after that will be at risk of enforcement action including the possibility of civil penalties. “

This includes an acknowledgement that there is currently a risk of back-loaded demand for ESOS Lead Assessors as a rush of organisations seek to get sign-off on compliance in the run up to 5 December. There are 860 Lead Assessors currently registered across the 15 professional registers (including our own Tom Kordel), given the slow rate of submissions thus far, it could be envisaged that a significant back log of work will build up as we move closer to the deadline.

One other area of leniency that has arisen in the latest guidance relates to ISO 50001 certification. Whilst this has always been offered as a compliance route, it was previously deemed restrictive as the timeframe required to achieve ISO 50001 certification (if not already obtained) was longer than the period of notice given for ESOS. In recognition of this, the EA has now offered an extended period “Where a participant has already committed to achieving ISO 50001 certification for all their energy consumption, and that certification is achieved by 30 June 2016, they will not normally be at risk of enforcement action.” This is all well and good, but telling us now doesn’t really offer any greater opportunity to follow this route unless you had previously committed to going this way as you still need circa 18months to go through the process.

Enforcement Powers:

Whilst the main update last week related to enforcement powers, there isn’t really much new in what has been published. The main details are set out in Section E of the EA’s Enforcement and Sanctions Guidance LIT 5551 (page 65 onwards). The approach aligns with that previously issued and will work in much the same way as CRC, CCA and EU ETS currently do.

At this stage the EA appear to recognise the challenges associated with the relatively short timeframe (<18 months from launch to compliance) compared to the normal 4 year cycle and the novelty for some companies of tracking and report on energy consumption. In light of this their focus appears to be very much on the use of discretion, scope to waive penalties and a desire to encourage as much participation as possible. This, of course, results in the potential risk that ESOS could become another piece of legislation to which only lip service is paid, resulting in a less than anticipated impact, and increasing the risk of selective culling by the current government as part of the ceaseless “streamlining” of regulations. There is a fine line to be trodden here between supporting compliance efforts and excessive leniency leading to free-riding or wilful disregard.

The enforcement procedures are set to be supported by audits, whereby the EA will be reviewing evidence packs on a “risk basis”, and by quality assurance reviews. These are set to happen in the last quarter of the financial year and will cover about 5% and 1% of the submissions respectively. This of course assumes the EA still has the resource to deliver this and at this level it is likely that up to half of the Lead Assessors may not get audited in any way. This is a particular concern in light of the extensive commoditisation and price-competition that has already occurred, which inevitably leads to a compromise on quality and specificity in the audits undertaken.

Other Considerations for 2016

One of the big discussion areas for next year will be around the next steps in ESOS and the potential amalgamation of the current varied business energy policies and regulations. In particular the current consultation on reforming the business energy efficiency tax landscape gives scope for much simplification, although always presents the risk of compromise in order to “avoid restricting growth”. Furthermore, there is the question on whether the Energy Performance of Buildings Directive has met its aims and what ESOS can do in the wider UK landscape to support that?

Whatever happens next year, it is certain that questions will be asked: what has ESOS delivered in terms of savings, what has been the cost of compliance and where is all the useful data that could have come out of it? The potential of an enhanced ESOS 2.0 should not be downplayed, and if this can be delivered in the context of broader regulatory landscape changes in order to offer a standardised, concise route to compliance then we could find ourselves in a stronger position going forward.

Of course the biggest, and most crucial, impact of all of this effort, i.e. the energy savings themselves, will only come to fruition if the vast majority of the measures identified through the audits and assessments are implemented. Based on our experience to date many companies are focussing on the potential of the savings opportunities that are identified rather than compliance with the regulation itself. This is great to see and really shows the benefit of engaged, proactive building owners and operators. However, my fear is that we have been lucky in our collaborations and that this may not be representative of the ethos within the wider industry. Only time will tell, what is good to see though, is that the EA are not alone in their desire to review the state of play once the dust has settled. UK-GBC are planning an ESOS Showcase in the spring, to look at lessons learnt and the industry response to the regulations, and other industry bodies are running similar events or looking to engage their membership in the delivery of savings across their portfolios.

We’ll keep you posted on further news and views over the next couple of months and if you are still looking to discharge your own compliance then give us and call and we will see what we can do to help.

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