Discussing a flexible business energy contract
Energy insightsOur guide for businesses preparing for ESOS Phase 3
Policy and regulation

Our guide for businesses preparing for ESOS Phase 3

8 November 2022 | 8 minutes

The Energy Savings Opportunity Scheme (ESOS) is a mandatory legislative requirement for all large organisations operating in the UK and is designed to ensure that major energy users have a clear list of opportunities available to them to reduce their energy usage.

Administered by the Environment Agency, it requires businesses to carry out a comprehensive evaluation of energy usage across buildings, transport, and industrial operations. This process should result in a list of energy-saving opportunities, including a return-on-investment calculation for each identified saving opportunity. The deadline for compliance with the scheme’s third phase, ESOS Phase 3, is Tuesday 5 December 2023.

Dependent on the complexity of your organization, ESOS compliance can take several months to conclude so starting the process early will help to save time and money in potential fines for late submissions. To help you get started, we’ve put together a short guide outlining our advice for business energy users nationwide.

Office workers assessing energy business rates. card

Flexible business energy supply; the basics

An alternative to fixed-price energy contracts, flexible purchasing offers users the opportunity to make multiple buying decisions over the course of their contract. Flexible energy contracts enable businesses to take advantage of wholesale energy market movements, whereas a fixed-price energy contract restricts you to a single trade and price point, agreed when the contract gets signed.

By fixing your price over a number of trades, you can increase the probability of securing a responsibly and conservatively sourced average energy price. You will not be doing a single trade at either the peak or the bottom of the market.

The types of flexible energy products available vary from supplier to supplier. Therefore, finding products that enable you to perform a simple and transparent evaluation of competing offers is key.

While your energy supplier should work in partnership with you to understand your flexible purchasing contract, it’s important to navigate the more intricate details to minimise risk and maximise savings for your business. To help you navigate the subject with confidence, here are five key factors that should be taken into consideration when tendering for a flexible energy contract.

What are the aims and objectives of the programme?

The original ESOS scheme was launched in 2014(*1) as the UK Government’s interpretation of Article 8 (4) of the EU Energy Efficiency Directive. Qualifying organizations are expected to undertake energy assessments every four years. We are now in the third of these four-year cycles (Phase 3). With each new phase, the approach is enhanced to align with the Government’s net-zero targets.

Key areas designed to improve the scheme announced in Phase 3 include:

  • Standardization of reporting to improve the quality and consistency of audits

  • Reducing the amount of energy that can be exempted, from the scheme audit from 10% to 5% – a move that aims to increase accountability

  • Maximizing adoption of energy efficiency opportunities.

  • The inclusion of an energy intensity metric (kWh). This is how much energy an organization uses against an organizational data point i.e., kWh per tonne of product manufactured

  • The creation of a 4-year decarbonization plan which will need to be reported against Phase 4 compliance in 2027

Energy Savings Opportunity Scheme (ESOS) - GOV.UK (www.gov.uk)

What do qualifying businesses need to do?

The ESOS assessment and report process comprises a number of stages, including, but not limited to, representative onsite energy audits, measurement of energy usage, and a costed list of energy-saving opportunities with a related return-on-investment calculation. All ESOS reports need to be completed by a registered ESOS assessor, which could either be a qualified employee or an external partner such as Shell Energy UK.

Working with a trusted partner can effectively streamline the process, helping you to navigate audit requirements and ensuring that your submission fully complies with ESOS guidance. This will help you to maximize the opportunities for energy savings in the future.

When undertaking your Phase 3 assessment, being aware of the following six key areas of focus is important:

1. Calculating your business’ overall energy consumption This involves measuring all energy use across your premises, industrial processes, and fleet. Under ESOS, energy is defined as combustible fuels, heat, renewable energy, electricity, and transport fuel. The assessment should cover a representative sample of your total operations and sites, with results presented in kilowatt-hours.

2. Identifying and auditing areas of major energy consumption This requires you to pinpoint which assets and activities account for at least 95% of your overall energy usage. Once you’ve identified your highest consumption areas, you need to audit them against minimum government requirements. Any energy audits conducted between December 2019 and December 2023 count toward ESOS compliance.

As part of this assessment, you should be able to distinguish between short, medium, and long-term energy reduction opportunities. To take this one step further, businesses are expected to develop a view of potential return on investment vs the investment available to determine which opportunities should be prioritized

3. Create a publishable four-year decarbonization plan As part of the recent changes to ESOS legislation, the audit will act as the catalyst for mapping and implementing energy-saving opportunities across the business. The plans need to outline practical ways to minimize waste and improve energy efficiency – and detail their estimated cost benefits.

External expertise can help you to produce a comprehensive ESOS compliance plan. What’s more, it can help you with innovative and achievable solutions, such as installing EV charging points to support decarbonized transport solutions.

Shell Energy UK’s Energy Solutions team can also work with organizations to investigate finance agreements to implement your published 4-year decarbonization plan, including the installation of renewable generation and energy storage options.

4. Appointing a lead ESOS assessor to review your report A lead ESOS assessor oversees your energy audits and signs off your final ESOS assessment. They must be a professionally registered employee or external consultant. Professional registration is critical and will help to ensure you will achieve the required compliance, as well as potentially place decades of industry experience on your side.

5. Notifying the Environment Agency When your ESOS assessment is complete, you need to submit your notification of compliance to the Environment Agency. It’s important to note that this must be done by the registered ESOS assessor your organization uses.

6. Keeping accurate compliance records As a business, you’re expected to maintain records of how you’ve complied with ESOS in an evidence pack. This should be easily accessible and readily presentable. ESOS reporting is required to be completed every four years. 

Better for business Beyond ESOS compliance, finding ways to become more energy efficient and minimize waste can deliver significant business benefits such as reducing the cost to serve or cost to manufacture, giving greater control over rising energy costs, improving supply security, and delivering improved environmental performance.

For more information on how greater energy efficiency can benefit your business speak to a Shell Energy expert today about energy reduction and energy efficiency. Comply with the Energy Savings Opportunity Scheme (ESOS) - GOV.UK (www.gov.uk) https://www.gov.uk/guidance/energy-savings-opportunity-scheme-esos#approved

Speak to our energy experts

We're here to help