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ESOS Energy Audits – Enforcement looming for non-compliant businesses

  • United Kingdom
  • Environment
  • Energy and infrastructure

06-07-2017

As a reminder, the EU Energy Efficiency Directive requires Member States to introduce requirements for “large undertakings” to carry out an energy audit to identify ways to reduce energy consumption. Here in the UK, it has been implemented through the Energy Savings Opportunity Scheme Regulations 2014 – “ESOS”. A “large undertaking” is one with 250 or more employees or which has a turnover of €50 million and a balance sheet exceeding €43 million.

It is fair to say that there was a slow take-up when it came to meeting the  compliance deadline of 5 December 2015 (the deadline for those not seeking compliance through accreditation to ISO 50001). To reflect this, the Environment Agency (“EA”) extended the compliance deadline and appeared to take a light touch approach to enforcement. This is now changing with the EA focusing on taking enforcement action against those companies who have failed to meet their ESOS obligations.

Latest information suggests that there has been a change in approach at the EA and that a number of enforcement notices will be served on non-compliant companies in the coming months.

Non-compliance with ESOS is a criminal offence and can result in penalties of up to £50,000 for failure to complete an audit. Daily penalties of £500  can also be imposed for a maximum of 80 days which could mean total fines of up to £90,000. A “naming and shaming” approach is also being taken with details of the offending company being published online.

The enforcement options available to the EA include:

  • Enforcement notices - the notice must include the nature of the breach, how to remedy it, and a deadline for compliance; or
  • Civil Penalties - are also available for certain breaches including the failure to provide the EA with compliance information, failure to carry out an energy audit and failure to maintain records.

European operations

ESOS is the UK implementation of Article 8(4) of the Energy Efficiency Directive and so similar schemes are in place across Europe. Companies with any presence in another European State for example, a branch or subsidiary, must consider the Energy Efficiency Directive in all Member States relevant to their business.  A key difficulty for European businesses has been the differing approach to qualification thresholds and how the individual Member States have implemented the energy audit requirement.  Enforcement is undertaken at Member State level and so the penalties and approach of regulators will differ.

Phase II

ESOS is split into compliance periods with Phase II starting on 31 December 2018. Companies who meet the qualification criteria on this date will need to complete an energy audit by 5 December 2019. Even if you did not meet the criteria for Phase I, business growth either organically or through acquisition may mean that when the next compliance date comes round, you will have ESOS obligations.

Energy efficiency, particularly of buildings, continues to be a key theme of both UK and EU law and policy. With the recent announcement that the CRC Energy Efficiency Scheme will be scrapped from 2019 and further consultations expected on the effectiveness of energy efficiency in the near future, businesses will need to monitor developments to ensure compliance and achieve the energy cost savings intended by the regimes.

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