The Energy Savings Opportunity Scheme (ESOS) plays a crucial role in helping businesses improve energy efficiency and reduce carbon emissions. While the scheme primarily targets large organisations, its principles are increasingly relevant for SMEs. With the government pushing for net-zero targets, adopting ESOS practices can help SMEs save costs, enhance operational resilience, and build reputational value. Below is an outline of what ESOS entails and why SMEs should start aligning with its principles now.
What is ESOS?
ESOS is a mandatory scheme requiring organisations to:
- Measure energy consumption
Businesses must calculate their energy use across key areas, including buildings, transport, and industrial processes. This step identifies the areas consuming the most energy and provides a baseline for improvement. - Conduct energy audits
Organisations must carry out audits highlighting inefficiencies and propose actionable energy-saving opportunities. These audits not only improve sustainability but often lead to cost savings that exceed the audit’s cost. - Submit compliance reports
Every four years, organisations must report their energy use and savings opportunities to the Environment Agency, ensuring accountability and alignment with national energy efficiency goals.
For SMEs, voluntarily adopting similar practices can lead to significant benefits, including reduced costs and preparedness for future regulatory changes.
Key deadlines for ESOS Phase 3
ESOS Phase 3 introduces strict compliance requirements and deadlines that serve as important milestones:
- 5 June 2024: Compliance notifications
This was the final deadline for submitting compliance notifications for Phase 3. Organisations missing this date are now at risk of penalties, making it critical to act quickly if you’ve fallen behind. - 5 December 2024: Submission of action plans
Businesses must now submit a detailed action plan outlining the steps they will take to implement energy-saving measures identified during their audits. This plan ensures that recommendations are acted upon rather than left unaddressed. - 5 December 2025 and 5 December 2026: Annual progress updates
Organisations must provide updates on the progress made against their action plan. These updates ensure that energy-saving goals remain on track and measurable improvements are made over time.
By meeting these deadlines, businesses demonstrate their commitment to sustainability and avoid the financial and reputational risks of non-compliance.
What’s new in ESOS Phase 3?
Phase 3 introduces several significant updates to the scheme, focusing on transparency and action:
- Mandatory action plans
Businesses are now required to submit a roadmap for implementing the energy-saving opportunities identified in their audits. This ensures that the audit findings translate into measurable improvements. - Annual progress updates
Organisations must track and report their progress annually, creating a culture of continuous improvement and accountability. - Public disclosure
High-level recommendations from energy audits must now be made public, encouraging transparency and industry-wide accountability. - Stricter penalties
The enforcement framework has been tightened, with higher fines and reputational consequences for non-compliance. This reflects the government’s commitment to achieving its net-zero goals.
These changes move ESOS beyond compliance, pushing organisations to take meaningful, measurable action on energy efficiency.
Fines and penalties for non-compliance
Failing to comply with ESOS can have serious financial and reputational consequences:
- Fixed penalties
Businesses that fail to conduct an energy audit or submit compliance notifications can face fines of up to £50,000. - Daily fines
For continued non-compliance, businesses may be fined £500 per day, up to a maximum of 80 days (£40,000). - Public disclosure of non-compliance
The Environment Agency may publish details of organisations that fail to comply, potentially damaging their reputation and relationships with stakeholders. - Audit inadequacies
Incomplete or insufficient audits can result in additional fines and enforcement actions, further escalating costs and delays.
These penalties highlight the importance of proactive and thorough compliance with ESOS regulations.
Why SMEs should pay attention
Although SMEs are not currently required to comply with ESOS, there are compelling reasons for them to engage with its principles:
- Cost savings
Energy audits often identify inefficiencies that, when addressed, lead to significant reductions in energy bills and operational costs. - Future-proofing
By aligning with ESOS practices now, SMEs can prepare for the possibility of future regulations that may extend similar requirements to smaller organisations. - Reputation enhancement
Demonstrating a commitment to sustainability strengthens relationships with customers, investors, and partners, while positioning your business as a leader in the marketplace. - Competitive advantage
Early adoption of energy efficiency measures helps SMEs stand out in an increasingly sustainability-focused business environment.
Taking these steps now ensures SMEs can adapt quickly to future regulatory and market demands.
Practical steps for SMEs
Even if your SME is not currently subject to ESOS, adopting its principles can drive cost and energy efficiencies:
- Conduct energy assessments
Start by calculating your energy consumption across all major areas of your business. This will highlight inefficiencies and identify quick wins for savings. - Develop a reporting structure
Set up systems to track your energy use and monitor progress against energy reduction goals. Having these systems in place prepares you for potential future regulatory requirements. - Implement energy-saving measures
Focus on quick, cost-effective improvements like upgrading to LED lighting, optimising heating and cooling systems, or improving insulation. These measures deliver immediate savings and long-term benefits. - Engage stakeholders
Educate and involve employees in energy efficiency initiatives, creating a collaborative culture that values sustainability. - Stay informed
Monitor updates to energy regulations and industry trends to anticipate changes and remain ahead of the curve.
These practical steps not only yield immediate cost benefits but also position SMEs for future success.
Next Stages: Where energy reporting is heading
The future of energy reporting, as signalled by ESOS Phase 3, points to a broader and more integrated approach:
- Expansion to SMEs
It’s likely that future iterations of ESOS or similar schemes will include SMEs, particularly those with significant energy use. Preparing now ensures readiness for potential changes. - Integrated sustainability metrics
Energy reporting will likely be integrated with other ESG metrics, such as carbon emissions and social value, to provide a holistic view of sustainability performance. - Digital tools for reporting
Businesses will increasingly rely on technology for real-time energy monitoring, data analysis, and streamlined reporting processes. - Alignment with net-zero goals
Organisations will be expected to align their energy efficiency strategies with broader net-zero commitments, demonstrating their contribution to national and global sustainability targets.
By adopting these practices now, SMEs can stay ahead of regulatory trends and establish themselves as sustainability leaders.
A call to action for SMEs
Rising energy costs and evolving sustainability expectations make energy efficiency a critical priority for SMEs. By adopting ESOS principles, businesses can reduce costs, build resilience, and position themselves as leaders in sustainability.
Get started today: Whether you’re interested in conducting an energy audit, developing a sustainability strategy, or preparing for future regulations, we can help. Contact us to explore how your SME can benefit from adopting ESOS principles and achieving energy efficiency goals.