Extract from our magazine contribution - Energy Managers Association July 2020

https://www.theema.org.uk/the-ema-magazine/

ESOS Re-cap

ESOS (Energy Savings Opportunity Scheme) was transposed from the EU Energy Efficiency Directive and mandated into UK legislation in 2012. The intent was to raise energy awareness at 'senior level' and to highlight opportunities that may exist to reduce energy waste.

Organisations that qualify must carry out ESOS assessments every four years. These comprise of reviewing energy used by their buildings, industrial processes and transport, in order to identify cost-effective energy saving measures.

The scheme was originally estimated to achieve £1.6bn net benefits to the UK, with the majority of these being directly felt by businesses as a result of energy savings. The cost to businesses was predicted at £35m (ESOS Impact Assessment DECC0142 June 2014).

ESOS has been incorporated into the UK law and no impact from the Brexit Withdrawal Agreement is anticipated.

SECR Re-cap

On the 1st April 2019, new regulations came into force for public disclosure of carbon reporting for large businesses. This new reporting requirement is known as SECR (Streamlined Energy and Carbon Reporting). On the 1st April 2020 the first company disclosures were made, and by March 2021 all large organisations should have filed their first report.

SECR is designed to be a ‘streamlined’ replacement of the ‘Carbon Reduction Commitment Energy Efficiency Scheme’ (CRCEE).

SECR requires board ‘sign off’ and appears in the annual company reports. Green House Gas (GHG) reporting and underlying energy use must be declared.

So what have we learnt?

Well, a lot has happened since the first ESOS compliance year in 2015:

· Net Zero was passed into legislation.

· The Nuclear power plant at Hinkley C was approved.

· The onset of renewables in the UK manifested in zero dependency on coal for the first time since the industrial revolution.

· Demand Side Response is now a credible tool for Grid balancing.

· And of course, in the spring of 2020, COVID-19 impacted heavily on the global health and finance sectors and negative oil prices were recorded for the first time.

Now that two of the three ESOS compliance years have been completed, has the legislation achieved its ambition to raise awareness amongst businesses? I would say yes, but maybe not in the form of the original thinking. ESOS audits are expensive, and a legal requirement, so these two factors alone will get senior management attention.

ESOS audits are expensive for the following reasons:

· Compliance years only come around every four years, creating a compressed time window for auditors to conduct their evaluations.

· They require detailed and time consuming analysis for all ‘paid for consumption’, some of which will not be directly addressable by the business.

Perhaps a more practical approach would be to stagger the audits over each four year period, whilst adapting the de-minis rule (currently at 10%), so that the lower value analysis is not required.

However, one important by-product of ESOS is the increased adoption of ISO50001 Energy Management Systems as a route to compliance. Complying to this standard forces businesses to ensure that their processes consider energy management and that there is a structure in place for regular review.

A controversial point could be made that the Grid is decarbonising naturally (additionality of renewables), therefore, is energy intensity as big an issue as it was in 2014?

This year we saw negative commodity costs with our exported solar costing us money. So, will negative commodity costs become more prevalent in the future, especially when Hinkley C comes online in around five years time, and Grid balancing becomes even more complex?

There is also the question around how nuclear power manifests in a carbon report. At present, there is no agreed mechanism for reporting on the carbon impact of nuclear generated power.

Net Zero has been billed as one of the most important pieces of legislation for many generations, in an attempt to tackle the climate emergency, with SECR developed as one of the support tools.

With many businesses now commencing SECR, here are some views around early observations:

· SECR does not enforce a detailed breakdown disclosure of carbon usage, eg electricity, gas and refrigerant etc.

· SECR alone will not be an energy reduction ‘driver’, unless some industry benchmarking is applied.

· We've not yet had year-on-year reporting and the visibility of those comparisons may drive change.

· The current stakeholder focus is on greenhouse gas emissions and working towards net zero which has resulted in the sourcing of low-carbon energy becoming a greater priority over energy efficiency.

SECR disclosures are hugely important, but regrettably they are often relegated to the unfashionable end of a voluminous annual report. They appear as tiny summary tables, so the figures are not always meaningful. This is particularly true with the aggregation of fuel consumption into KWh. Nobody uses metrics of KWh equivalents to manage transport fleets. This means that stakeholders are unable to draw any direct comparisons between the data for companies operating in the same sector.

To summarise;

ESOS audits are expensive and a grudge cost for business, but they have served their purpose in raising awareness around energy savings opportunities.

SECR is a positive step forward, but in truth, the summarised detail is lost in the annual report and it may be better if more analysis was provided in the disclosure.

For the next ESOS compliance year of 2023, it would be worth unwrapping the SECR summary for deeper analysis. This may support senior management in understanding the key drivers, as well as assist with the constant drum beat of energy awareness.

Rustin Cooper 11th July 2020