PROPERTY JOURNAL

Energy Savings Opportunity Scheme: Boost or burden?

Recent research has found retailers reluctant to implement the energy savings recommended under ESOS phase one yet it offers a great opportunity to save money across their portfolios

Author: David Oliver

26 October 2019

At least half of the retailers surveyed recently by energy consultancy Inenco have failed to act on the efficiency recommendations they received under the first phase of the government's Energy Savings Opportunity Scheme (ESOS) – meaning they're missing out on significant savings.

ESOS requires more than 10,000 businesses to complete energy efficiency audits across their organisation and submit data on energy consumption, as well as identified recommendations to reduce it, to the Environment Agency every four years. Any organisation with more than 250 employees or an annual turnover of £50m and a balance sheet of £43m must comply with the scheme or face financial penalties.

Undertaking an ESOS assessment requires eligible businesses to measure total energy consumption across buildings, transport and industrial activities. They must also conduct an energy audit across at least 90 per cent of their total consumption and identify opportunities for cost-effective ways to save energy. Crucially, although ESOS identifies energy efficiency opportunities, there is no obligation on businesses to enact any of the measures that have been recommended.

Phase one of the scheme concluded in 2015, but with the phase two deadline just around the corner businesses will once again receive a raft of recommendations to drive down cost and consumption across their savings.

When surveyed, retailers cited a lack of support from their boards as the most significant reason for their inaction thus far, while 44 per cent stated that they do not have the budget to implement the recommendations, and more than ten per cent said energy efficiency is not a priority for their business. However, with the deadline for the second phase now only a few months away, retailers could face fines of up to £50,000 for non-compliance.

"Retailers cited a lack of support from their boards as the most significant reason for their inaction though lack of budget is also a consideration"

Many retailers will have complied with ESOS during the first phase of the scheme, which ended on 5 December 2015. Whether or not they complied on time is another matter, however, as around 2,800 organisations had to inform the Environment Agency that they would be late in reporting compliance in phase one.

In fact, just 16 per cent of businesses were fully compliant on their first submission, so the majority of those who completed their reports on time were required to carry out remedial actions after the deadline. Businesses that were late to submit or required to carry out remedial actions ran the risk of incurring serious penalties, such as the £50,000 fine mentioned above.

The problems businesses experienced during phase one prompted the Environment Agency to extend the deadline for a few weeks. But such leniency is highly unlikely to be repeated in phase two given that the scheme is now well established and businesses have had plenty of time to prepare for compliance. This means that all eligible businesses need to have been working already to comply by conducting energy audits across their organisation and having them signed off by a lead assessor in time to meet the phase two deadline on 5 December

Yet Inenco's research has revealed that 80 per cent of retailers have not yet begun their ESOS phase two audits. This is by far the largest proportion from any industry, and almost 20 per cent higher than the average across businesses from a range of other sectors. Their indifferent approach to compliance may be explained by the fact that 67 per cent of the retailers surveyed said they don't think ESOS phase one was worth it. For these firms, there may seem to be little point in investing any more resources in ESOS compliance than is strictly necessary the second time round.

If retailers take a fresh approach to their ESOS obligations, however, they may think differently. Reporting schemes represent an opportunity for them to save money, thanks to the insight they can gain into their energy usage as they work towards compliance. By concentrating their efforts into deriving as much value from their ESOS obligations as possible, retailers can ensure it is much more of a boost than a burden.

Energy costs for businesses across all sectors have risen by up to 25 per cent in the past four years, putting pressure on many retailers. As these increases are forecast to continue to rise substantially over the coming years, improving energy efficiency will increasingly become a priority for the retail sector. Therefore, the value of ESOS lies in the requirement for retailers to identify a number of energy efficiency measures that they could reasonably implement in their organisation - the only sure way to save costs as prices continue to rise. They must assess the cost-effectiveness of adopting each measure by comparing the reduction in energy consumed or energy spend with the cost of implementation, which should simplify building the business case for improvements.

Inenco analysed data from the customers it supported through ESOS phase one to identify the most common recommendations for retailers. Lighting emerged as top for savings among businesses across all sectors, including retail. Improvements such as retrofitting high-efficiency lighting or installing lighting controls, sensors and timers typically require relatively little upfront investment and take an average of three and a half years to provide a return on investment.

Energy management, which includes measures such as encouraging behavioural change among staff, monitoring energy usage and optimising procurement strategies, was another key area for savings among retailers: on average, investment in energy management is returned in just 18 months. While the third most common recommendation for retailers - installing or upgrading heating, ventilation and air conditioning systems - requires a slightly higher upfront investment, focusing on this can also reduce costs significantly in less than two and a half years.

Retailers don't need to adopt their efficiency recommendations to achieve compliance, but if they simply shelve their ESOS audits without acting on them then they could be missing out on an average 13 per cent saving in energy use each year. The research found that, by implementing recommendations, many retailers could cut costs by five per cent within just three months, and see further significant savings over the financial year.

Savvy retailers will recognise that unless they act on their ESOS recommendations they risk falling behind competitors that are making the most of the scheme in terms of savings and reduced carbon footprint. ESOS audits offer a chance to cut costs and improve their competitiveness.

David Oliver is a lead consultant at Inenco askusaquestion@inenco.com

Related competencies include: Asset management, Sustainability

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