By now most of those companies affected by ESOS will have received approaches from Energy Consultancies like ours (and some not very like ours at all) telling them about the government scheme to which they must comply. So what is it all about?
In simple terms the Energy Savings Opportunities Scheme (ESOS) is the Government’s response to Article 8 of the European Directive on Energy Efficiency. The Article requires all Member States to introduce mandatory regular energy audits for ‘large enterprises’. ESOS requires that audits must be undertaken by the 5th of December this year and must be repeated at least every 4 years thereafter.
The Government’s guiding principles for implementing ESOS are centred on minimising the administrative burden placed on participating customers whilst ensuring that the advice is well-targeted and is focused on identifying significant savings both in terms of energy and cost reduction. The Government states that the scheme should not disadvantage UK businesses by putting undue financial strain on them in the cost to comply and should fit with the other climate change and energy efficiency activities to which organisations are already committed.
So will the guiding principles be met or is it likely to become a money making opportunity for ‘approved’ auditors rather than money saving opportunities for the organisations?
Firstly, the audits will cost companies. Clearly the number of approved auditors is limited since the legislation only came to pass last July and therefore there has been little opportunity to approve as many auditors as may be required through the first 12 months. In addition, this year will require a four year round of audits to be done in one, so my advice is get things arranged sooner rather than later. The worst possible outcome is that you are scratching around in September to meet a December deadline, without time to shop around or give proper consideration to the auditor you are employing and whether they are likely to provide the right advice.
In this respect there are costs and organisations could be forgiven for thinking of it as another compliance activity that is being foisted on them from above. One that requires not just auditor expense, but staff attention and time for its completion. However, there is something good in ESOS, it is not perfect in as much as it has been rushed through and I would prefer the accountancy credentials to be enhanced, but the auditors are qualified and approved and it is an opportunity. In the end energy is a cost for all businesses and the sooner companies wise up and have a long term, medium term and short term strategy for managing the costs and emissions the better they will fair going forward. ESOS audits provide recommendations that have life cycle cost analyses attached to them. This means it offers the chance to see how business can benefit by investing time and or money in carbon reduction activities.
The cost of energy alone is a good argument for reducing consumption and it is the only way to guarantee cost reduction in real terms. Sophisticated buying strategies might help those who are happy to take on some buying risk but the fact of the matter is most companies need to predict costs within fairly small limits and reduce them as much as possible whilst maintaining quality of output. If a company makes widgets and they want those widgets to be great widgets that conform to the same size and shape they will want to make that spec to the minimal cost and sell at best price. The one thing that cannot vary in terms of quality is energy, no matter how it was bought if a machine is plugged into the wall the electricity is the same as the factory next door. It is a cost that can be minimised with no risk to quality. The same may not be quite true for diesel fuel but not far off. This is a discussion I have had with many energy suppliers who wrongly believe that price isn’t as important as brand!
The point is that buying cleverly means that you are not paying more than you should for the energy you are using but in a market where a commodity is becoming scarcer and the demand is growing globally the only way you can reliably reduce energy costs is by using less. In this respect consumption reduction should feature in your financial planning strategy.
Cost may not be the only incentive for participating in the scheme with enthusiasm rather than quiet compliance. More and more consumers and businesses who supply those consumers are concerned with ‘green’ credentials. Failure to comply will obviously result in fines but the reputational risk is likely to be a greater cost to the organisation even though the fines are considerable. The flip side to this is the reduction in carbon emissions and increased activity in terms of energy efficiency is likely to result in positive press and encourage all those customers for whom sustainability is an issue to come flooding to you.
ESOS offers a framework in which to rationally consider where your money is going and your energy is being consumed. If you need any help or advice in participating in the ESOS scheme or if you need to know whether it will affect you then please give us a call.