The Energy Savings Opportunity Scheme (ESOS) is a mandatory energy assessment scheme in the UK, requiring qualifying large companies to audit their energy consumption every four years, and identify cost-effective energy-saving measures. Brought in in 2014, ESOS was established to comply with the EU Energy Efficiency Directive which aims to reduce energy usage, lower carbon emissions, and promote sustainability within businesses.
Although large businesses only make up around 1% of all companies in the UK, they still account for 50% of all energy consumption in industrial buildings. This means that they are responsible for substantial greenhouse gas (GHG) emissions into the atmosphere. In order to tackle this, ESOS was implemented to ensure that larger companies comply and commit to both reducing GHG emissions and improving their energy efficiency.
As businesses are required to audit their energy usage every four years under ESOS, the scheme continues to hold businesses accountable when it comes to enhancing their energy performance. These audits must be submitted to the government, ensuring transparency.
Beyond individual compliance, ESOS also plays a significant role in supporting the UK’s broader commitment to environmental sustainability. By driving energy efficiency, it contributes directly to national targets for reducing carbon emissions and aligns with global efforts to combat climate change.
You qualify to comply with ESOS if you are a large business or undertaking. This is defined under the ESOS scheme as businesses or undertakings that either:
It is important to note, however, that it’s not just businesses that may qualify for compliance. Not-for-profit bodies and any other non-public sector undertakings that are large enough to meet the qualification criteria will also need to comply. Public sector organisations are generally exempt.
ESOS requires organisations to follow a structured process to improve energy efficiency. First, they must measure their total energy consumption, covering buildings, industrial processes, and transport. Next, a comprehensive energy audit is conducted to identify cost-effective opportunities for reducing energy usage. The audit highlights practical measures that organizations can implement to improve efficiency and cut costs. Finally, businesses must submit a compliance report to the Environment Agency (EA) by the specified deadline, confirming they have fulfilled all ESOS requirements.
ESOS is structured into four-year phases. They are designed to assist organisations with their audits, ensuring everyone is on the same timescale.
ESOS Phase 1
Compliance deadline: 5th December 2015
The purpose of the first compliance period was to establish a baseline for assessments amongst large enterprises, focusing on promoting the identification of energy-saving opportunities.
Organisations were required to measure their total energy consumption across their buildings, transport and industrial processes. However, the De Minimis Threshold was introduced as part of the ESOS framework, allowing companies to exclude up to 10% of their energy usage from their audits. This is to cover very minor or hard-to-measure sources of energy consumption, such as small offices, remote sites, or less significant transportation activities.
Energy audits had to be overseen by an ESOS Lead Assessor. This could be an external or internal individual, depending on the circumstances. Larger businesses that have their own sustainability teams, typically will have someone in-house who is approved by an ESOS accreditation body such as CIBSE or Energy Institute in the UK. However, most organisations tend to source an external professional to act as their Lead Assessor.
The ESOS Lead Assessor is responsible for reviewing and approving the energy audit results, ensuring the compliance process adheres to ESOS regulations and finally will sign off the compliance report that is submitted to the EA.
ESOS Phase 2
Compliance deadline: 5th December 2019
Phase 2 focused on reinforcing compliance, while encouraging the implementation of the energy-saving measures that were identified in Phase 1. Similar to the first phase, organisations were required to conduct an energy audit, overseen by a certified ESOS Lead Assessor, that covered at least 90% of their total energy consumption.
During this phase, there was an increased emphasis on integrating ESOS compliance with broader sustainability initiatives, such as ISO 50001 certification, to streamline energy management processes.
Companies then had to submit their audit and compliance notification to the EA by the deadline.
ESOS Phase 3
Compliance deadline: 5th June 2024 (extended from 5th December 2023)
Phase 3 saw the introduction of legislative changes, aimed at improving the effectiveness of ESOS. A standardised template for reporting compliance was introduced, providing better consistency and data analysis. Off the back of this, energy audit reports are expected to provide more detailed and actionable recommendations, including cost-benefit analyses and estimated timelines for implementation, further enforcing accountability.
In a movement to bring businesses more in-line with the UK national climate goals, organisations were also encouraged to include an assessment of their potential for achieving net-zero emissions.
The De Minimis Threshold was brought down from a 10% allowance to 5%. This means businesses are responsible for reporting on nearly their entire energy consumption during the ESOS assessments.
Like previous phases, a mandatory compliance report had to be filed by the deadline.
However, new to Phase 3, is the requirement of businesses to submit an Action Plan and two annual progress updates. The data in these ESOS submissions will be made publicly available and the EA has the power to issue financial penalties for non-compliance.
Organisations were required to upload the Action Plan to the MESOS portal by 5th December 2024, although a grace period for accepting submissions has been given until 5th March 2025. This Action Plan needs to outline what initiatives the organisation intends to implement to decrease their energy consumption, when they intend to do them, whether it was identified as a result of their ESOS energy audit, what energy savings are expected to be achieved, and how these estimations were calculated.
Following submission of the Action Plan, organisations must submit an annual progress update against their Action Plan commitments on 5th December 2025 and 5th December 2026. Each progress update covers 12-month period preceding the deadline and must report on both energy saving actions stated into the Action Plan, and any additional actions implemented.
ESOS Phase 4
Compliance deadline: 5th December 2027
ESOS Phase 4 kicked off on 6th December 2023, so the data-gathering work can now be started. The rules for this phase are not yet finalised, but we can expect that more data will be required from organisations than in previous phases and, similar to Phase 3, the Action Plan and Progress Update submissions will be made publicly available.
Furthermore, the Government have announced the addition of a mandatory Net Zero assessment to the Phase 4 audits, to support the UK’s target of reaching Net Zero by 2050.
ESOS provides significant benefits to large organisations by helping them identify energy inefficiencies and reduce costs. Through detailed audits, businesses can uncover practical opportunities to optimise energy use across buildings, transport, and processes. For many organisations, these savings can lead to a noticeable reduction in operational costs, often offsetting the initial expense of compliance.
Beyond financial gains, ESOS supports broader sustainability goals, helping companies align with the UK’s Net-Zero emissions by 2050 commitment. Compliance can enhance a business’s reputation by demonstrating proactive environmental responsibility, which can be valuable for securing investment and retaining environmentally conscious customers. According to research, businesses that embrace energy efficiency can save up to 20% on their energy bills, creating long-term financial and environmental value.
Navigating ESOS compliance can be a complex task for businesses, particularly those with diverse or global operations. One of the primary challenges is collecting and verifying comprehensive energy data from multiple sites, especially when operations span across different systems and processes. Ensuring this data meets the required accuracy standards can be time-consuming and technically demanding.
Another significant hurdle is engaging a qualified ESOS Lead Assessor to oversee audits, as demand often surges near compliance deadlines. Implementing the recommended energy-saving measures can also present challenges, particularly if there are budgetary constraints, a lack of internal expertise, or operational limitations. Small inefficiencies in compliance can lead to missed deadlines or incomplete submissions, increasing the risk of penalties.
Failing to comply with ESOS requirements can result in hefty financial penalties and reputational damage. Organisations that miss compliance deadlines face fines of up to £50,000, plus additional daily penalties of £500 until compliance is achieved, capped at £80,000. Providing false or misleading information can lead to similar fines, creating further financial strain.
Preparing for ESOS compliance begins with understanding the scheme’s requirements and deadlines – you can check these on the Government website. Businesses should first determine their total energy consumption across all operations, including buildings, transport, and industrial processes. Early engagement with a qualified ESOS Lead Assessor is critical to ensuring the audit process is smooth and compliant with regulations.
To streamline the process, organisations can invest in energy management systems, like True, to collect accurate data and monitor energy use in real time. Allocating time and resources to address recommendations from previous phases is also essential, as future compliance may require evidence of progress in implementing energy-saving measures. Starting early helps businesses avoid last-minute rushes, ensuring compliance without unnecessary stress or expense.
You should now be starting the data-gathering to comply with Phase 4 and be working on your Phase 3 Action Plan, due on 5th March.
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