ESOS: Insights, lessons learnt, and decarbonisation

Lee Jukes, Energy Savings Opportunity Scheme (ESOS) Lead Assessor at SLR, shares his insights and takeaways from ESOS Phase 3, what we can expect from Phase 4, and how to leverage site energy audit findings to supercharge decarbonisation efforts.

As consultancies and businesses can both attest, the changes brought in through ESOS Phase 3 represented the biggest shakeup to the scheme since it began over 10 years ago.

The introduction of Action Plans and the need to annually report on progress was arguably the most transformative aspect of Phase 3. Whereas in previous phases, there may have been a temptation to ‘file and forget’ ESOS for another four years, this is no longer an option. The Environment Agency now publishes all Action Plans submitted via the new MESOS portal and mandates annual updates (the next one is due 5 December 2025) which are also made available in the public domain.

The benefits of ESOS and lessons learnt

On the surface, the introduction of Action Plans can seem like yet another piece of red tape that businesses have to navigate. But these changes can be leveraged to engage decision-makers in thinking strategically about energy use – and associated carbon emissions – to better understand the important role that a demand-side energy and carbon strategy has in driving competitiveness. This rings especially true for those operating in energy hungry industries, running tight profit margins, or with customer-led carbon targets.

SLR’s energy and decarbonisation experts saw this first-hand at a mid-sized manufacturer that was rolling out redundancies and amalgamating its sites due to challenging market conditions. In the manufacturer’s initial view, ESOS was seen as another unwelcome expense and a mere compliance exercise that brought no additionality. This immediately changed when SLR presented the key decision-makers with energy data showing the financial cost of leaving air compressors and machining plant on outside of production hours. The savings identified ran into tens of thousands of pounds, not to mention tonnes of carbon emissions. Furthermore, the energy efficiency principles identified were used to better develop the client’s planned new-build site, ensuring appropriate zoning was in place and that machines were better synced with production cycles. This freed up OPEX, buttressing against any further resourcing cuts.

Had the ESOS process been undertaken earlier (this was mid-2024, and the company was already on the wrong side of the compliance deadline), some of the cost cutting exercises undertaken may have been avoidable. This was not however a simple case of wilful neglect on the part of the manufacturer, energy was just not high up on its priority list.

This is perhaps a legacy issue for small or mid-sized manufacturers, as a consequence of the UK’s traditionally low gas and electricity costs. Energy has historically had to compete with other more prominent OPEX line items. But with costs having risen so much in recent years (gas has risen to £0.05/kWh, up 155% between 2020 - 2024, and electricity to £0.25/kWh, up 90%)[1] there is a real need to invest more time and resource in demand-side energy strategies. This includes larger manufacturers, which despite typically keeping a watchful eye on energy management, are still exposed to higher energy price risks and uncertainty.

Considering the co-benefit of cost savings and decarbonisation, there is a strong argument to press ahead now with implementing actions identified from Phase 3, whilst also planning for a new round of site surveys, which can conveniently be used to comply with ESOS Phase 4 at a later date.

ESOS Phase 4: Requirements and opportunities

We are already well into ESOS Phase 4, which officially began 6 December 2023, and we now have clarity from the UK government on what the Phase 4 compliance process will require. Out has gone the proposed requirement to include a net zero assessment, until at least Phase 5 (6 December 2027 onwards). In will come requirements to report against Action Plan commitments, and to explain any gaps between commitment and action - no material changes to Phase 3, then.

Whilst the removal of the planned upgrade to incorporate a more holistic net zero carbon approach within ESOS may be seen by some as a missed opportunity, energy and decarbonisation surveys undertaken now can be used towards Phase 4 compliance (deadline 5 December 2027), leveraged in the meanwhile to progress internal decarbonisation goals.

Taking action

Businesses looking to be more competitive, reduce demand-side energy risks, and develop site-based decarbonisation plans should consider the operational and cost efficiencies available by commissioning ESOS-ready energy and decarbonisation surveys in the here and now. After all, the sooner action is taken, the quicker the very real cost saving benefits of the measures and associated emissions reductions will be realised.

SLR has assisted hundreds of clients through the ESOS compliance process and has managed energy efficiency and decarbonisation projects for clients around the globe. Our expertise spans from energy intensive industry sectors such as cement, metals, chemicals, and mining to retail and commercial sectors.

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References

1. https://www.gov.uk/government/statistical-data-sets/international-industrial-energy-prices